Tax Policy Gives TN Edge of MO

August 5, 2009 3:49AM

SAINT LOUIS — A report co-released today by the Show-Me Institute and the Tennessee Center for Policy Research finds that Tennessee has surpassed Missouri in both population and gross domestic product, and contends that a friendlier tax environment may be the reason for such growth. The case study, “All Caught Up: How Tax Policy May Have Allowed Tennessee to Outgrow Missouri,” examines Missouri’s use of a state income tax, as compared to Tennessee’s dependence on a sales tax with no income tax in place. Read More“Tennessee continues to consider adding an income tax and Missouri is talking about getting rid of theirs, so we thought it would be useful to look at the pace of each state’s economic development under their current tax systems,” said Jenifer Zeigler Roland, director of publications for the Show-Me Institute and coauthor of the case study. “Given the experiences of these two similar states, it seems that the best policy is to let workers keep the money they’ve earned and decide for themselves how to spend it.” Although only three states have a higher sales tax rate, Tennessee still ranks in the top 10 for economic outlook. This may indicate that Tennessee’s policy of not taxing wages confers a competitive advantage over states that utilize an income tax. In fact, the study reports that in 2008, Missourians lost an average of 9.2 percent of their income to state and local taxes, while Tennesseans only lost an average of 8.3 percent of their income to state and local taxes. That is evidence worth considering for Missouri, according to Shaka Mitchell, executive vice president of the Tennessee Center for Policy Research. “This study suggests that well-crafted tax policy can positively impact the prosperity of a state,” he said. “While not perfect, I’m pleased that Tennessee sets an example of growth and tax policy success for Missouri and other states to follow.” Missouri’s legislature considered a measure to abolish the state’s income tax during the last session, but attempts to impose an income tax in Tennessee have been a regular subject of political conversation. “Even if Tennesseans decided that an income tax was a good idea, the state’s courts have consistently ruled that the Tennessee Constitution prohibits the General Assembly from implementing a tax on citizens’ wages,” said Dave Roland, an attorney and policy analyst with the Show-Me Institute and coauthor of the study. The paper affirms that the tax system is not the sole reason for the differences in growth rates in both states, but the trends it discusses suggest that if neither state changes its tax system, Tennessee will likely continue to outpace Missouri in terms of population growth and prosperity.