Joshua Meyer Testimony in Missouri: Income Tax Elimination
ALEC Tax & Fiscal Policy Task Force Director Joshua Meyer testified before the Missouri Senate Economic and Workforce Development committee on HJR 173 and its potential impact on Missouri’s economic outlook if it were to eliminate its income tax.
You can read his testimony below:
Dear Chairman Brown, Vice Chairman Gregory, and Members of the Missouri Senate Committee on Economic and Workforce Development,
My name is Joshua Meyer, and I serve as Director of the Tax and Fiscal Policy Task Force at the American Legislative Exchange Council (ALEC). I appreciate the opportunity to share ALEC’s nonpartisan research and analysis as you consider putting elimination of the state income tax before Missouri voters, as proposed under HJR 173/174.
For 18 years, ALEC has published the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. This report begins with the observation that the states are in a competitive policy environment—competing for businesses, for capital, for workers, and ultimately for growth. From this, the authors of Rich States, Poor States identify 15 policy variables most important to state economic competitiveness in this environment. These are levers, under the control of state leaders. Tax rates obviously play a prominent rule in the report, though other policies such as right-to-work and liability system costs are included.
Over the 18 editions of the report, Missouri has, with some consistency, remained in the 20s. The most notable exceptions were two years in the top 10 following the elimination of the business franchise tax. Missouri returned to the 20s afterwards because, like many other states over the course of these reports, it fell behind by standing still. That elimination increased the state’s competitiveness but was insufficient to do so over the long-term. Other states have been making historic strides in pro-growth policy in recent years; 26—including Missouri—have cut personal income tax rates since 2021.
The Show Me State has improved from a low of 31st in 2023 to 24th in the most recent edition. A tool on richstatespoorstates.org allows anyone to simulate hypothetical policy changes, estimating their effect on Economic Outlook. Making some basic assumptions, we estimate that upon full elimination of the state income tax—as would occur under HJR 173/174—all else being equal—Missouri would rank in the top-10.
Missouri is not the only state exploring elimination of the state income tax, though the constitutional approach before the Committee today is unique. Kentucky enacted a plan to eliminate its income tax into statute in 2022 and has made several rate reductions pursuant to the plan. The triggers have worked effectively. Kentucky leaders elected not to make a rate reduction for 2025 when triggers were not met but then elected to make the 2026 reduction when the triggers were met for it. Mississippi and Oklahoma also each passed plans last year to eliminate their personal income taxes.
The trigger mechanism proposed in HJR 173/174 is based on revenue and thus most similar to that used in Oklahoma. Kentucky and Mississippi used a slightly different approach based on appropriations, which leaves more room for spending decisions to impede or accelerate the cuts.
The stated goal of eliminating Missouri’s personal income tax by 2032 is the most aggressive of these plans. Assuming all triggers are met and no further action to reduce rates is taken, Kentucky’s income tax could be eliminated by 2034, Mississippi’s by 2040, and Oklahoma’s by 2044. Though it is not clear when exactly the plan in HJR 173/174 would lead to elimination if left alone, it allows for a flexible timeframe and would necessitate further legislative action.
I am happy to answer any questions members of this committee may have. Thank you for your time today and your attention to this important issue.