One function of government is to provide goods and services that citizens need and want but which are not provided effectively by the private sector (police, courts, roads, national economic security, etc). In order to provide these services, the government must impose taxes to pay for them.
Judith Stallmann, a University of Missouri professor at the Truman School of Public Affairs and a professor of community development extension, agricultural and applied economics and rural sociology in the College of Agriculture, Food, and Natural Resources, said that state governments should treat tax policy as they would an investment portfolio.
When considering tax policy, Stallmann said governments should take into account the administrative simplicity of the policy, its ability to compete with other states for businesses, its efficiency, its revenue adequacy, and its equity, or fairness to tax payers.
“A portfolio of taxes, similar to a portfolio of investments, allows the balancing of the negative aspect of one tax with positive aspects of another tax,” Stallmann said. “Consequently, selecting taxes and designing a tax system for state and local revenues is a process of trade-off and compromise.”
In a white paper recently submitted to the Missouri Department of Economic Development, Stallmann and co-author Thomas Johnson, the Frank Miller Professor of Agricultural and Applied Economics at CAFNR and a professor in the Truman School of Public Affairs, gave several recommendations to Missouri state officials. Stallmann and Johnson believe Missouri can strengthen its economic position by:
- Broadening the sales tax base to include services and internet sales;
- Reducing exemptions, deductions, credits and incentives in corporate and personal income taxes;
- Minimizing the administrative costs for citizens and the state by simplifying compliance procedures;
- Increasing relative dependence on land taxes as well as excise and pollution taxes;
- Increasing reliance on progressive taxes, such as the income tax, to assure that the tax system is not regressive.
“Of particular concern at the moment is maintaining an adequate and stable revenue stream for state government,” Stallmann said. “Missouri ranks among the lowest states in overall taxes. It also ranks low on individual taxes. If tax rates alone determined the rate of economic development, Missouri would have one of the most robust economies in the country, but the state’s low tax rate has both pros and cons.”
A copy of Stallmann’s full report to the Missouri Department of Economic Development, visit: http://ipp.missouri.edu/files/ipp/attachments/14-2011_tax_policy_stallmann_johnson.pdf