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How Missouri can join the Oklahoma Land Rush

Oklahoma joined the ranks of Arizona and Ohio on February 7th 2011, when legislation was filed in the Oklahoma House of Representative proposing eliminating the state’s income tax over a period of five years.

Bordering prosperous, business friendly Texas, Oklahoma has found itself lagging behind the Lone Star state in economic performance. According to the US Census, Oklahoma grew by 6.85% over the preceding 10 years, while Texas managed 18.85% growth. As a result, Texas gained 4 electoral seats for a total of 38 while Oklahoma only managed to hold on to its 7 votes.

There is little doubt that Texas is outperforming Oklahoma in terms of job creation, economic growth and attracting businesses to relocate to the state. One factor that makes Texas more competitive is its lack of personal income tax, relative to Oklahoma’s top rate of 5.5%. Oklahoma not only taxes individuals 5.5% of their income, but does this on every dollar earned above $8,700, suggesting that almost everyone working pays a marginal rate of 5.5%. While every state must collect taxes to provide the requisite services its citizens require, every state uses a different mix of income, sales and property taxes. The evidence suggests that states with no income tax, on average, grow significantly faster than those that impose an income tax (see Table 1 for details).

Oklahoma’s economic underperformance has been so severe that legislators have taken notice and are attempting to make changes by eliminating the state’s income tax. Legislation was introduced last week in the Oklahoma House of Representatives (HB1543) proposing eliminating the personal income tax over a period of 5 years. Should Oklahoma eliminate the tax, the state would be immediately better off with every Oklahoman receiving a 5.5% raise on their after tax income. Extra income in the pocket of state citizens means extra spending power, extra jobs and more personal freedom.

Closer to home, Tennessee is the only state neighboring Missouri without an income tax. Is it surprising that it is the fastest growing border state to Missouri? Tennessee grew 10.67% over the last 10 years; while the next best performer, Arkansas, achieved 8.08% growth. With Oklahoma attempting to eliminate its income tax, shouldn’t Missouri think about joining the race? The experience of Texas and Tennessee shows clearly how personal empowerment of individuals and no income taxes can lead to a better economy. Eliminating the personal income tax in Missouri would help attract business to Missouri from neighboring states, especially those that appear hell-bent on raising taxes and killing jobs such as Illinois, which recently raised its personal income tax. Within days, the CEO of Jimmy John’s announced that he will be moving the company’s headquarters, currently located in Champaign, IL, to a more business-friendly state. If Missouri had no income tax, the choice for Jimmy John’s new headquarters could easily be the Show-Me State.

States today compete to attract business and residents just as companies fight to attract customers. A more attractive tax environment, one with no personal income taxes, would benefit Missouri by helping us grow faster than neighboring states. The role of government is to create the best possible environment for economic growth, personal empowerment and the pursuit of happiness; evidence from other states shows that taxing income results in worse economic performance, while states with no income tax perform better. The 2010 US Census shows that Missouri will lose one congressional seat and will be the only state in the region to do so. It’s time that Missouri seriously considered eliminating its personal income tax. The results of the Census show that our economic policies over the last 10 years have not worked to attract business to Missouri. This has to change. It is time for big ideas.

More News about Oklahoma House Bill 1543

Table 1 – States with no personal income tax

Territory 2000 Population 2009 Population Population Growth Faster (Slower) than United States Average
Alaska 626,932 698,473 11.41% 2.32%
Florida 15,982,378 18,537,969 15.99% 6.90%
Nevada 1,998,257 2,643,085 32.27% 23.18%
New Hampshire 1,235,786 1,324,575 7.18% (1.91%)
South Dakota 754,844 812,383 7.62% (1.47%)
Tennessee 5,689,283 6,296,254 10.67% 1.58%
Texas 20,851,820 24,782,302 18.85% 9.76%
Washington 5,894,121 6,664,195 13.07% 3.97%
Wyoming 493,782 544,270 10.22% 1.13%
United States 281,421,906 307,006,550 9.09%
No-income-tax state average 14.37% 5.28%
No-income-tax state weighted-average 16.40% 7.30%
Missouri 5,595,211 5,987,580 7.01% (2.08%)