Consider two teams on divergent paths — the Missouri Tigers and the Missouri Widgets.
Clearly, the football Tigers are on the rise — coming off seven consecutive winning seasons. This fall, they will join the “best football conference on the planet” — namely, the SEC, or Southeastern Conference, which has produced the last six national college champions.
Just as clearly, the other team — to which all of us who live and work in Missouri belong — is in a state of serious and prolonged decline.
The Widgets compete in what we will call the Great Midwestern Conference, consisting of Missouri and the eight neighboring states. As recently as 1995, Missouri ranked third in this conference in per capita income — the best measure of relative prosperity. Now we are down in fifth place — behind Illinois, Kansas, Nebraska, and Iowa. On current trends we are in danger of falling into last place — behind Oklahoma, Tennessee, Kentucky, and Arkansas.
Over the 14-year period from 1997 through 2010, Missouri was the slowest-growing state in the region. It ranked dead last in GDP growth (i.e., growth in annual output of goods and services). It also lagged behind all but one other Midwestern state (Illinois) in growth of employment.
In reality, the Great Midwestern Conference is not all that great in terms of economic performance. Between 1997 and 2010, the growth in output for the U.S. economy as a whole was 33 percent. None of the nine Midwestern states matched or exceeded that, but three (Nebraska, Iowa, and Oklahoma) came close at 32 percent, and another three were not far off the pace, with Arkansas and Kansas both at 29 percent and Tennessee at 25 percent.
The three obvious laggards within the conference in terms of their overall growth over the 14 years were Illinois at 19 percent, Kentucky at 17 percent, and Missouri at 14 percent. How bad was Missouri’s performance from a national perspective? The state ranked 48th out of the 50 states in GDP growth, ahead of only Ohio and Michigan, down at 7 and 1 percent, respectively.
What ails Missouri?
In our judgment, two factors merit close attention and study.
First is the continued allegiance of Missouri lawmakers to a faulty set of policy prescriptions in trying to pick economic winners and losers. Second is the failure to implement serious tax reforms to improve Missouri’s competitiveness.
Show-Me Institute policy analysts and scholars have documented numerous instances of how the generous (or, to be more accurate, the wasteful) use of state tax credits for targeted commercial developments has failed to produce promised results.
In recent years, Missouri has issued hundreds of millions of dollars in new tax credits on an annual basis, and the bill for those tax credits has grown alarmingly. In fiscal year 2013, Missouri expects state tax credit redemptions to cost the state roughly $866 million in lost revenues. That is more money than the state spends from general revenues on prisons and public safety.
With the money that would be saved from eliminating costly and unproductive state tax credits, our state could reduce or eliminate the corporate income tax — benefitting not just a few favored businesses, but companies across the state, along with others that might want to move here.
All the evidence points to the conclusion that businesses migrate to (and continue to invest and flourish within) locations that do not waste taxpayer money in trying to pick winners and losers… and concentrate instead on maintaining a favorable environment for all businesses.