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Show-Me Institute Study Examines Economic Impact of Missouri’s Individual Income Tax

December 5th, 2007 by mopns · No Comments

A new policy study from the Show-Me Institute asks, “Should Missouri Eliminate the Individual Income Tax?” The study compares Missouri’s relatively stagnant economy with states that do not levy individual income taxes, and concludes that altering or eliminating Missouri’s individual income tax could well improve the state’s economic condition.

The study’s author, R.W. Hafer — chair of the Department of Economics and Finance at Southern Illinois University Edwardsville — shows how income taxes distort the labor market, increasing the wages that firms must offer to attract workers and thereby decreasing the total amount of labor that those firms hire. Hafer notes that numerous empirical studies support this theoretical insight, showing how states that have lower tax burdens have relatively better economic track records.

Hafer points out, however, that eliminating the individual income tax would not necessarily lead to a reduction in government services. States without income taxes tend to have higher sales and property tax rates, or to cover a broader base of goods and services. These types of taxes can make up for lost government revenue while doing less economic damage than an income tax.

Click here to read the entire study.

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