At the end of the month, the state of Missouri will end its economic cease-fire and resume trying to poach employers and jobs from Kansas using special tax and economic incentives. A study by Kansas City’s Hall Foundation found the dueling incentives had cost the two states a total of $217 million in the shuffle of jobs back and forth across the state line.
The economic “border wars” are a big deal on the western side of the state. Business leaders negotiated a truce in 2014, but only Missouri was willing to sign on. Now Missouri’s agreement is set to expire on Aug. 28. It is expiring because Kansas never agreed to the cease-fire and made a counteroffer that Missouri rejected as inadequate.
Why should anyone on this side of the state care? Because Missouri’s principal economic incentive tool, the Missouri Works program, allows employers to keep 95 percent of the state’s withholding taxes that otherwise go to fund education, social services and other basic state obligations.
A study done by Kansas City’s conservative Kauffman Foundation found that in 2013-14, 89 percent of the Missouri Works incentive dollars went to large corporations. The better way to promote job growth is to encourage small companies, the foundation says.
The folly of state tax giveaways to entice companies into moving or staying is something that both the left and the right agree on. The left calls such incentives “corporate welfare.” The right says the free market, not government, should determine which companies succeed.
But politicians like them. State politicians can brag about their state’s economic climate. Local politicians like the jobs that are brought to town. Ford Motor Co. took advantage of $150 million in state incentives in 2010 and kept its Kansas City-area assembly plant open. That was a big hit with its unions. For 10 years, those Ford workers will basically pay their state income taxes directly to the company.
The Hall Foundation, funded by the family that owns Hallmark Cards, found that Missouri had paid $103 million to lure nearly 4,000 jobs from the Kansas side of metro Kansas City. Meanwhile, 5,700 jobs left Missouri for Kansas in return for $159 million in incentives. The net job gain to metro Kansas City was zero.
After Missouri agreed to the cease-fire in 2014, Kansas Gov. Sam Brownback — facing economic and budgetary woes after eliminating the state income tax — never followed through. Last spring he offered a modified version, but the Missouri Legislature rejected it.
The gloves can come off again soon, but since Missouri followed Kansas’ lead and cut its state income tax, neither state can really afford these ineffectual incentive policies any more. Our guess is that it won’t stop them from trying.