|Recently the Committee on Tax Reform of the Missouri House of Representatives voted 7-5 to pass HJR 36, a constitutional amendment introduced by Rep. Ed Emery (R-126) which proposes dramatic changes to the state’s revenue structure by eliminating the individual and corporate income taxes and replacing them with a greatly expanded sales tax, including, as Emery claims, the increase of the basic sales tax rate from 3 to 5.11 percent.
However, many groups researching tax issues disagree. They say that if passed by the Missouri Senate and then approved by voters, this shift would create a significant tax increase for low and middle income Missourians, would burden Missouri’s economy, and only benefit the wealthiest one percent of Missourians.
EMERY ON FAIR TAX (in an e-mail to the JI last March): I have been investigating this for a year or two now; not rigorously, but listening and reading and learning all I can. I can't find anything wrong with it. It is the fairest tax approach I have been able to imagine.
Kelly Davis, the Midwest director of the Institute on Taxation and Economic Policy (ITEP), claims that "Missourians in the middle 20% of the income distribution with an average income of $37,000 would see an average tax increase of $2,036. By contrast, the top 1 percent of Missourians with average incomes over $1 million would see an average tax cut of over $22,500."
ITEP believes that eliminating the individual and corporate income taxes in the state would reduce state general revenue by 73 percent, or approximately $5.8 billion. According to ITEP and representatives of the Missouri Budget Project the proposal would need to increase both the sales tax rate and the sales tax base dramatically, not just 5.11 percent, to make up for the lost revenue.
Without the increase, the bill would reduce state funding, resulting in cuts to services of 18.75 percent. This is a claim supported by the Missouri Budget Project.
Key findings of instituting a not-so fair tax in Missouri, according to its critics:
- The Sales Tax Rate in Missouri could Increase to close to 9 percent;
- Missouri Sales Tax would be applied to all services including medical care, nursing homes, child care and school tuition
- Consumer purchasing would decrease, particularly in border areas of the state, impacting Missouri retailers and other businesses
- The measure would place Missouri at risk for a significant reduction in state revenue and cut to state services.
The Missouri Budget Project also claims that taxing all services would place a particular burden on young families and Missouri’s seniors. For example, the group says that the average family of four, with two working parents and two children (one school age and one infant) would pay at least $371 per year in additional tax just for child care. This amount is based on the average cost of child care in Missouri as documented by the Missouri Economic Research and Information Center.
Another example they give is the impact of taxing nursing home care for seniors. According to the Missouri Department of Health & Senior Services, the average cost for a nursing home stay range from $24,000 per year for a residential care facility to $64,000 per year for a skilled nursing facility and that under HJR 36, Missouri seniors who require nursing home services would need to pay at minimum $1,226 - $3,270 in new taxes.
The increased sales tax rate in HJR 36 applies to all purchases, including items that are currently not taxed such as prescription drugs and in-home medical or personal care, tutoring, home repairs, insurance, auto repair, funerals, transportation, tuition, health clubs, entertainment, and various dues. As HJR 36 is applied to the range of services and purchasing that Missourians need in order to meet their basic needs, the cost of living in Missouri will increase dramatically, the Missouri Budget Project warns. They point out that the increased tax would make Missouri retailers less competitive than surrounding states and that in some border areas of the state, Missourians may cross state lines for purchases to a state with a lower tax rate.
Comparing Missouri with non-income tax states
Some proponents of HJR 36 base their support on several states that are able to operate without an individual income tax. The critics allege that the states that do not levy a state income tax rely heavily on taxing options that are either not available in Missouri or ones that would be difficult to levy: Alaska and Wyoming generate well over half of their state revenue from severance taxes on oil and coal; Florida utilizes high sales taxes on tourists; Nevada utilizes high sales and gaming taxes on tourists; and Texas combines severance tax on oil, high sales tax along with the tourist taxes.
The States of Washington and South Dakota rely on relatively high sales and property taxes. Absent severance and/or “tourist” related taxes, Missouri has few desirable options to reduce much less eliminate the individual income tax, the Missouri Budget Report concludes.