Gov. Mike Kehoe’s recent announcement that he wants to eliminate Missouri’s income tax causes me to paraphrase this old poem, used often by the late Sen. Russell Long, longtime chair (1966-1981) of the Senate Finance Committee, when considering proposals for whatever was presented as “tax reform:”
Governor, governor:
don’t tax me,
tax the man behind the tree.
No matter what the fate of the state income tax, the real questions are: (1) for what purposes does the state take our money? (2) How much money does government need? and (3) who’s going to pay?
The income tax, like all taxes, starts out with a bad rap.
The more money you make, the more income tax you pay. An income tax can be progressive — before that word came to mean “bad” to some people and “good” to others — which means that the higher your income goes, the higher the percentage the government takes. Missouri’s income tax can hardly be called progressive because it only goes up from 2% to about 4.8% — it used to be 6% but in recent years, legislators in charge of the rate could not resist the urge to “cut” taxes even if the cut was modest and triggered by some supposedly good news about tax collections.
The brutal unforgiving fact is that government costs money, and it’s got to come from someone.
If you cannot find the man behind the tree… well, you can’t tax the tree.
Somebody’s got to pay for public education, roads, bridges, public transportation, public health, health care, mental health, courts, law enforcement, state parks, recreation areas, protection of the natural environment, and of course for the National Guard we need for natural and other disasters.
The public goods that we buy collectively through our governments are what we need to help us make and keep our civilization. Civilization ain’t cheap. A society can go cheap, but going cheap costs a lot. Just look around. You may see some things that inspire you but a lot of other things that really need improvement.
The quality of our state’s civilization is what attracts people to move here and keeps young people from moving away. St. Louis, for instance, has public institutions like the zoo, history museum, botanical garden, science center, art museum, public libraries, well-maintained public parks that are free, all supported by taxes and augmented by charitable contributions.
Supreme Court Justice Oliver Wendell Holmes Jr. said: “Taxes are what we pay for civilized society….”
How much money does the government need to nurture a civilized society? Actually, it’s “governments” plural.
School districts are governments that get about half of their budgets from the state, and most of the rest in local property taxes. Some school districts are being driven by rising costs to four-day weeks, leading us to ask President George W. Bush’s famous question: “Is our children learning?”
Sewer districts, water districts, fire districts, library districts, mosquito control districts, counties, municipalities, all need money. State universities and community colleges need money. Unfortunately, over the past 50 years, an increasing amount of universities’ money comes from their customers because students and families can borrow money from federal student loan programs and other more predatory lenders, so that state budget cutters have dramatically cut the portion of tuition costs borne by state taxpayers.
The state’s major source of revenue is the income tax. Local governments, school districts, and other special districts “own” the property tax; and municipalities and counties “own” the sales tax, with a few exceptions.
Real estate taxes are unpopular because they are based on the rates set locally and the valuations of real property are set by assessors, who in most counties are elected. Disparities exist. The loss of your job does not affect how much property tax you pay; the same is true for the annoying annual personal property tax.
The sales tax is popular, at least in comparison with income taxes, among the rich and the near-rich — those who don’t spend all their money on necessities. The sales tax only taxes certain things you buy, mostly goods but not services.
Missouri’s “modern” sales tax was enacted when the economy was largely goods. Services, by and large, are not taxed. A few states exempt food and clothing: not Missouri. When I was young, I heard some radical push back against pay toilets in public buildings on the grounds that there are some things even in a capitalist society that government should not tax. My memory is that radical politics did not kill the pay toilets (“Here I sit, brokenhearted, paid the nickel but only farted”). There was a time not long ago when we were a kinder, gentler nation and that’s why public toilets are mostly free.
Now that we are mainly in a service economy, the current sales tax does not cover enough. If the state broadens the base of what is taxed as sales — as a way of making up for ditching the income tax — then the burden of taxation will fall disproportionately on those who need to spend all or most of their money on necessities.
In the 1970s U.S. Rep. Al Ullman, a Democrat and committee chair from Oregon, proposed a “value-added tax,” a consumption tax that is added to a product at each stage of production or distribution.
The value-added tax would have replaced some or all the federal income tax. It is used in more than 160 countries including the European Union, Canada, and the United Kingdom. At Rep. Ullman’s next election his constituents voted that he should retire from public service. Sadly, for him, there was no man behind the tree.
I can recall no serious discussion of the value-added tax after Ullman’s defeat.
But fear not, Our President says TARIFFS are the answer — “billions and billions” pouring in from foreign countries — and of course he says that Americans don’t pay them. Maybe he’s found the man behind the tree. (Somewhere, I hope, Sen. Russell Long and his populist daddy Huey Long are smiling.)
Unfortunately, Missouri, unlike the federal government, has no right to levy tariffs. So how do the governor and his legislative allies eliminate the state income tax? Eliminating the tax is easy; replacing it is hard.
If our Governor and his allies eliminate the income tax, the replacements are likely to benefit their big donors — their donors’ economic elevator continues to go up, but their working-class voters get the shaft — regressive taxes.
Watch for this: One approach is a “phase-in,” meaning that our leaders will do “tax reform” over a period of years, so their voters presumably won’t notice, unless Democrats (and a few nouveau populist Republicans) find their voices. But if people fail to notice, it will be like the old “boiling frog” story — if you put a frog into boiling water, he will immediately jump out, but if you put the frog in cool water and gradually turn up the heat he will stay in the pot until he’s cooked.
Bad ideas are bad ideas even when they are phased in. The challenge for our leaders will be to find good and equitable replacements for the income tax, if they exist. Voters who pay attention, I hope, will not fall for any proposal that starts with the prefix “re” — as in reform, reorganize, reallocate, etc.
Especially as concerns taxation, if we go for “reform” that is “phased in,” we may get cooked.
Mike Wolff is a lawyer, former judge and chief justice of the Supreme Court of Missouri, professor emeritus and former dean of Saint Louis University School of Law and a former reporter.