Missouri voters will decide whether to give state lawmakers broad new authority to expand sales taxes and eventually eliminate the state’s income tax, a proposal supporters say would boost economic growth but critics warn could shift costs onto working families and seniors.
During the State of the State address in January, Gov. Mike Kehoe proposed phasing out the state’s income tax and expanding sales taxes. On Tuesday, the Republican-led House voted 95-59 to approve the proposed constitutional amendment. Because the House adopted changes made by the Senate last week, the resolution now goes to Missouri voters.
If approved, the amendment would remove a constitutional restriction that limits the state’s ability to expand sales taxes to services and transactions not taxed as of Jan. 1, 2015, giving lawmakers the ability to broaden what is taxed. Future legislatures would determine which goods and services to tax, with income tax reductions expected to occur over time as revenue grows.
Supporters say eliminating the income tax would increase economic competitiveness, attract businesses and residents, increase workers’ take-home pay, modernize the tax system and limit state spending.
Rep. John Martin, a Republican from Columbia, said the proposal represents a rare opportunity.
“We have a historic opportunity to help Missourians to have more take-home pay, and they can choose to spend that,” he said.
The idea may appeal to many taxpayers, said Sarah Narkiewicz, director of the Low-Income Taxpayer Clinic at Washington University.
“Most people would welcome keeping more of their income rather than paying it in taxes. Additionally, eliminating individual income tax might attract more residents and businesses to Missouri, potentially increasing state revenue through other means.”
But Narkiewicz warned the tradeoffs may not be immediately clear.
“State taxes fund essential services that residents often take for granted,” she said, citing funding for education, health care, transportation and public safety.
Missouri currently imposes a 3% sales tax for general revenue, with each additional 1% generating about $1.1 billion. Experts say replacing income tax revenue could require adding 8 percentage points or more to the current rate — potentially tripling the state’s base sales tax — depending on how broadly the tax base is expanded.
During debate, Minority Leader Ashley Aune, a Democrat from Kansas City, called the proposal the largest sales tax increase in state history and warned it would disproportionately affect seniors, many of whom do not pay income tax.
“We have done a kindness to our seniors over the years by eliminating their income tax burden on Social Security,” Aune said. “Why did we bother doing that if we are going to make them pay more in sales taxes on the other end?”
The nonpartisan Missouri Budget Project called the proposal “regressive,” arguing that shifting from income taxes to sales taxes would increase costs for lower- and middle-income residents while reducing state revenue.
Former St. Louis Comptroller Virvus Jones was more blunt.
“It’s a process of starving the beast,” Jones said. “They’re going to collect less money so they’re going to reduce the money spent on social services and safety net stuff. They’re going to cut those programs!”
“It’s basically going to put the larger burden of taxes on working class, poor people,” Jones alleged.
Supporters dispute that characterization. Rep. Bishop Davidson, a Republican who sponsored the proposal, said the plan is designed to return revenue growth to taxpayers.
“The only thing it does is utilize growth to reduce the income tax over time,” Davidson said. “It gives the growth back to the people and allows us to hasten that process.”
Rep. Mark Matthiesen, a Republican from O’Fallon, said replacing income tax revenue would require identifying more than $300 billion in currently untaxed transactions — a measure of how much economic activity could need to be brought under the sales tax to offset lost revenue.
The potential reach of an expanded sales tax worries some small business owners.
Ali Harper, owner of A&H Moving, Hauling and Towing Services, said taxing more services could hurt both businesses and customers.
“It’s hard enough out here,” Harper stressed. “I’m already affected by higher gas prices … an increase like that is going to mess with my revenues. To offset revenues, they’re going to raise taxes on my customers which will wind up hurting my business.”
Missouri is one of the majority of states that still rely on income taxes. The nine states without one often make up revenue through tourism or natural resource extraction.
“Missouri does not fit naturally into any of these categories,” Narkiewicz said.
Jones dismissed the idea that lower taxes alone would attract business investment.
“Think about it; the states with the lowest taxes have the worst social conditions and the worst of everything else. Businesses don’t locate to those states because they don’t have enough money to provide basic services or there’s so much disparity in terms of how those services are provided,” he said.
“It’s all just crazy talk.”
Sylvester Brown Jr. is the Deaconess Foundation Community Advocacy Fellow.