JEFFERSON CITY—A handful of Missouri House Democrats joined Republicans in passing a measure early Thursday afternoon that could drastically change the way Missourians pay taxes. If House Joint Resolution 36 passes through the state Senate, the resolution would fall to the feet of the voting public as a constitutional amendment in November 2010.
The measure passed 90-65.
If it also passes in the Senate, the bill would allow voters to decide whether Missouri should abolish its state income and corporate taxes in exchange for a .8 percent increase — from 4.225 percent to 5.11 percent — in the state's sales tax. The resolution would also impose a 5.11 percent tax to the exchange of services, but would not tax business-to-business purchases.
This is the third consecutive session that state Rep. Ed Emery, R-Lamar, has sponsored such legislation. The resolution has progressed further than any of its predecessors, and after passing the state House, will head to an as of yet unnamed state Senate committee.
State Rep. Mary Still, D-Columbia, said that the resolution’s removal of corporate income taxes would do more harm to Missourians than good.
“They’re saying that if you lower the corporate income tax, Missouri will see more businesses and more growth,” Still said. “But last time I checked, we already have a lower corporate income tax than four or five of our surrounding states … and I haven’t heard about businesses coming here from Illinois, from Iowa.”
Of Missouri’s neighboring states, only Oklahoma has a lower corporate income tax for businesses earning more than $100,000 a year than Missouri. Still thinks Missouri’s corporate income tax is low enough for the state to compete economically.
“The idea that businesses will flock to Missouri because of the corporate income tax … that theory is very flawed,” Still said. “That’s just (supporters) looking after their (campaign) donors.”
Still suggested that businesses look at a lot more than just tax rates when considering future locations. She thinks a broader effort must be made if Missouri wants to improve its economy.
“Businesses want to know that we have good roads and good public education,” Still said. She’s concerned that a new tax mechanism such as this could antagonize such goals.
“They want to know that we have a well-educated work force,” Still added.
Columbia Democratic state Rep. Stephen Webber joined Still in opposing the end of the state's income and corporate taxes.
“You need a strong health care system and a strong public education to attract business,” Webber said. “I don’t think eliminating the corporate income tax is conducive to that.”
Webber echoed a concern that many Democrats share over making a sales tax the sole source of revenue for state programs.
“When you live in a state (like) Missouri, with so much of its population living on the borders, when you increase the tax, you’re going to see people in Kansas City going over to Kansas for their haircut, or people in St. Louis leaving Missouri for cheaper groceries,” Webber said. He’s afraid this drain of revenue will end up on the lap of people living in mid-Missouri.
“With the border-jumping and the loss of income there, we’d see the tax burden shift right into Columbia, and you’ll see higher and higher taxes,” Webber said.
Republicans who spoke on behalf of the resolution argued the opposition was not thinking of the economy in the long term.
“All the hidden taxes you’re paying now will disappear,” Emery said. “Now you’ve got lower costs and a more competitive business climate.”
Emery conceded that the elimination of the corporate tax wasn’t the only thing Missouri could do to entice future investment, but he thinks it’s a key step.
“Businesses take a lot of factors into consideration when they relocate,” Emery said. “They want them all in their favor, if they can, and they want them to be dramatically visible … . You don’t get much more dramatic than no corporate income tax.”
The resolution will head to the Senate for consideration but does not have an assigned committee. Emery and other supporters of the legislation think this resolution has the time and support to make it through the state Senate before the session ends.
State Sen. Kurt Schaefer, R-Columbia, said he would support the resolution through the state Senate.
“I think this tax is more fair,” Schaefer said. “People will get to make the decision on how much they consume and how much they’ll pay in taxes rather than being punished for earning more.”
Schaefer said the resolution’s fate is uncertain in the state Senate, but he expects a substantial display of support.
“It’s possible it will ” pass, he said. “I think there are people on both sides of the Senate who would support it, but I don’t know if it has enough right now to get through.”