Saturday there will be a “Fair Tax” rally at the Boone County Fairgrounds. This is being billed as the first "fair tax" rally west of the Mississippi and is designed to build support for replacing the corporate and individual income tax with a sales tax. While the federal fair tax legislation (HR 25) is not likely to become law, supporters see Missouri as possibly being the first state to enact a fair tax.
In Missouri’s 2009 legislative session, HJR 36 passed the House but failed in the Senate. This legislation would make our already regressive tax system even more regressive with more low- and middle-income Missourians paying more as a share of their income in taxes than do the wealthy. Under the “Fair Tax,” the only Missourians who wouldn’t pay higher taxes are the wealthiest 5 percent. Anyone in the top 5 percent of the income distribution will see a tax cut on average under HJR 36, and those with an average income of more than $1 million will get an average tax cut of $22,864. The tax would apply to everything you buy (food, rent, prescriptions drugs, property) and to all services (doctor’s visits, babysitting services, nursing home services).
Proponents of the fair tax legislation say the state’s new sales tax rate would be 5.11 percent to ensure revenue neutrality, but the Institute on Taxation and Economic Policy found the new average state and local sales tax rate would actually need to be 12.5 percent to ensure Missouri still collected the same amount of tax revenue.
Eliminating the income tax doesn’t guarantee economic prosperity. Two states with no income tax face serious fiscal deficits. Tennessee’s budget shortfall for 2010 is 9 percent of the general fund budget, $856 million, and Washington State has one has one of the largest projected budget shortfalls in the country, more than $3 billion or 18.5 percent of its general fund budget. In difficult economic times, sales taxes become an unreliable source of funding, and Missouri’s border states would likely see an increase in sales as shoppers try and avoid the higher sales tax.
As with most things in life, tax fairness and equity is based on balanced revenue sources. It’s ideal for states to have a mix of sales, property and income taxes. Before you jump on the bandwagon for “fair” taxes, I urge you to look at the analysis that has been done on tax policy.