Missouri House committee discusses replacing income tax with sales tax

Wednesday, February 9, 2011 | 7:55 p.m. CST

JEFFERSON CITY — The former budget director for a Republican governor warned state representatives Wednesday that a proposal to eliminate the state income tax could "bankrupt" Missouri.

James Moody testified before the House Tax Reform Committee hearing on a proposal to replace the income tax with an increase in the sales tax.

"I think this has the potential to bankrupt the state," Moody said. "I think it has the potential to bankrupt the middle class, and if you're going to be doing that, you need to think long and hard about (the issue)."

Moody served as budget director in Gov. John Ashcroft's administration.

Business interest representatives joined Moody, who represented a group that opposes income tax repeal.

In addition to replacing the individual and corporate income tax with more sales tax, the proposal would get rid of the corporate and bank franchise taxes and eliminate most tax credits.

The legislature would be authorized to enact a sales tax at whatever rate that would be necessary to cover the income lost by repeal of the other taxes. The proposal provides that the replacement sales tax would include housing rent but exclude purchases for businesses, school tuition and motor vehicle sales.

Committee member Rep. Andrew Koenig, R-St. Louis County, sponsored the resolution. He said the sales tax increase would make the resolution's effects revenue-neutral, keeping the state's revenue intake the same while providing an opportunity for more economic growth.

"Taxes do damage to whatever the government is taxing," Koenig said. "The (resolution) would increase the economic well-being of the state and allow Missouri businesses to export goods without a Missouri corporate tax component."

The proposal also would allow the legislature to provide what effectively would be a rebate for the first $2,800 of sales taxes paid per person — a provision legislative staff estimate would cost the state $16.25 billion.

David Overfelt, president of the Missouri Retailers Association, said the implementation of the increased sales tax could cause sales and people to move across state borders.

"What we can see in this bill is a lot of sales shifting to Amazon, shifting to eBay and going across the border," Overfelt said. "A majority of the population lives on the border, and ... Kansas has done a very good job in getting the major retailers to come to their state."

Former small business owner Fred Berry voiced his support for removing the income tax and said the increased and expanded sales tax would instill a greater demand for economic development in the state.

"What we are trying to do is provide an economic future for Missourians and businesses in this state and make it attractive for businesses to move here," Berry said. "In other words, we're trying to become a strong state economically."

Rep. Chris Kelly, D-Columbia, who proposed another bill dealing with the income tax issue in January, said he would not take such a big step when altering the state's tax policy.

Kelly's proposal states that the income tax should be lowered and the sales tax expanded to include certain services, while Koenig's bill proposes to eliminate the income tax through a constitutional amendment.

"(Rep. Koenig) is articulating an important and worthwhile issue," Kelly said. "I don't believe that we can get there in one jump, and I think we ought to take little steps."

Although Kelly said he wishes to achieve a similar result as Koenig, Kelly also said this tax issue must be dealt with carefully. Instead of eliminating the income tax through a constitutional amendment, Kelly said he wants to deal with the issue in a statute so any mistakes can be vetted before the proposal is made permanent.

"There's a lot of unknowns, and those unknowns will make people apprehensive," Kelly said. "When you are writing big tax bills, such as this, you are certain to get things wrong ... ."

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Delcia Crockett February 9, 2011 | 8:37 p.m.

The probability that workers would have more take-home pay to spend on items of necessity taxed - and that it would be their choice of where the tax would be paid through by what they can afford to buy? Sounds fair.

Maybe legislatures should just ask the voters in their districts what the working people think about the headache of paying income taxes and filling out all these forms - at this time of the year. Good time to ask.

(Report Comment)
Derrick Fogle February 9, 2011 | 9:10 p.m.

In this case, sales: "Taxes do damage to whatever the government is taxing," Koenig said.

Seems kinda dorky to institute financial policy that would tend to discourage local sales of locally produced products. This would likely make everything Missouri produces get exported to avoid taxes, and make everything Missourians consume to be imported, to avoid taxes.

(Report Comment)
Corey Parks February 9, 2011 | 9:42 p.m.

I always hate these articles on the Fair Tax. Usually written by someone that is not familiar with the policy and fail ask the right questions and they always forget to provide a real world scenario/example of the average 40k a year family. So people can see in hard numbers what they are looking at.

(Report Comment)
Delcia Crockett February 9, 2011 | 10:23 p.m.

People can already order a lot of items online if they actually want to avoid paying sales tax (and including free shipping, in some cases).

The thing about sales tax, and not having state income taxes, is that everyone pays the same taxes, according to what they choose to purchase. There will be no loop holes, no way around paying the sales taxes, and there are already no state taxes in effect other than in Missouri.

(Report Comment)
Aaron Rogier February 10, 2011 | 6:46 a.m.

The "Fair Tax" idea has been floating
around for a while. The truth is as inconvenient as an income tax may seem
on it's face, it is the most efficient and least wasteful means for a
government to collect revenue. It is a horrible system, but it is better
than any other devised.

Even with a credit of $2800 from taxes paid, a sales tax is by structure
regressive towards the state's least fortunate citizens. For a resident in
poverty who may take in $10,000 in income that could be a quarter of their
income bound in the state's till until it comes time to file for that

Oh, the misery that filing such a return would be. How would you demonstrate
having paid any amount in sales tax without saving every single receipt.
Unless you have the money to blow in a way that could get you to the $2800
exemption on a handful of receipts, filing a return under the "fair" tax
system would be the definition of bureaucratic pain. Think of how many W-2s
you may accumulate in a year versus the receipts you acquire in a single

After it's enaction I imagine a "fair" tax would choke the state's most
vulnerable families and lead to the sacking of every legislator who
supported it when the next elections come around. In the interim while the
state was subjected to it Missouri would suffer the most miserable years in
its history since the civil war as people try to cope with this horrific
beast until it is again replaced with a much less trying income tax for
which people will likely beg.
A statewide sales tax is easy to evade and it is hard to enforce upon
purchases made out of state. Simply look to the difficulty most states have
in collecting sales tax from online purchases. The massive increase in sales
tax this bill proposes would net a windfall for both Illinois and Kansas at
the expense of Missouri as St Louis and Kansas City residents, a substantial
portion of the state's population reside near what would become buyer's

(Report Comment)
Layton Light February 10, 2011 | 6:57 a.m.

If Chris Kelly really believes we should kill the middle class (quickly becoming the lower class in this country) with this snake oil, the Missouri Democratic Party should look at pulling his card altogether. Working "across the aisle" is one thing, but this kind of nonsense wouldn't even qualify him as a "Blue Dog" Democrat. Maybe the Republicans would be interested in him joining. After all they are very good at getting uninformed citizens to vote against their economic self interest. Then there's always the Tea Party, or he could become head of "initiative petitions" for Rex Sinquefield. Don't let these "anti-tax" politicians fool you. The rich and powerful are already lining up to get their "exemptions" from this higher sales tax: "The proposal provides that the replacement sales tax would include housing rent but exclude purchases for businesses, school tuition and motor vehicle sales."

Hey Chris, if the former budget director of one of the most reactionary politicicans this state has ever produced, says a consumption tax has the potential to "bankrupt the middle class" maybe you should listen. Maybe, just maybe, you're not quite as smart as you think you are.

(Report Comment)
Delcia Crockett February 10, 2011 | 7:12 a.m.

Nine states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. The states of New Hampshire and Tennessee tax their residents only on income earned through interest and dividends.

State income tax is typically based on the taxable income or adjusted gross income reported on the taxpayer's annual federal income tax return.

The fact that a state does not have an income tax does not necessarily mean that its residents pay less in taxes than residents of states with an income tax. All states must generate revenue and they do so through various taxes including income taxes, sales taxes, property taxes, license taxes, fuel taxes, and estate and inheritance taxes, just to name a few. In states without state income tax, higher sales, property and other assorted taxes can exceed the annual cost of a state income tax.

For example, all states except Alaska, Delaware, Montana, New Hampshire and Oregon currently charge sales tax. Food, clothing and prescription drugs are exempt from sales tax in most states.

In addition to states; cities, counties, school districts and other jurisdictions impose real estate and sales taxes. For cities that do not sell their own utilities, like electricity and water, these taxes represent their main source of revenue.

Still, it is worth noting that during 2006 and 2007, the seven states with no income tax whatsoever, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, led the nation in net population growth.

*Langley, Robert: U.S. States with No Income Tax

(Note added to this post not from above source: As a result of census from 10 last years, Texas is adding a new representation in Congress; Missouri is losing one.)

(Report Comment)
Corey Parks February 10, 2011 | 8:29 a.m.

Aaron: You would not have to wait for that one time a year and save your receipts to get your credit. It would come automatic and from what is written monthly to quarterly depending on how you want it set up or how the state wants it.

(Report Comment)
Aaron Rogier February 10, 2011 | 4:45 p.m.

Cory, even if that is the case there remain the problem of the state's two largest metropolitan areas border neighboring states. Saint Louis's metro area alone produces around 40% of Missouri's economic activity. That is a lot of wealth within a fairly short drive from Fairview Heights, Edwardsville, and the metro east's retail centers. Part of why sales taxes work is the fairly low level of variation between them. Which also feeds the problem where if people aren't filing receipts, then mid Missouri and southern Missouri may find themselves financing a disproportionate share of the state's operation.

Taxes are an inconvenience, but they are a necessary inconvenience if we are to live in a civilized society. No revenue neutral tax proposal, no matter how radical can cause lessen burden on tax payers. All it can do is shift the burden. Replacing the state income tax with a "fair" tax would only create an incentive to live in Missouri while spending outside of Missouri.

(Report Comment)
Corey Parks February 10, 2011 | 10:08 p.m.

I disagree that it is a inconvenience if we are to live in a civilized society. I don't think it was that uncivilized before the income tax became law. But we could go back and forth on this issue since neither of us are Neil Boortz and having only read his books once can not say exactly how Missouri would set it up. From what I just seen on the news tonight they would be breaking the first rule by including food and clothes into the deal.

Have you attended the Colin Malaker fair tax meetings to get a better idea of what your arguing against?

(Report Comment)

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