COLUMBIA — A recent guest commentary by Steve Spellman promoted the idea of replacing Missouri personal and corporate income taxes with a sales tax on goods and services, called a “consumption tax” or — by those who favor it — a “fair tax.” This sales mega-tax would not be an improvement and would certainly not be “fair.”
Instead of engaging in a philosophical argument, let’s look at the actual proposals on the table in Missouri. Several suggested laws and initiative petitions would levy a sales tax on all goods and services, except for business-to-business sales, private school tuition, used cars and a few other exemptions.
What would be taxed? Everything that is currently taxed, plus food, rent, child care, doctor visits, prescription drugs, transportation, car-repair labor, legal assistance, financial and real estate services, nursing home care, — even funeral services — pretty much everything people pay for, cradle to grave, would be subject to such a law. Imagine the impact on our families — and our economy — if the cost of all these services increased. Our purchasing power would immediately shrink. No other state has tried this, for good reason.
This proposal would create several serious problems for individuals and businesses, including the following:
- Taxes would go up for 95 percent of Missourians (view Missouri's budget online at www.mobudget.org). The elderly and the poor, whose income taxes are low now, would be hit the hardest.
- Lower- and middle-class people would pay a larger portion of their earnings for taxes than wealthy people. This is true because we have to spend most of what we earn to buy basic goods and services, which would all be taxed.
- The burden of collecting sales taxes would be placed on businesses that don’t have to do it now (landlords, child care providers, etc.).
- Businesses near the borders would lose customers to other states. Missouri borders eight other states, none of which levy a tax on services.
- Some of the proposals include a “prebate” system to lighten the burden on the poorest people. This would help protect them from the tax increase, but it would also require a costly, new government program to send out monthly checks.
How high would the sales mega- tax need to be? The Missouri Budget Project, a nonpartisan organization, estimates the tax would need to be more than 12 percent to break even — that is, to bring in the same total revenue for state services as the current tax system. A lower rate would lead to massive cuts in state services such as education, in-home services for the elderly, mental health services and the prison system.
The proposed sales mega-tax is not “fair” — it is even more regressive than the current system. Middle- and lower-income people, especially the elderly and families with children, would pay higher taxes. It would raise the cost of doing business in Missouri, and businesses on the borders would lose customers. If the tax rate were set too low, essential state services would be cut. So why in the world should Missouri try this radical experiment?
Mahree Skala lives in Columbia.