Groups battle over income, sales tax

Proponents call it a “fair tax.” Opponents have simply dubbed it the “everything tax.”

Regardless of the name it is called by, supporters of a proposed constitutional amendment that would replace Missouri’s income tax with a higher and more comprehensive sales tax told a gathering of reporters in Jefferson City on Thursday they are committed to putting the ballot initiative before voters in November.

If approved, the state would cut income taxes in half beginning in 2014 and would zero out the income tax in 2016. Revenues would be replaced with increased sales taxes, capping the overall rate at 10 percent, with a ceiling of 7 percent for the state (now at 4.225 percent) and 3 percent for municipalities. It would also greatly expand the types of goods and services subject to sales taxes.

Thursday’s panel saw a sometimes caustic debate between Anne Marie Moy, a spokeswoman for Let Voters Decide, who spoke in favor of the measure, and James Moody, a consultant for Coalition for Missouri’s Future, one of two opposition groups.

Like the voter-approved 2010 Let Voters Decide measure that sought to end earnings tax collection in municipalities, the new initiative is largely bankrolled by Missouri businessman Rex Sinquefield, who has dumped $2.5 million into the campaign.

Moy told reporters the measure will help reverse population and job losses, noting that Missouri ranks 48th in real gross domestic product growth over the last decade, while states without an income tax, such as Tennessee (ranked 36th) had fared far better.

By broadening the sales tax base the state would have a “less volatile” source of revenue, Moy said.

“What our measure does is it shifts taxation away from income and onto consumption. This will give individuals much more control over how they spend their money,” she said.

Moody countered that the measure would spell disaster for the state, which relies on sales tax receipts for a significant portion of general revenue and would amount to a tax cut for high-income earners at the expense of seniors and moderate-to-low income workers.

He said the deal would be worst for seniors who would see no relief as Social Security and state pensions are already exempt from income taxes.

“Tying yourself to the sales tax here is kind of like putting an anchor around your neck and throwing it out the window — you are going to die,” Moody said.

Speaking to The Democrat on Friday, Moody said the proposal’s “math doesn’t work.”

“You can’t get rid of 2/3 of general revenue funds and make up the difference by an increase in sales tax of 2.75 percent,” Moody said.

Moy told the Democrat the state would enjoy “much more stability with a sales tax rather than with an income tax.”

“It is just subject to a lot more risk. A sales tax is less volatile, it is just broader based,” she said, noting that the measure would nearly double the amount of goods and services subject to a sales tax.

By increasing the kinds of taxable services, such as hiring a plumber, Moy said the state would generate an equitable amount of revenue as that collected by the existing income tax.
Nine states — Washington state, Nevada, Colorado, Wyoming, Tennessee, Texas, Florida, New Hampshire and Alaska — have no state income tax. Moy said many of those states, including Tennessee, have outpaced economic growth in Missouri and are able to fund state services.

However, Moody said, states such as Washington and Florida see a much larger influx of tourism dollars, while states such as Wyoming, Texas and Alaska collected significant royalties from gas, oil, and mineral resources.

“Tennessee has $2 billion more taxes on business. They don’t tell you that that is how they support their budget,” Moody said. “They came up with idea and then tried to find a state to justify it and to be honest, they cant find a state to justify it.”

With a combined sales tax of 7.6 percent in Pettis County, passage of the initiative could pose an issue for a range of sales tax based services including road improvement, public safety and parks taxes already on the books in Pettis County and Sedalia.

Moy said those taxes would all go through a process of “compression” following voter approval, that would see the Missouri General Assembly direct the Department of Revenue (DOR) to review every taxing district in the state and provide a new rate. That rate would have to fall below the 3 percent cap, and could see the rate for districts cut in half or more.

Moy said the review would be done through 2013 on a case-by-case basis and would be based on the number of taxable goods and services within the boundary of a given taxing district. The new rates would be in place beginning in 2014.

She said municipalities could challenge the DOR rate and could vote to raise taxes above the 3 percent mark, but it would require a 4/7 supermajority vote to approve such a measure.
Moody accused the group of “tinkering with the Constitution” and said polling conducted by his group had found a lack of support for the measure in Missouri.

“The public is not interested in some large sales tax. They don’t want to pay an additional 10 percent to get their hair done or get their car fixed. The public just doesn’t want to pay more taxes on all those things,” Moody said.