Missouri legislators propose tax changes

The bill has drawn controversy, as some view it as regressive.

By Will Guldin

Published April 23, 2009

Tax season in 2009 ended last week, and some Missouri legislators would like it to be the last in which Missourians will have to file their taxes with the state.

This session, several bills have been proposed to restructure the state's tax code.

The first bill, the Fair Tax Act, would replace estate, corporate and income taxes with an increased sales tax. To compensate for this loss in revenue, the sales tax would be expanded to include some goods that are not taxed now and services, which are also untaxed. The sales tax rate would also increase from 4.225 percent to 5.11 percent.

Joseph Haslag, an MU economics professor and executive vice president of the Show-Me Institute, said Fair Tax is logical.

"This legislation addresses an important question about what our tax structure should look like," Haslag said. "If we're trying to better the standard of living of average Missourians, eliminating the taxes on income and corporate profits, and shifting the tax burden to more of a sales tax is likely to have a positive effect on growth."

Amy Blouin, the executive director of the Missouri Budget Project, said the Fair Tax is "anything but fair." She described the increase as regressive, and she said low income Missourians would have a tougher time affording basic goods. Blouin also raised concerns that the expanded sales tax would not be enough to offset the loss in revenue and from the abolishment of corporate and income taxes.

Rep. Ed Emery, R-Lamar, who sponsored the Fair Tax legislation, said this bill wasn't regressive. He said it was "progressive" because Missouri families would have more money to spend since they would not be paying any income tax. He also said the bill has rebates for lower income families that would make up for the increase in sales tax.

A 2006 study by the Taxpayers Research Institute of Missouri stated expanding the tax base was equivalent to raising taxes and that taxing services would have the potential to put more tax burden on lower income families, and make them pay a greater proportion of the newer taxes.

Ray McCarty, the president of Associated Industries of Missouri, said while his organization hasn't taken an official stance on the legislation, he felt it would be easier to start with a fair tax rather than try to transition to one, because he said the state might try to reinstate some taxes if additional revenue was ever needed.

"If you're starting from scratch, a tax based on consumption makes sense," McCarty said. "But we're not starting from scratch, so our fear is that the taxes that are being replaced would be reintroduced in the future."

Brad Jones, the director of the Missouri chapter of the National Federation of Independent Business, said the business owners in his organization were divided on the issue.

Senate President Pro Tem Charlie Shields, R-St. Joseph, sponsored a bill that is under debate in the Senate, and would phase out the corporate tax by 2015, was far less controversial.

"Any time you get rid of the corporate income tax it means more money for businesses," Jones said. "When you talk about corporate tax you think of large companies, which there are some of, but plenty of small businesses that are incorporated would take that money and put it back into hiring new people, purchasing more inventory, and maybe even physically expanding their business."