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The Missouri “Fair” Tax (a.k.a. “The Everything Tax”)
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This Discussion Guide is part of Community Conversations at FOCUS St. Louis.  It is meant to initiate civil discourse around the policies that affect the St. Louis region; to hear each other’s perspective. As is the case with all public policies, this issue is complex and multi-faceted, with many stakeholders. Please keep this in mind as you discuss the "Fair Tax" in your community.
 
The Missouri "Fair” Tax (a.k.a. "The Everything Tax”)
 
Let Voters Decide, a group backed by financier Rex Sinquefield, is promoting the Missouri Taxpayers Relief Act. Also known as "Fair Tax,” this is an effort to eliminate the state income tax and replace it with an expanded, increased sales tax of up to 10%. The tax would be applied to items currently not subject to sales tax: things like groceries and services. Opponents of the tax claim that this would threaten the ability of lower-income Missourians to pay for basic necessities and have dubbed the plan the "Everything Tax.” Let Voters Decide responds that their plan protects low-income families by exempting such necessities as health care, rent, and child care. They also maintain that families who use food stamps to purchase groceries will not have a sales tax applied to their bill. What is debatable is whether the economic gains from this change will outweigh the costs. 

Background

The State of Missouri has a less than stellar record when it comes to economic growth, ranking 48th in the nation. In order to help lift the state out of the Great Recession, Let Voters Decide, pointing to the economic improvements in states like Texas, Florida, and Tennessee that have no income tax, is advocating replacing the state’s income tax with an increase in sales tax. The central argument made by proponents of the proposal is that an income tax creates a disincentive to work, while a sales tax does not have distorting effects on economic activity. Opponents argue, however, that the income tax is designed to be progressive, and that "the Everything Tax” simply shifts tax burdens to groups such as poor people or the elderly.

In May, there were two ballot proposals on file with the Missouri Secretary of State seek to amend the Missouri Constitution to eliminate the state income tax and replace it with an expanded, increased sales tax of up to 10%. These two initiative petitions called for phasing out Missouri's income tax, now generally 6%, by January 2016. The replacement tax would be a sales tax of no more than 7% statewide, and no more than 10%, including any local or regional sales taxes.
 
(It is an increasingly common practice for proponents of a state ballot initiative to file multiple versions of the same initiative. One reason is that, since most state-wide ballot initiatives are subject to legal challenges, the practice of filing multiple versions means that at least one of them might survive the courts.)

A broad coalition of opponents argued various points against the proposal:
  • Local government advocates were concerned that the proposed sales taxes wouldn't be high enough to replace the income tax.
  • Also in opposition was the Missouri Catholic Conference, who worried that the change would dramatically reduce the tax burden on the wealthy while increasing it on the middle class and the poor, as well as large families.
  • The Missourians for Fair Taxation, founded by the Missouri Association of Realtors, said the change would result in higher taxes on home sales.
Clearly there has been a great deal of opposition and push-back to this proposed change in the state’s tax structure. So much so that Rex Sinquefield in February, 2012, acknowledged that getting Missourians to make such a change in their state's taxation system may take several years and perhaps several elections.

The ballot proposal was struck down in court on April 13; the judge declared that the proposal description by the Secretary of State’s office was "insufficient, unfair and prejudicial.” Moreover, the judge was concerned that there was not sufficient detail in the ballot to determine what the fiscal impact of the law would be. 

Who else is involved with this issue?

Supporters include the conservative free-market group United For Missouri as well as the Show-Me Institute and Let Voters Decide. Opponents include the Missouri Catholic Conference, the Missouri Association Realtors who founded the Missourians for Fair Taxation, and the Coalition for Missouri's Future, a group that represents education groups.

Three Possible Perspectives:

Person A believes the state should replace the income tax with the higher, expanded sales tax, pointing to the success in economic growth of other states that also do not have an income tax.

Person B is opposed to eliminating the income tax, believing that low- and middle-income Missourians, including senior citizens, would find the increase in sales tax untenable.

Person C thinks that a compromise can be arranged that would lower the income tax rate while increasing the sales tax on many goods to which a sales tax would be applied.

Discussion Questions:
  1. Which of the three people in this scenario do you most closely align with A, B, or C?  Why?
  2. Will the more broadly based and higher sales tax reduce economic activity more than the eliminated sales tax will increase it?
  3. Would the new sales tax system adequately fund the necessary functions of government?
  4. If exemptions on health care, rent and child care, etc. are in place, would low-income families still have a hard time financially?  Where do we draw the line on these exemptions?
Links for further reading:
  1. October 7, 2011 St. Louis Beacon article: Battle begins over plan to replace Missouri's income tax with sales tax.
  2. October 13, 2011 St. Louis Post-Dispatch article: Sinquefield and his money prep for next statewide tax fight.
  3. November 1, 2011 St. Louis Post-Dispatch article: Group begins campaign against Sinquefield's tax plan.
  4. November 11, 2011 St. Louis Beacon article: Group drops two more versions of plan to replace income tax with sales tax.
  5. January 27, 2012 St. Louis Post-Dispatch article: Realtors bemoan Rex's latest big check to pass 'fair tax'.
  6. January 27, 2012 St. Louis Beacon article: Sinquefield adds $1.2 million more to effort to replace state income tax with sales tax.
  7. February 9, 2012 Missourians for Fair Taxation article: Proposed Income Tax Repeal May Be Delayed Until 2014 ballot.
  8. Let Voters Decide website
  9. Coalition for Missouri’s Future website and their white papers.
  10. February 2012 Show-Me Institute essay: Attacks on Fair Tax Are Propaganda, Not Economic Analysis.
  11. December 5, 2007 Show-Me Institute study: Should Missouri Eliminate the Individual Income Tax?
  12. December 11, 2006 Show-Me Institute study: Repealing the State Income Tax by 2020.
  13. Missouri Secretary of State 2012 Initiative Petitions Approved for Circulation in Missouri: Version 13, 2012-076 Constitutional Amendment to Article X, Relating to Income, Earnings and Sales Taxes 
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