BY:  RUDI KELLER
Missouri Independent

Backers will campaign on promises the change will result in a rush of new jobs and people to Missouri. Opponents argue it will increase costs of everyday purchases and benefit the wealthiest people in the state

Missouri voters will decide later this year whether to grant lawmakers power to increase and expand the sales tax in order to raise revenue needed to eliminate the income tax.

The Missouri House voted 95-59 Tuesday to send a proposed constitutional amendment directing future legislatures to cut personal income tax rates as state revenue increases. The measure also allows the General Assembly to expand the sales tax to “transactions involving any goods and services” without having to return to ask voter permission. 

Nine Republicans joined the 50 Democrats present for the debate in opposition to the plan that is Gov. Mike Kehoe’s top legislative priority. Kehoe must decide by May 22 whether it will be on the Aug. 4 primary ballot or wait for the Nov. 3 general election.

“This is the first step in keeping our promise to make Missouri more competitive, attract jobs and investment, and let families keep more of what they earn from the start,” Kehoe said in a statement released Tuesday. “We look forward to continuing this important conversation with Missourians in every corner of our state.”

In a debate that has become familiar to close observers of this year’s session, Republican supporters characterized the income tax as theft and argued that repeal would open the state to new businesses and residents eager to flee high-tax areas.

The income tax “has killed the source of wealth for Missouri’s middle class,” said GOP state Rep. Bishop Davidson of Republic, sponsor of the proposal. “It has made the American Dream an American memory and even that is fading out of view. It has decayed our economy, stagnated our wages, chased young people out of the state and left our seniors without their families.”

Democrats, however, warned that if it passes at the ballot box, higher sales taxes will shift the tax burden to poorer Missourians who must spend most or all of their income on necessities.

“Let’s be real. There is no opting out on buying everyday goods and services,” said Democratic state Rep. Stephanie Hein of Springfield. “You have to feed your family, you have to have a place to live. You have to be able to buy your medicine. Those are non-negotiables.”

If passed, the proposal would direct lawmakers to set a revenue baseline and triggers for phased-in reductions in the top tax rate. It also allows five years for the Legislature to write a new sales tax law, which must be directly tied to cuts in the top income tax rate in a manner supporters hope will not increase or decrease revenue.

Currently Missouri has an income tax with a top rate of 4.7% for taxable incomes greater than about $9,200 a year. The sales tax is 3% for general revenue, but earmarked state taxes and local options stack on top of that, creating a rate that is 7% to 8% in most locations and can be as much as 12% in some special districts.

The sales tax applies to physical goods and excludes services. The Missouri Constitution prohibits lawmakers from applying the sales tax to real estate transfers and any goods or services not currently taxed, but those provisions would not apply to any sales tax plan passed as a result of the constitutional amendment.

Missouri gets about 65% of its state revenue from income tax, about 22% from sales tax and the rest from other sources including a corporate income tax. To replace the revenue from the income tax without expanding coverage of the sales tax would increase the tax rate by as much as 8.5%.

State law exempts residential utility costs, prescription drugs and groceries from all or a portion of the current sales tax. There are also dozens of other sales tax exemptions, mainly tied to business operations as an economic development tool.

And while the legislature has been debating the proposed constitutional amendment, lawmakers have also been debating new sales tax exemptions. Bills that would exempt infant care products, credit card processing fees, goods sold at auction, aviation fuel sold at Lambert International Airport and construction materials used in public buildings are under consideration.

The proposal approved Tuesday was vastly different from the plan originally voted on in March in the House.

The original version included specific revenue triggers for tax rate cuts, specified a baseline year for measuring future revenue growth and completely repealed the income tax when the rate fell below 1.4%.

The revisions made by the state Senate took out all the specifics. During House debate, Davidson said what is left is a framework to guide future lawmakers with protections against increasing the tax burden or imposing sales taxes that are not accompanied by income tax cuts.

“It doesn’t allow for an increase in taxes whatsoever, and actually mandates revenue neutrality,” Davidson said.

The removal of specifics pushed state Rep. Bryant Wolfin, a Republican from Ste. Genevieve, into opposition, he said during Tuesday’s debate. The proposal asks voters to trust lawmakers, he said, and he doesn’t believe Republicans have a strong track record of restraining government that would purchase that trust.

“If we pass legislation that’s based off our findings, and we’re wrong, and we increase the tax burden on Missourians, which has happened in this building with Wayfair, there is no legal recourse or refunds that would go back to Missourians,” Wolfin said.

Missourians will feel the bite when new sales taxes take effect, said House Minority Leader Ashley Aune, a Kansas City Democrat.

“The bill sponsor and the bootlickers in the Missouri GOP who are falling in line around this tax game keep telling you that they simply want to eliminate your income tax,” she said.

The legislature can, and has, cut top tax rates in bills tied to a revenue trigger and could do that without a statewide vote, Aune said. The sales tax increase, however, cannot be enacted without permission from voters. 

The campaign over the measure opened just minutes after the final vote. Polling has shown the plan is unpopular. The Republican consulting firm Torchlight Strategies found that Missourians oppose the switch from income to sales tax 49% to 37%. 

After hearing a series of reasons to oppose it, only 18% remained favorable to the plan while 75% said they would vote no.

Liberal groups immediately began attacks on the proposal.

“While the richest Missourians will pad their investment accounts, the vast majority of us will be subject to whopping increased costs for everything from home repairs to car insurance to burial services,” said Amy Blouin of the Missouri Budget Project.

And Claire Cook-Callen, executive director of Progress Missouri, said middle class families will see the biggest hit.

“Missourians expect strong public schools, reliable roads and bridges, and fully-funded, accessible services — and for everyone to pay their fair share,” Cook-Callen said in a news release. “Instead, this plan gives a tax break to the state’s eight billionaires and sticks each working family with a bill of about $500 more each year.”

The Torchlight poll found that more than 60% of voters said they would not vote to re-elect a lawmaker who supported the plan. Aune, in her final words to Republicans, said the tax plan will be a major campaign issue in House races.

“Voters are paying attention,” Aune said, “and you have my word that I will be spending the next six and a half months making sure your constituents know just how enthusiastically you’ve supported making their lives more expensive.”