A proposed constitutional amendment that would give lawmakers broad authority to expand the state sales tax and use the revenue to eliminate the income tax won initial approval in the Missouri House Tuesday.
The bill needs another vote in the House before it heads to the Senate. If it wins approval there, it would go on the statewide ballot later this year.
State Rep. Bishop Davidson, a Republican from Republic who presented the tax plan to the House on Monday, called the income tax — which generates about 65% of the state’s annual general revenue — “the least fair tax” that undermines economic growth.
“When we tax income,” Davidson said, “we tax productivity. We tax creativity.”
Missouri’s personal income tax is almost flat, with the top rate of 4.7% applying to taxable incomes greater than $9,436.
If approved by voters, the amendment says that for each additional $20 million in revenue over the base year of fiscal year 2025, the top rate would be cut by 0.01 percentage points, with a cap of a 1.6 percentage point reduction in the top rate in any given year.
To achieve the maximum reduction in a single year, revenue would have to grow by $3.2 billion from the expanded sales tax base. The tax would be eliminated when those reductions combine to lower the top rate to 1.4%.
Lawmakers would have three years to expand the sales tax to “all goods and services” and eliminate exemptions to raise enough revenue to replace the income tax without having to seek another statewide vote.
The current state sales tax is 3% for general revenue, plus 1.225% earmarked for public schools, conservation, state parks and soil conservation. Local option sales taxes add to the 4.225% total, and there are more than 50 locations in the state where the total sales tax is 11% or higher.
Matching the current revenue from the individual income tax without expanding the transactions that are taxed would require raising the state sales tax to nearly 13%.
The amendment debated Monday would also allow sales tax on motor fuel for the first time and would exempt revenue from that sales tax on fuel from a constitutional provision dedicating all taxes on gasoline and diesel to highway needs.
Democrats raised concerns that eliminating the income tax would lead to massive cuts to services like public schools, while shifting the tax burden onto the working poor.
Lawmakers should be truthful about what the proposed amendment would actually do, said state Rep. Stephanie Hein, a Springfield Democrat.
“It’s ultimately going to raise everyone’s sales taxes,” she said.
Voters should be wary of any plan that gives lawmakers unchecked authority to raise or expand the sales tax, Hein said — especially after overwhelmingly approving a constitutional amendment in 2016 that prohibited new state or local sales taxes on services.
State Rep. Steve Butz, a St. Louis Democrat, noted that the legislature has repeatedly cut taxes over the last decade, including trimming income and corporate taxes while eliminating the franchise tax and, last year, the capital gains tax.
“I just named four major tax cuts in the past eight years,” Butz said. “All I’m saying is, let’s see how they play out.”
Republicans pointed to states like Florida, Texas and Tennessee, which are growing faster than Missouri and have no income tax.
State Rep. George Hruza, a Republican from Huntleigh, said replacing the income tax with an expanded sales tax would lead to job growth, economic investment and population growth. And it would be, he said, a much more fair system.
“Unlike the income tax,” he said, “people can choose when they pay the sales tax.”
Democrats dismissed the comparison, noting that Texas has a highly taxed oil and gas industry, while Florida and Tennessee can rely on revenue from being tourist destinations.
“These states also have other taxes on businesses that we have eliminated or reduced in recent years,” said state Rep. Nick Kimble, a St. Louis Democrat.
Davidson believes eliminating the income tax will not only improve the state’s economy, but the everyday life of Missourians.
“I imagine a life where they’re able to aspire to purchase their own home, a life where they’re able to have children without wondering if they can financially afford it,” he said. “A life in which they’re able to raise those children in a loving environment, one in which they’re provided for a life that they can put some money aside for retirement.”