Four stateside constitutional amendments will be on ballots across Missouri on August 4: Amendments 1, 2, 4 and 5. Amendment 5 would pave the way for the elimination of Missouri’s income tax, and there are strong opinions both for and against it.
Missouri Representative Bishop Davidson of Republic sponsored the bill in the House to put Amendment 5 on the ballot. He describes it as a tax reform amendment that does its best to eliminate the state’s income tax as quickly as possible.
"It has two parts. The first is a constitutional guarantee. It acts sort of as a safety net. And what that says is that excess revenues that the state experiences have to go back to the people in the form of income tax reductions. And that, once the income tax reaches 0%, it's prohibited from being reintroduced," he said. "The second part is a constitutional possibility. And it says that, if we want to eliminate income taxes even faster beyond that sort of safety net and that guarantee, we can do so utilizing very narrow conversation around consumption taxes to replace that revenue."
It’s estimated that the income tax makes up around 63% of the state’s general revenue budget.
And it’s the talk of increasing other taxes – such as sales and use taxes – if Amendment 5 passes that worries those who are against the amendment.
Impact on Missouri residents, businesses
Amy Blouin is the executive director of the Missouri Budget Project, which “improves the quality of life for all Missourians by informing public policy decisions through objective research and analysis of state budget, tax and economic issues,” according to its website.
"Instead of income tax, people will be faced with much more expensive sales tax on everything folks use every day. All of the products and services will be subject to the sales tax, and that will make all of the basics that folks need much more expensive," she said. "You know, things like groceries and health care and tutoring for kids and after school programs and summer camps for kids. All of these things could be subject to a new sales tax, which we've estimated — which would need to be, you know, well above 10% at the state side. And the average state and local sales tax would be 16%. So, it's a — it would make Missouri very costly."
And she fears that Amendment 5 would hurt businesses if fewer customers come through their doors because they will not be able to afford to purchase as many goods.
But Davidson feels that the tax reform that the ballot measure would lead to would be good for future economic development in Missouri.
"I think Missouri business and Missouri people both care about how well the economy performs, how quickly it grows and whether or not we discourage or encourage productivity, creativity, ingenuity," he said. "Any business owner cares if someone's innovating within their firm right now. We discourage that sort of behavior because we tax income. We tax productivity. And you do get less of what you tax. And I think Missouri has seen that."
He argues that Missouri has already reduced its income tax from 6% to 4.7% and has generated more revenue since.
"So, one method is utilizing growth, utilizing growth over time to reduce our rates over time. The other way that you can replace that revenue is utilizing a more fair, more transparent sales tax code," he said. "Currently, we tax, you know, 30, 35% of taxable goods in our economy of consumption in our economy. And we've got 200 plus loopholes and exemptions that exist. If you close those loopholes, if you broaden that base, you can eliminate income taxes for 4.97% rate or something crazy like that. And so, it actually doesn't take a whole lot, it really is a, it really is a testament to what unleashing economic activity can do."
Impact on services
Blouin doesn’t see the changes benefiting the state economically. Instead, she feels that it would greatly impact services that Missouri residents rely on.
"In addition to, you know, increasing the cost of living in the state, which is, you know, one of our main concerns, we're also concerned that the legislature simply won't replace the revenue that we lose with the elimination of the income tax," she said. "And that could impact everything in our communities, whether it's K-12 education or preschool, higher education. It could impact health care centers and mental health clinics that rely on Medicaid dollars to provide services in our communities. It could impact our roads and transportation infrastructure that has become increasingly more reliant on general revenue. So, it is really, it's a risk for everything."
She worries Amendment 5 would impact vulnerable Missourians the most. The Missouri Budget Project has estimated that 80% of Missourians would see a net tax increase if the measure passes.
"Those folks who currently are exempt from income tax, like older adults who rely on Social Security and public pensions, those folks predominantly don't pay income tax or pay very, very low amounts of income tax," she said. "So, rather than get a significant tax reduction, they would see an increase. Similarly, working families who are already struggling to make ends meet aren't going to sees much of a tax reduction. They will only see a tax increase."
Davidson’s views are just the opposite of Blouin’s when it comes to how Amendment 5 would impact Missourians. He believes the average wage earner in Missouri would see around $2,800 more each year after accounting for all adjustments.
"As far as seniors, it's seniors who have probably brought this to the forefront, right? We've eliminated income taxes on Social Security, on capital gains, on public pensions. And, of course, we have a senior property tax freeze," he said. "Those tax benefits that seniors have seen are exactly the benefits that seniors have asked us to pass on to their kids and grandkids because, after all, the best thing you can do for seniors in Missouri is to keep their kids and grandkids here in the state of Missouri. And that's not happening today as we see young people flee our state, as economic opportunity leaves the state as well."
He argues that Amendment 5 is revenue neutral because he said local tax rates are just part of the picture. Another part is the base that is taxed. He gave an example of a political subdivision that has a 1% sales tax and produces $1 million in revenue "and then the base is expanded so that that 1% applies to more goods and services than what it does today, and they would get $2 million of revenue. They would then have to roll that sales tax rate back to generate $1 million of revenue. So, in this instance, there'd be half a percent. So, you see the rate may have changed but the revenue didn't change. And that's the same for all political subdivisions."
Blouin believes that a yes vote on Amendment 5 would be dangerous because she feels that the measure hasn’t been explained in detail to the public.
"Amendment 5 just gives the legislature the authority to greatly expand and increase the sales tax without a vote of the people. But if they were going to replace the income tax in full, we're looking at an $8.5 billion need, which is why the sales tax either needs to go up exponentially or we're looking at budget cuts," she said. "And if we, if we take the same sales tax that we currently have and apply it to all services throughout the state, meaning everything that folks spend money on, whether it's health care, real estate, rent groceries, we end up still with about a $3 billion shortfall."
She urges people to vote no on Amendment 5 -- a bill that she feels would negative affect many Missourians.
"We think that it creates a risk for individuals that will make life more expensive and harder in Missouri for everybody, and at the same time will reduce the services and infrastructure that our economy and communities need to thrive," Blouin said.
Davidson urges people to vote yes on Amendment 5. He said states with no income tax are performing better economically and have more economic opportunity freedom and prosperity than states with an income tax. He argues that the amendment would be contingent upon revenue growth, and that that growth would trigger the reductions.
What concerns opponents is the part of the ballot measure that states that, once Missouri's individual income tax reaches zero, it can never be brought back.
