The debate over offsetting income tax cuts with sales tax hikes returned to the state capitol Tuesday evening.
The House Ways & Means Committee discussed three different proposals that involved reducing the state's income taxes and raising and revising sales taxes to make up some of the difference. One proposal, sponsored by Rep. Rick Brattin, R-Harrisonville, would phase in a flat income tax rate of 3.8 percent for individuals and 3.5 percent for corporations beginning in 2017 while raising the sales and use tax by 0.25 percent. Brattin's bill would also eliminate all of the state's 61 tax credits, which cost the state some $629 million in 2012, according to the bipartisan Tax Credit Review Commission. In addition, the bill would make Missouri part of the Streamlined Sales and Use Tax Agreement, which would impose sales taxes on purchaes from companies that do not have a physical presence in the state. The most visible effect of this agreement would be a sales tax on online purchases.
Brattin argued Missouri effectively already has a flat tax since everyone making more than $9,000 per year is taxed at the same rate. He called his idea a pure flat tax system.
"You make what you make, and you pay what you pay, and nobody's getting out of paying anything," he said.
Jay Hardenbrook, of the Missouri Budget Project, said the Streamlined Sales Tax portion of Brattin's bill was a good idea, but the bill would shift more of the tax burden onto Missouri's poorest residents.
"The bottom 20 percent are paying a higher percentage right now, a considerably higher percentage, than the top 1 percent of earners in this state," Hardenbrook said.
Committee chair Andrew Koenig, R-Manchester, ran two different proposals by his committee. One bill would replace the state's existing sales and use tax with a new one that would apply to new tangible personal property as well as services. The state's income tax rate would then be cut proportionally to the additional sales tax revenue generated. Koenig's bill would also eliminate sales taxes on food. Koenig's other proposal would put a constitutional amendment on the ballot that would phase out the state's individual income tax by 2018. The amendment would also cap the combined rate for the state sales tax, conservation sales tax and parks and soils sales tax at 7 percent.
Koenig noted nine states currently do not have a state income tax and said those states consistently show the most growth in jobs and gross state product.
"The best tax system is one that is used for collecting revenue rather than manipulating markets," Koenig said.
Hardenbrook said shifting the state to a primarily sales tax-oriented system would not only put the tax burden on low- and middle-income Missourians, but also shift it to the middle of the state. He noted that St. Louis and Kansas City residents could simply go to Illinois or Kansas to pay a lower sales tax while the rest of the state had to provide all the revenue. Sam Licklider, of the Missouri Association of Realtors, said the 7 percent level in Koenig's constitutional amendment would be too low to maintain the state's services. He said states that rely heavily on sales taxes make up the difference by charging fees elsewhere.
"The thing is so dang complicated it's almost impossible to get your head around," he said.
The committee did not vote on the proposals. Brattin's bill and Koenig's income tax reduction bill would both require Gov. Nixon's signature to become law, while Koenig's constitutional amendment would have to be approved by a majority of Missouri's voters.