Proposed Fair Tax--Only Fair For The Rich?

I just read a great blog article about one of the proposals that the GOP will try pushing through this legislative season down in Jefferson City. Basically, the proposal as it stood at the end of 2010, called for a state constitutional amendment that would eliminate the state income tax and replace it with a broader sales tax that its proponents call the 'fair tax.'

Amy Blouin, executive director of the Missouri Budget Project, warns that proposal would increase the financial burden on Missouri families. She explains the proposed rate would be higher, and would apply to services not currently subject to sales tax, such as child care, health and dental care, prescriptions and rent. At the same time, says Blouin, replacing the state income tax with the 'fair tax' will not ward off cuts to the state budget.

"When you really dig into it, it's a significant increase for the average person in taxes – but at the same time, it does not increase revenue and could diminish revenue in the state, dramatically."

To make sales tax income match our current income tax revenues, it is estimated that the statewide sales tax would have to be approximately 6 to 7 percent, up from the current 4.225 percent. In the first year of the phase-in, the proposal caps the amount of the sales tax at 7 percent. However, the language within the current proposal would allow the legislature to increase the state sales tax rate above that amount as the changes are phased in, without a vote of the people.

Missouri's new sales tax rate would be significantly higher than neighboring states. More significantly, no other state taxes services such as child care and health care as broadly as Missouri would under the current proposal.

Here is how the proposed tax rate of Missouri would compare with our neighbors:

•  Proposed Missouri Sales Tax Rate: 7 percent (first year)
  

• Arkansas: 6 percent

• Iowa: 5 percent

• Illinois: 6.25 percent

• Kansas: 5.3 percent

• Kentucky: 6 percent

• Nebraska: 5.5 percent

• Oklahoma: 4.5 percent

• Tennessee: 7 percent

The "fair tax" proposal would raise taxes on 95 percent of Missouri individuals and families without generating any new revenue for services or benefits for families. Most Missourians would pay significantly more under this proposal, because the tax proposal shifts the responsibility of funding state services and infrastructure away from a diversely shared responsibility of individuals and corporations to one that relies entirely on the spending of individuals. Estimates are that in order to replace the revenue lost as a result of eliminating corporate and individual income tax, the increased sales tax rate would have to be at least 12.96 percent. And this does not even take into account people that live in border cities that will go to another state and spend their money (and taxes) in order to avoid spending extra inside the state.