Tax Justice Digest stories about Missouri
This
weekend thousands of advocates for the wildly misnamed "Fair Tax" are
expected to descend on Columbia, Missouri and hear from the likes of
Neal Boortz and Joe Wurzelbacher, better known as "Joe the Plumber." We
don't expect that this rally will inform Missourians that the proposal
to eliminate corporate and individual income taxes and replace that
revenue with sales taxes is likely to raise taxes on the poorest 95
percent of Missourians. Nor are attendees likely to learn that the
sales tax rate necessary to make this a revenue neutral change isn't
5.11 percent (as often claimed), but a combined state and local tax
rate of 12.5 percent.
Organizers of events like this have a difficult time acknowledging the real impact of the "Fair Tax" and instead focus on "simplicity" and the theoretical fairness of a sales tax. Luckily the press has delved a bit deeper into the issue and are pointing out the flaws in their proposal. For more on Missouri's so-called "Fair Tax" proposal, read ITEP's report.
Organizers of events like this have a difficult time acknowledging the real impact of the "Fair Tax" and instead focus on "simplicity" and the theoretical fairness of a sales tax. Luckily the press has delved a bit deeper into the issue and are pointing out the flaws in their proposal. For more on Missouri's so-called "Fair Tax" proposal, read ITEP's report.
It's safe to assume that there will be a special legislative session in
he hasn't committed to calling back the legislature or decided what topic he would even select for a special session, but everyone knows a shortfall this large isn't going away without further action. So a flurry of proposals are being discussed from progressive income tax reform to increased gambling and even the so-called "fair tax."
The
infamous "fair tax" legislation, which proponents are pushing all over
the country, would eliminate corporate and individual income taxes,
replace the lost revenue with increased sales taxes on a wide range of
services, and eliminate most current sales tax exemptions. Before going
too far down this path,
In
A similar fate is expected in
The So-Called "Fair Tax" Approved by Missouri House Would Raise Taxes for All Income Groups Except the Richest Five Percent
In the past month, the Missouri House of Representatives has acted like a spoiled child who really doesn't know what he wants. The esteemed body has voted to permanently reduce the state's income tax rates across the board by half of a percentage point (see ITEP's analysis of HCS for SB 71) and then separately voted to broaden the state's top income tax bracket and increase the costly and poorly targeted deduction for federal income taxes paid (see ITEP's analysis of HB 64).
Then, as if all that wasn't unfair or costly enough, the House decided to also approve the elimination of the individual and corporate income taxes altogether.
Yep, that's right, the full House of Representatives voted to simply eliminate a generator of roughly $5 billion and replace that revenue with a broad-based sales tax that exempts all business-to-business consumption.
Sound familiar? This legislation (HJR 36) is essentially the so-called "Fair Tax" proposal that anti-tax advocates have been pushing enthusiastically across the country. The Fair Tax proposal in Missouri, which would amend the state's constitution, would go before the voters if approved by the Senate.
Today ITEP joined in a release with the Missouri Budget Project highlighting analyses from both groups. ITEP's report concludes that HJR 36 would result in a net tax increase for all income groups except the richest 5 percent. It also finds that if the proposal is to be revenue-neutral (as proponents claim) and is to provide a rebate to Missourians (which they also promise), the new average state and local sales tax rate would have to be 12.5 percent. That's nearly double the 5.11 percent proponents of the bill claim, and it's at least a third more than the sales tax rates of neighboring states.
Missouri Budget Project's report finds that the additional sales taxes levied under HJR 36 would especially harm Missourians living on fixed incomes because they would apply to all services, including utilities, rent, medical care, food, prescription drugs, and child care -- most of which are things no other state makes subject to sales taxes.
Missouri Budget Project's report finds that the additional sales taxes levied under HJR 36 would especially harm Missourians living on fixed incomes because they would apply to all services, including utilities, rent, medical care, food, prescription drugs, and child care -- most of which are things no other state makes subject to sales taxes.
This has been a tough couple of weeks for tax fairness advocates in the Show Me State. Yesterday, the Missouri
House of Representatives passed House Bill 64, a regressive and costly
piece of legislation that does three things. First, it raises the
starting point for the 6 percent top income tax bracket from $9,000 to
$50,000 of taxable income. Second, it raises the dependent exemption
from $1,200 to $1,600. Third, HB 64 increases the deduction for federal
income taxes paid from $10,000 for married couples ($5,000 for single
filers) to $15,000 for married couples ($7,500 for singles).
See ITEP's fact sheet, which estimates that this legislation would cost $311 million in 2007 if it was in effect in that year. We expect the cost of the legislation to increase in future years as income grows.
Worse than the huge revenue loss is the regressive impact of the bill. About 88 percent of the benefits from these three tax changes would go to the wealthiest 40 percent of Missourians.
See ITEP's fact sheet, which estimates that this legislation would cost $311 million in 2007 if it was in effect in that year. We expect the cost of the legislation to increase in future years as income grows.
Worse than the huge revenue loss is the regressive impact of the bill. About 88 percent of the benefits from these three tax changes would go to the wealthiest 40 percent of Missourians.
But
this week was a demonstration of responsible lawmaking compared to what
went on in the Missouri Capitol last week, when the notorious,
so-called "fair" tax reared its ugly head and passed the House of
Representatives. Advocates expect the bill will go before the Senate
Ways and Means Committee next week. The ridiculously named legislation
would replace the state's individual and corporate income taxes
with sales tax revenue generated from a massive base expansion
(including adding food and prescription drugs back to the sales tax
base) in a supposedly revenue neutral way.
When advocating in favor of the bill, legislators pointed to Tennessee as an example of a state that reaps benefits from not having much of an income tax. Clearly lawmakers haven't investigated many quality of life indicators in the Volunteer State. For example, Tennessee ranks 6th in infant mortality rates, 9th in percent of children living in poverty, and 4th in percent of senior citizens living in poverty. It's pretty obvious that income tax elimination isn't guaranteed to create a high quality of life. The one thing that income tax elimination is guaranteed to create is a more regressive and unfair tax structure. To read more about this legislation, see the Missouri Budget Project's brief.
When advocating in favor of the bill, legislators pointed to Tennessee as an example of a state that reaps benefits from not having much of an income tax. Clearly lawmakers haven't investigated many quality of life indicators in the Volunteer State. For example, Tennessee ranks 6th in infant mortality rates, 9th in percent of children living in poverty, and 4th in percent of senior citizens living in poverty. It's pretty obvious that income tax elimination isn't guaranteed to create a high quality of life. The one thing that income tax elimination is guaranteed to create is a more regressive and unfair tax structure. To read more about this legislation, see the Missouri Budget Project's brief.
On
April 9, Missourians lost a steadfast leader for tax justice, while
advocates for progressive taxes across the country lost a colleague
whose energy and devotion to her principles were second to none. Pat Martin founded and continued to lead Missourians for Tax Justice
up until her death. She was active in economic and social justice
issues for most of her life and was integral in the fight to remove
food from the state sales tax base. Her resolve and dedication were
often tested in Missouri's difficult political landscape, but Pat never
let the situation get her down. Instead, she fought even harder and
asked others to do the same. Pat expected much of those she worked with
and even more of herself in the pursuit of justice. We will certainly
miss working with her. It's been said of Pat's death that "Missourians
have lost a bright light" and so have we. Read more about Pat's
remarkable life here.
It's
hard to believe, but there may actually be a trend in state tax policy
more prominent than increasing cigarette taxes. Business tax credits
aimed at spurring economic development have been among the most popular
ideas in statehouses scrambling for ways to reduce unemployment. Just
last week, we described a plan in Minnesota to boost investment tax credits and a budget in California containing a few credits of its own. This week, proposals to do the same in Iowa, Kentucky, and Missouri are under discussion.
In
Iowa, Republican lawmakers have suggested paying (via tax credit) half
the salary of each new job created by private businesses. Oddly,
because this payment would be administered through the tax code rather
than as a direct grant, the debate has become confused to the extent that this policy has been labeled as a way to return to a "market-based, capitalistic system".
An excellent op-ed
out of Kentucky helps clear things up a bit, noting that Gov. Beshear's
proposed expansion of business tax incentives would be a costly,
nontransparent, and likely ineffective way of encouraging job growth.
The op-ed goes on to argue that a "broader" approach, including better
targeted and more closely scrutinized spending programs, could do far
more good than creating more tax credits.
Finally, as an expansion in economic development tax credits works its way through Missouri's legislature, the admission
of at least one legislator that he is a "recovering tax credit addict"
helped to shine some light on the unfortunate politics behind these
types of tax credits. These programs can cost a state enormously, and
are rarely defensible on principled tax policy grounds. Instead, they
constitute a type of spending done through the tax code -- commonly
referred to as "tax expenditures"
-- which add complexity, shrink the tax base, require higher marginal
rates, and offer little if anything in terms of making the system more
responsive to individuals' and businesses' ability to pay.
Last week was a rough one for tax justice advocates in many states, but especially those working in Missouri.
The House Committee on Tax Reform heard not one, but two bills
attempting to eliminate to state's corporate income, individual income,
and estate taxes. The revenue loss from eliminating these taxes would
supposedly be raised from eliminating all sales tax deductions and
exemptions. These bills were based largely on the propaganda of
Americans for Fair Taxation, a group which supports the elimination of
all taxes based on income.
The group's slogan for promoting these types of tax changes is "Freedom. Fairness. Savings," words which have nothing to do with the policies they promote. Relying more on consumption taxes rather than income taxes only ensures that poor families pay more in taxes as a share of their income than do wealthy families. The only people who save under these "fair tax" proposals are wealthy folks. The Missouri Budget Project was one of many groups who testified against these unfair and expensive proposals, arguing "that these bills undermine the principles of fairness and equity that should be the basis of our tax system."
The group's slogan for promoting these types of tax changes is "Freedom. Fairness. Savings," words which have nothing to do with the policies they promote. Relying more on consumption taxes rather than income taxes only ensures that poor families pay more in taxes as a share of their income than do wealthy families. The only people who save under these "fair tax" proposals are wealthy folks. The Missouri Budget Project was one of many groups who testified against these unfair and expensive proposals, arguing "that these bills undermine the principles of fairness and equity that should be the basis of our tax system."
The poorly named Tax Payer Bill of Rights (TABOR) is a cap on allowable spending enacted in Colorado
in 1992. Since then, it has become clear that the measure demolished
the state's ability to fund higher education, infrastructure and health
care. Despite voters approving a ballot measure to suspend Colorado's
TABOR for five years, the concept of a spending limit is still rearing
its ugly head in both Maine and Missouri.
In
Maine, the Heritage Policy Center has a revised TABOR proposal (a
previous proposal was defeated by a vote of the people two years ago),
which promises to combat the state's "overspending" problem while
making it quite difficult for taxes to be raised. This November, Mainers will be asked to vote once again on the TABOR. Read the Maine Center for Economic Policy's report about the many serious problems with this proposal.
Meanwhile, a proposal to cap spending is making its way through the Missouri House of Representatives, which will serve as another test for the pro-TABOR forces. Read the Missouri Budget Project's warning about TABOR's impact on the state.
Meanwhile, a proposal to cap spending is making its way through the Missouri House of Representatives, which will serve as another test for the pro-TABOR forces. Read the Missouri Budget Project's warning about TABOR's impact on the state.
We've recently highlighted a variety of progressive revenue raising options gaining serious attention in New York and Wisconsin.
This week we bring you yet another idea that's recently been the
subject of debate, though this one applies to fewer states. Those
seven states still offering income tax deductions for federal taxes
paid (i.e. Alabama, Iowa, Missouri, Montana, North Dakota, Louisiana,
and Oregon), should immediately repeal, or at the very least
dramatically scale back, that deduction.
The federal income tax deduction takes what is perhaps the best attribute of the federal income tax -- its progressivity -- and uses it to stifle that very attribute at the state level. Since wealthy taxpayers generally pay more in federal taxes than their less well-off counterparts, allowing taxpayers to deduct those taxes from their income for state income tax purposes is a gift to precisely those folks who need it least. And since most state income tax systems possess a degree of progressivity, those better-off taxpayers who face higher marginal tax rates are benefited even more by being able to shield their income from tax via this deduction.
Iowa Governor Chet Culver most recently drew attention to this problem while urging lawmakers this week to end the deduction. The idea has also recently garnered attention in Missouri, where ITEP recently testified on a bill that would, among other changes, eliminate the deduction. Finally, another bill making its way through the Alabama legislature seeks to end the deduction for upper-income Alabamians.
With three of the seven states that still offer this deduction considering its elimination, this is definitely one progressive policy change to keep an eye on.
The federal income tax deduction takes what is perhaps the best attribute of the federal income tax -- its progressivity -- and uses it to stifle that very attribute at the state level. Since wealthy taxpayers generally pay more in federal taxes than their less well-off counterparts, allowing taxpayers to deduct those taxes from their income for state income tax purposes is a gift to precisely those folks who need it least. And since most state income tax systems possess a degree of progressivity, those better-off taxpayers who face higher marginal tax rates are benefited even more by being able to shield their income from tax via this deduction.
Iowa Governor Chet Culver most recently drew attention to this problem while urging lawmakers this week to end the deduction. The idea has also recently garnered attention in Missouri, where ITEP recently testified on a bill that would, among other changes, eliminate the deduction. Finally, another bill making its way through the Alabama legislature seeks to end the deduction for upper-income Alabamians.
With three of the seven states that still offer this deduction considering its elimination, this is definitely one progressive policy change to keep an eye on.
If state tax budget shortfalls and regressive tax structures were a popularity contest, Missouri would be
considered one of the cool kids. Like most states, Missouri has both an
enormous shortfall and a regressive tax structure to contend with. The
discussions in Missouri about ways to solve the state's fiscal mess (as
in many other states) have mostly focused on program cuts.
But this week advocates from the Tax Justice for a Healthy Missouri Coalition bucked the status quo. A hearing was held by the House Tax Reform Committee on a bill, supported by the coalition, that would broaden Missouri's tax brackets, add new top tax rates, eliminate the state's deduction for federal income taxes paid and introduce a refundable credit targeted toward low- and middle-income folks.
The bill would also raise over a billion dollars. For a cash-strapped state that hasn't seen its top bracket change since 1931, this bill offers a chance to modernize the income tax, increase revenue, and make the tax structure fairer overall. It's rare that one piece of legislation has the ability to do so much good. For ITEP's testimony on this important legislation, click here.
But this week advocates from the Tax Justice for a Healthy Missouri Coalition bucked the status quo. A hearing was held by the House Tax Reform Committee on a bill, supported by the coalition, that would broaden Missouri's tax brackets, add new top tax rates, eliminate the state's deduction for federal income taxes paid and introduce a refundable credit targeted toward low- and middle-income folks.
The bill would also raise over a billion dollars. For a cash-strapped state that hasn't seen its top bracket change since 1931, this bill offers a chance to modernize the income tax, increase revenue, and make the tax structure fairer overall. It's rare that one piece of legislation has the ability to do so much good. For ITEP's testimony on this important legislation, click here.
