Legislative Analysis Indicates Sinquefield Plan Is Far From Revenue Neutral

Last year, the General Assembly's Joint Committee on Tax Policy looked at Sen. Chuck Purgason's (R-Caulfield) proposal (SJR29) to replace the state's income, corporate income, corporate franchise and bank franchise taxes with a higher statewide sales tax to determine how such a proposal would impact state revenues.   Like the nine petitions submitted by right-wing financier Rex Sinquefield and his minions, Purgason's proposal capped the statewide sales tax rate at seven percent while expanding the list of things on which the sales tax would be imposed.

The committee's analysis of Purgason's resolution showed that a 7% tax rate would not provide enough revenue to replace the taxes it was eliminating.  To be revenue neutral, the Tax Policy calculations indicated that the statewide rate would have to be between 7.56% and 7.94% -- and that's without any "prebate" program that has been suggested to reduce some of the impact on low-income families. And if a prebate system was created, the analysis showed that the state sales tax rate could reach 10.5%.   

Here's a chart summarizing the committee's analysis of what rates would have been required for Fiscal Years 2006, 2007 and 2008 if SJR29 had been in place for those years. (You can see the full spreadsheet as provided by the committee below the break.)

  FY06 FY07 FY08
Tax Revenue Replaced $7,954,580,452 $8,362,465,071 $8,684,776,083
Cost of Prebate $2,485,833,804 $2,645,111,703 $2,768,440,335
Tax Base $105,218,820,495 $107,646,803,480 $109,380,607,486
       
Tax Rate
(Before Prebate)
7.56% 7.77% 7.94%
Tax Rate
(After Prebate)
9.92% 10.23% 10.47%

Any local sales tax levies would be imposed on top of these state rates. 

This analysis echoes some cost estimates published this weekend in the Post-Dispatch.  From Saturday's editorial:

Missouri’s Fair Tax proposal, and Mr. Sinquefield’s nine initiative petitions, all contemplate increasing the current state sales tax rate of 4.225 percent to 7 percent. Depending on where you shop, you’d pay another 1 to 5 cents in local sales taxes. In the city of St. Louis, for example, the combined sales tax rate would go from 9.241 cents to 12.016 cents.

The maximum sales tax in Texas, by the way, is 8.25 percent, of which the state’s take is 6.25 percent.

In Missouri, really poor people would get a “prebate,” a check intended to cover the added tax on essential goods and services.

Trouble is, even if you doubled the state sales tax rate to 8.45 percent (making the total sales tax in St. Louis city, for example, 13.461 cents), it still would leave Missouri more than $1.3 billion short of matching the $4.69 billion in individual and corporate taxes raised in fiscal 2010.

Mr. Sinquefield and the fair tax mavens would address that by broadening the reach of the sales tax to cover services, not just goods. Go to the doctor, pay a sales tax. Fix your car, pay a sales tax. Pay the day-care provider, add a sales tax. Get your prescription filled, pay a sales tax.

This tax is “fair,” you see, because the tycoon would pay the same rate to get his Mercedes fixed as the working guy would pay to get his beater fixed.

The trick in the fair tax is what services get exempted. Don’t think lobbyists aren’t already lining up.

The fair tax is a bad idea that, as far as we can tell, has only one guy really, really excited. Sadly, that might be enough.

As far as I know, supporters of Sinquefield's sales tax hike proposal have not openly acknowledged that their plan would further exacerbate the devastating cuts to state services -- and most certainly have not outlined which programs should be axed so that the wealthy can pay fewer taxes in their little experiment.  

For your review, here is the SJR29 worksheet as provided by the Joint Committee on Tax Policy.

 

 

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