We Don't Need A "Great Experiment" To Know How Much A Big Sales Tax Hike Would Cost Missouri
The Missourian takes a look today at Rep. Chris Kelly's (D-Columbia) proposal (HB152) to lower the state's income tax, eliminate the corporate income tax and hike the state sales tax. Kelly's bill is a little different than Republican proposals or Rex Sinquefield's initiative petitions, but Kelly has been a supporter of "fair tax" ideas in general for some time now.
Kelly and I aren't going to see eye to eye on the wisdom of embarking on this sort of "great experiment" in tax policy (his words), but I want to take issue with one point he makes in the article. According to Kelly, there is "no current data to determine how much revenue will be gained or lost if a sales tax is used instead of an income tax." While it's true there isn't a fiscal note for his HB152, researchers inside and outside the Capitol have been looking at this very question for some time now. For instance:
- The Joint Committee on Tax Policy evaluated a Senate "fair tax" proposal last year, and found that the state sales tax rate would have to be 7.56%-7.94% to be revenue neutral, and at least 10% if the state created a rebate/prebate program. This was reported by the News-Leader's Rosean Moring as recently as December 18, and the Committee's analysis can be read here.
- Research conducted by the Missouri Budget Project and Institute on Taxation & Economic Policy determined that the sales tax rate with a prebate program would need to be close to 11% to be revenue neutral. Their study, published in February 2010, may be found here, and you can read testimony from the ITEP submitted to the Senate in January 2010 here.
- The Center on Budget and Policy Priorities issued a report in September stating that Missouri would have to raise its sales tax rate to 11 percent or more under the 2010 proposals to replace lost revenue from the personal and corporate income taxes and franchise taxes.
The exact numbers are going to change with each proposals' specific provisions, of course, and depend on what sort of goods and services will be taxed for the first time at the increased rate.
But at this point in the game, we have a pretty good idea of what will be required to make this "great experiment" revenue neutral. And it's downright scary.
