Missouri legislators consider Fair Tax policy

UPDATE: Welcome visitors from The Maritime Sentry!

I discovered this story at the Tax Foundation blog.

Excerpt:

Missouri lawmakers are considering a drastic change to their tax system. A bill recently passed by the state’s House of Representatives would allow residents to vote on a Constitutional amendment that would eliminate corporate and individual income taxes in the state and replace them with a broad based sales tax. The plan is essentially a state version of the national FairTax proposal popular with some grassroots groups that would replace the federal income tax with a national sales tax. If the Senate passes the bill Missouri residents would be voting on the amendment in November of 2010.

Missouri currently has a sales tax, a corporate income tax, and a personal income tax. The sales tax rate is 4.225%, and the top corporate and personal tax rates are 6.25% and 6%, respectively. The plan put forth would replace all those taxes with a single sales tax levied at a rate of 5.11%. Accompanying the sales tax rate hike would be a substantially broadened sales tax base that would include all purchases. Currently most services are tax exempt and certain goods, most notably groceries, are taxed at a reduced rate of 1.225%. These exemptions would not exist under the new tax structure.

The overhaul of the tax system is meant to be revenue neutral. In other words, the revenue from the sales tax increase and broadening of the tax base is meant to exactly offset the elimination of income taxes. In 2008 Missouri’s sales tax brought in $3.2 billion while the state’s corporate and individual income taxes brought in $5.5 billion. In order to achieve revenue neutrality, at a rate of 5.11% the base would have to increase by 124%, or a little more than double. This may sound like a huge increase, but it is very possible.

This would be a useful test case to see if a national fair tax is feasible. I am all for consumption taxes. Leave a comment if you prefer the fair tax to the flat tax. I’m leaning towards the flat tax, and I love the way that it’s been implemented in those Baltic states, like Estonia. Estonia is such a courageous country!

2 thoughts on “Missouri legislators consider Fair Tax policy”

  1. I’d be a bit more for it if they made the flat tax just a bit higher and rebated it. That is, perhaps 6% on everything and then cut a check to each person for an equal share of the excess.

    In effect, I’m saying that everyone should have a certain amount of spending free of tax. Consumption taxes are inevitably harder on the poor, but rebating it would somewhat lesson the impact.

    It could be done cheaply enough, and I wouldn’t worry about income phase-outs, etc. It would be cheapest for the state to just cut the same check for everyone. A wealthy person with lots of spending would only be rebated for the same fixed amount as anyone else and would consequently be taxed plenty even with the rebate.

    Like

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