State Senators have had a chance to hear from supporters and opponents of a proposal to eliminate the state income tax and replace it with the so-called Fair Tax – a sales tax on goods and services. The proposal, which purports to be revenue neutral, has economic growth as its goal.
Among those speaking in support of the proposal was economist Art Laffer, known as the father of supply side economics. He sees elimination of the state income tax as a magnet that would draw wealthy individuals who create jobs.
“Those rich people in a static environment will pay less in taxes, that’s really true,” Laffer told the panel. “But we’re all looking at dynamic systems. Are you going to attract more people who are going to bring more jobs with higher incomes because of your income tax being lower and therefore cause your sales tax receipts to increase in the system?”
Lobbyist and former Missouri Budget Director Jim Moody spoke out against the proposal, saying taxes would be added to things not taxed now.
“That is hospitals, doctors, everything in medical care,” said Moody. “So you’re going to tax, at 5.11 percent, things you’re not currently taxing – prescription drugs, medical care, hospital visits, nursing homes.”
Those concerns were echoed by Amy Blouin, Executive Director of the Missouri Budget Project.
“Childcare … that’s going to be taxed,” said Blouin. “Educational services, tutoring, private K-12 education if your kids are in a private school – a Catholic school – you’re going to pay this on those schools.”
But economist Joe Haslag, Executive Vice President of the Show-Me Institute, believes the best thing about opting for the Fair Tax is the stability it provides.
“You’ll get higher highs when you tax income, you’ll get lower lows when you tax income,” said Haslag. “But if you want a smoother, more stable income path for net general revenue, consumer spending makes a lot more sense.”
HJR 56, a proposal to amend the Missouri Constitution to replace the income tax with more inclusive sales tax, has been filed for the session of the General Assembly.