State Auditor Tom Schweich was asked to write the verbiage that might be used on an initiative for the so-called ‘fair tax,’ which would throw out state income taxes and replace them with sales taxes. This is what he’s written:
‘The total cost, savings, and/or change in tax revenue to state and local governmental entities cannot be determined. The proposal (1) requires a range of legislative action with unknown outcomes, and (2) will result in changes to consumer spending patterns that cannot be presently quantified.’
Schweich says his office took a hard look at the issue but says any hard estimate of the impact, in dollars, would be arbitrary and irresponsible at this point.
“The people who are proponents of this shift in taxes say it’s going to cause people to move into the state, increase the tax base, and therefore we may even be ahead in terms of revenue. Those who oppose it say no, people don’t like the idea of big sales taxes, they’ll move all their business out of state and there will be a reduction. I’ve looked at the data on this, I’ve looked at the studies. Nobody really knows what the result is going to be in that case,” Schweich said.
Schweich presented the fiscal note at a Press Association event at the Capitol Thursday.
“It’s not uncommon for the auditor to say the costs are unknown, I mean that’s happened many times before. In this case I would have loved to give a number. I mean there is a number, and I put it in the press release. Yhe Office of Administration said it would have a negative $1.03 billion effect,” Schweich said.
But Schweich says relying on that number would be irresponsible.
“For example, in the OA analysis… I’ll read part of it. They say that the budget and planning division estimates the loss due to explicit avoidance activities such as internet purchases, people moving out of state or traveling across state lines, or purchase of used goods (which are exemptions), would have a 10% effect. In other words, it would reduce state revenue by 10%, that’s what they say. The next sentence says this figure is entirely arbitrary. Now how can I take that 10% number when they themselves say it’s entirely arbitrary? It would not be responsible to do that,” Schweich said.
State Budget Director Linda Luebbering acknowledges there’s not enough information to be certain about what would happen.
“So, are there assumptions made? Yes, but that’s what fiscal notes are about. When we’re asked to prepare a fiscal note either by the legislature or the auditor, we have to use the best information that is available and make an estimate. That’s what we do. We do it frequently because we’re asked to do it frequently,” Luebbering said. “Can we be certain? No, because the state level of data is simple not available. But it is based on reasonable assumptions.”
In addition to the questions about consumer spending patterns that Schweich says can’t be answered, he says there are a lot of unknowns about the actions the legislature will take.
“You can’t determine the fiscal impact until you know how the legislature is going to treat the issue of what the sales tax rate is going to be, what constitutes ‘low income’ for rebates or pre-bates or credits. How to address the fact that tax credits would be eliminated, that’s left to the legislature, how you handle the ones that are already outstanding. Health care costs are TBD in some of these petitions, how would they be handled, would they be taxed, wouldn’t they be taxed? A method for providing rebates, credits and also additional tax exemptions, there’s a lot of possibilities for the legislature to add to the list that’s in some of these. And how to handle senior citizens and the disabled,” Schweich said.
Schweich says he doesn’t want people to assume his office ‘punted’ this fiscal note.
“We looked at this very closely, and I would have been very happy to give you a number if it were susceptible to determination,” Schweich said.