Jefferson City, under the sway of a Republican legislature, has become the home of the bad idea. No, scratch that and make it the home of the calamitous, breathtakingly detrimental, not just counterproductive but addlepated, idea. To wit: HJR 36, their latest constitutional amendment. It would eliminate all individual and corporate income taxes in Missouri and replace them with higher sales taxes.  

It passed last week in the House, will be heard in the Senate next week, and if it passes both chambers, it will go on the 2010 ballot.

The proposal is destructive on any number of levels. It claims that it would raise the basic state sales tax rate from 3 percent to 5.11 percent. But it also claims to be revenue neutral, which means that the sales tax would have to supply enough to replace the $5.8 billion in income taxes that it would replace. A mere 2.11 percent hike in sales tax cannot do that. No way, nohow. It can come closer to doing it if, as the amendment specifies, services are taxed as well as goods. Everything from doctor’s visits to rent to auto repairs to food and prescription drugs would be subject to sales tax. What’s next? A sales tax on smiles and handshakes?

But Missouri Budget Project has crunched the numbers and its analysis says that, no matter how many services they tax, a 5.11 rate would leave the state $1.5 billion short and services would have to be cut by 18.75 percent. No, a sales tax of at least 6.4 percent and possibly closer to 9 percent would be necessary before it would be revenue neutral.

And economic trainwrecks would follow from that.

The tax would eat into businesses–as if the economy weren’t shoving them around enough already. Here’s why: A Missourian earning $50,000 a year owes a certain amount of income tax. He doesn’t get a choice on whether to pay it. But if he’s looking to save money, he might see that 8 or 9 percent increase on a movie ticket and figure it for the straw that broke the camel’s back. Then rent a DVD instead. That’s good for Netflix but not for the local cine. Nor for the state revenue picture.

Then there’s the harm to businesses near the state line. You know that people will go across the state line for cheaper gas. With a whopping sales tax, they’ll do the same when they buy a car, pick a nursing home for a parent, or get their groceries. In doing so, those living near state lines would be transferring the tax burden of the state to those in the “interior”.

A vicious circle could result, with higher sales taxes needed because Missouri businesses are delivering fewer goods and services. Or–and this is the outcome Republicans would like–we might have to cut more services.

Don’t be fooled, therefore, when Republicans tout the rebate that comes with this tax. You’d get a rebate on all the sales taxes you paid on goods and services up to poverty level. For example, poverty level for a family of four is $22,050. So every family of four would get a rebate of $1,126. “Ooh,” the Rs say, “and… and they wouldn’t have to pay income tax. What a deal.”

But it isn’t, when you don’t consider how the cost of living will skyrocket and how much the lost state services are costing them. (Think of those as a back door tax.) As for businesses, they might break even, despite having fewer customers, since they wouldn’t be paying corporate income tax. But anytime we implement tax policy that is likely to slow the state’s economic engine, people will lose jobs. And their lost spending power slows the engine even more.

The proposed system would be especially hard on families with young children, because of the tax on child care, as well as on seniors, because of the taxes on nursing home care, medical services and pharmaceuticals. In other words, it would be hardest on some of those least able to cope.

In short, it’s a rattlebrained plan, but classic Republican.

The Missouri Budget Project is asking that you contact members of the Senate Ways and Means Committee to ask them to vote against this amendment:

Senator Vogel: carl_vogel@senate.mo.gov, 573-751-2076

Senator Lembke: Jim.lembke@senate.mo.gov 573-751-2315

Senator Bartle: matt_bartle@senate.mo.gov 573-751-1464

Senator Bray: jbray@senate.mo.gov 573-751-2514

Senator Lager: Brad.Lager@senate.mo.gov 573-751-1415

Senator Purgason: chuck.purgason@senate.mo.gov  573-751-1882

Senator Schmitt: Eric.schmitt@senate.mo.gov 573-751-2853

Senator Jones: Robin.jones@senate.mo.gov  573-751-2606

But be more tactful than I am. Best not to call it a rattlebrained idea. Instead, here’s some ammunition. Look at this list of typical services that would be subject to the sales tax:

  • Nursing Home Services and In-Home Medical or Personal Care
  • Medical Care including Doctor’s Visits
  • Child Care and Educational Services such as Tutoring
  • Rent and Housing, and Home Repairs
  • Utilities and Telephone Services
  • Health Insurance, Auto Insurance
  • Auto Repair
  • Funerals
  • Financial Services, Legal Counseling
  • Transportation
  • College and Private K-12 Tuitions
  • Health Clubs
  • TV and other Appliance Repair
  • Movie/Theaatre/Sports Tickets
  • Club Dues, Religious Activities