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Auditor declines to quantify ‘Fair Tax’ proposals

By   /   February 10, 2011  /   News  /   2 Comments

A “Fair Tax” proposal may one day appear on a statewide ballot in Missouri, but the future of nine proposals in Jefferson City are anything but clear after the state auditor said the fiscal impact “cannot be determined.”

Missouri Capitol in Jefferson City

Missouri Gov. Jay Nixon and fellow Democratic legislative leaders said increasing sales taxes while eliminating income taxes was a bad idea at the Missouri Capitol on Thursday, while Republican legislative leaders were lukewarm at best.

Under Missouri law, the auditor is tasked with coming up with fiscal notes for statewide initiatives, and the findings of those fiscal notes are to be included with the ballot proposals. The notes are usually issued after a review by the attorney general and the secretary of state, a process still underway.

But in response to a Sunshine Request, Missouri Auditor Tom Schweich, a Republican elected last November, used his appearance before members of the Missouri Press Association to discuss his findings. The cost estimates for each of the petitions ranged from an unknown or no fiscal impact to a projected state budget shortfall in excess of $1.02 billion, Schweich said.

The presentations from leading proponents and opponents of the “Fair Tax” proposals both contained valid arguments, he said, but no concrete figures could be identified to determine the actual financial impact.

“We don’t know what the sales tax rate is going to be, we don’t know what is going to be taxed, we don’t know how to address tax credits and what’s going to be done about those that are outstanding,” Schweich said.

The petitions, filed with the secretary of state last month, envision a lot of legislative action, he said. “I did not think it would be fiscally responsible to quantify a petition without knowing what the legislature is going to do.”

Missouri Budget Director Linda Luebbering said the hard cap on sales tax hikes of 5 to 7 percent contained in some of the proposals would be detrimental to the state budget, pointing out that collections would be below what would be needed to replace the revenue collections lost from eliminating individual state income taxes.

Lubbering noted some studies place the adequate sales tax rate at 10 to 13 percent to make up for the lost revenues from the state income tax. She said analysts must also grapple with forecasting the percentage of sales that would be lost across the borders from Missouri and via the Internet in response to higher taxes.

During remarks at a press association luncheon, Nixon revealed he is not a fan of the “Fair Tax” plans.

“I don’t think raising sales taxes on Missourians is a smart economic thing to do,” the governor said.

Missouri Sen. Jolie Justus, a Democrat from Kansas City, balanced her pessimism with optimism.

“We think it’s a really horrible idea, just a very bad idea,” Justus said. “But… if this spurs a conversation about tax reform in this state, it’s a good thing.”

Missouri Senate President Pro Tem Robert Mayer, a Republican from Dexter, said he supports a form of the “Fair Tax,” but he underscored the unknown variables. “The concept is intriguing and interesting and I’ve been supportive of it,” Mayer said. “But I just believe we have to work through the details and it takes some time.”

In the Missouri House of Representatives, Speaker Pro Tem Shane Schoeller, a Republican from Willard, said discussions about the “Fair Tax” need to continue. “Often what happens in Jefferson City is we decide we’re against something, so we stop having discussions, and that’s the worst thing that we can do,” Schoeller said.

Schweich stressed in a press release it is the duty of the state auditor to provide fair, unbiased fiscal summaries for initiative petitions, estimating the fiscal impact. “I take this responsibility seriously,” he said in the statement.

“While I discount the dire predictions of state bankruptcy, I also cannot in good faith predict that the petitions will have little or no fiscal impact on the state,” Schweich said. “While I prefer to quantify risks where possible… it would be inappropriate for my office to attempt to prospectively quantify the effects of these broad initiatives.”

In response to the decision by the state auditor not to provide a fiscal impact summary, Christine Harbin, a policy analyst with the free-market think tank Show-Me Institute, said she thinks it was a wise decision by Schweich.

“Enacting policies without knowing their cost might open a Pandora’s box,” she said.

The proposals leave many factors unsettled, including what the actual sales tax rate would need to be in order for the state to maintain critical services and what services would be subject to the newly expanded sales tax, said Amy Blouin, executive director of the progressive public policy organization Missouri Budget Project.

“State Auditor Tom Schweich’s statement on the inability of his office to estimate the impact of the mega tax on the state underscores the fact that this proposal has no place in our state’s constitution,” she said. “The uncertainty could prove devastating, and as a constitutional provision it would be very difficult to reverse.”

Carl Bearden, executive director of the grassroots organization United for Missouri, is unfazed by the criticism of the “Fair Tax” proposals. As a supporter of what he likes to refer to as the “Missouri Jobs Act,” he said the biggest support concerning the viability of the proposals to eliminate state income taxes comes from Tennessee.

“They have functioned so well that they have surpassed Missouri economically,” Bearden said.

Marc Ellinger, a spokesperson for the group that filed the petitions, did not respond to a request for comment. Ellinger, who is an attorney in Jefferson City, previously said the group is going to wait to see what comes out of the legislature before starting the process of gathering enough signatures to get the initiatives on the ballot.

By Dick AldrichMissouri News Horizondaldrich@monewshorizon.org

Brian R. Hookbrhook@missouriwatchdog.org, (314) 482-7944, contributed

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  • Erin Dunn

    Facts are facts, and the fact is, Misouri needs to attract jobs to our state if we are going to be strong economically. Although this legislation is based on the national FairTax model, there are some differences and the proper name for this legislation is indeed the Missouri Jobs Act.

    There are several factors which affect job growth in a state. When you compare the states which have no income taxes (including corporate/business income taxes) with those who have an income tax (especially a high rate income tax), the ones without an income tax consistently outperform those with an income tax. We see this in states like Texas as well as our border state, Tennessee. These statements are supported by research presented by ALEC in the book “Rich States, Poor States”. The question is, which group of states would we like Missouri to be in? If we want Missouri to be prosperous, we must enact policies that encourage job and economic growth, and the Missouri Jobs Act is a huge step in that direction.

    There are many unanswered questions as to which proposal would be moved forward, what it would look like in its final form, and what the sales tax rate would end up being. That makes it hard to quantify and get comfortable with, which is totally understandable. To write off this option would be a huge mistake for Missouri. Let’s continue refining the proposals to find what works, pass the Missouri Jobs Act, and start attracting what this state desperately needs: JOBS.

  • Jack Edge

    I agree Erin, One of the the largest positive factors to this plan is the jobs it will attract to Missouri. and the ability for our current business’s to expand. Border states will be hard pressed to compete with us when every business operating in Missouri has zero corporate tax rate and business to business purchases on non resale items is at a zero rate as well. Every legal Missouri resident will have more money to spend with their income tax gone and a prebate check each month to offset the added tax on essential items. However, those operating under the income tax radar ie: drug dealers, prostitutes, illegal aliens will be captured at the cash register often without the benefit of the prebate. The millions of tourist that visit our state will become a part of our tax base in an increased way again with no prebate check. In my opinion it is always wise to ask yourself why persons or groups will expend large sums of money as well as energy and fight to keep status quo. Could it be that the current system benefits their own economy or agenda? I am sure lobbyist will not like this system but I do not have a lobbyist do you? The Missouri jobs Act which many refer to as the fair tax transfers power from the government to the people and gives the control over your money back to you. YOU chose how much tax you will pay by what YOU chose to spend, all used items are untaxed under this system so if you chose to buy more used you save on your taxes. Businesses tend to pass on taxes to the customer this is known as embedded taxes. As businesses start seeing higher profit margins there will most likely be a slow decrease in prices due to our wonderful system of competition. Those seeking a bigger share of the market will lower pirces. So if you want to help take back control over the money you work for please join with as we make Missouri the 1st but not the last state in the country to pass this legislation. Sign the MJA petition at unitedformissouri.org