A proposed constitutional amendment that authorizes Missouri lawmakers to modify sales and use taxes — including raising them — in order to eliminate the state income tax is possibly one step away from going on the ballot.
Senators in the early hours of Thursday voted 18-11 to pass the House resolution. Because the Senate made changes to the resolution, it now goes back to the House.
If the House adopts the Senate version of the resolution and passes it, it then will go on the ballot. If the House doesn't like the changes, they can request a conference committee to reach a compromise.
The passage of the resolution by the Senate comes with four weeks remaining in the legislation session. The resolution is likely to pass the House without it needing more work. The proposed amendment is also a priority for Gov. Mike Kehoe.
Proponents of eliminating Missouri's individual income tax say it will make the state more competitive and appealing for businesses and people looking to move to the state.
However, opponents say large hikes on sales and use taxes would be necessary to make up for the billions the state will lose by eliminating the tax.
Additionally, some organizations like AARP say that since most seniors do not pay income taxes in the state, this change would impose more taxes on them.
Three Republicans joined Senate Democrats in voting against the bill. However, Democrats did not lead a lengthy filibuster to obstruct the legislation.
Before the vote, Sen. Curtis Trent, R-Battlefield, spoke to Stephen Webber, D-Columbia, about the changes.
"I would characterize it a Senate-wide effort. There's a lot of folks that were involved in the negotiation, the discussion surrounding this, and I think that the process worked very well," Trent said.
Webber agreed on the process, but voted against the bill.
Speaking later on Thursday, Senate Minority Leader Doug Beck, D-Affton, said the proposed amendment paves the way for the largest tax increase in Missouri history.
"Replacing the income tax with higher sales tax will mean more taxes for most Missourians and the people hit the hardest are retirees, senior citizens and disabled veterans who pay no income tax now, but will pay higher sales tax on doctors visits and prescription medicines," Beck said.
According to the legislation, the general assembly would eliminate the income tax by requiring reductions to the top rate of the individual income tax based on revenue growth. Higher sales and use taxes would very likely be necessary to make up for that eventual loss of state revenue.
One of the major changes the Senate made to the proposed amendment is the elimination of the mechanism that would have automatically lowered the state income tax.
Instead, to eliminate the income tax, lawmakers would have to enact policy changes themselves. While they could have done that in the House version, it's now the only way they can lower it.
Beck said it was a priority for Senate Democrats to get that automatic reduction mechanism off the bill.
"In a lot of ways, it wasn't fiscally responsible," Beck said.
Meanwhile, Trent said the automatic reduction would have eliminated the income tax, but taken a much longer time.
"While it still would be great policy to eliminate the income tax 30 years from now, or 50 years from now, much of the benefit that we're going to derive from this policy economically would not occur on a timeframe that would be meaningful to the public," Trent said.
Lawmakers would have a five-year window to expand transaction-based taxes, like sales taxes, to make up for revenue lost by eliminating the income tax.
Asked whether lawmakers could simply decide not to change the tax policy in those five years, Trent says the amendment does require lawmakers to take action.
"The enforceability of that, I think, is not absolute. So, there's probably an avenue in which that could happen," Trent said. "But I think that if the people of Missouri vote to authorize this proposal, to move forward, I think that the pressure to do something and to do something in line with this proposal is going to be very high."
The resolution also requires that once the income tax was eliminated, lawmakers would be prohibited from reenacting any state individual income tax.
Most Senate Republicans voted for the resolution, including Rick Brattin, R-Harrisonville.
"It's time to be bold. It's time to be courageous. It's time to step out of faith and it's not blind faith. We see the states that are doing it, and it's the ones with no income tax, it's the ones with this exact same system," Brattin said.
However, Sen. Joe Nicola, R-Grain Valley, said income tax isn't the only factor businesses look at when choosing where to settle.
"They look at the cost of living. They look at schools, property taxes, home values, not just an income tax," Nicola said.
Nicola, who voted no on the bill, also expressed frustration that the Senate has yet to pass legislation on reducing property taxes. He said later on Thursday that he has not had one person from his district speak to him about the need to eliminate the income tax.
"I have no constituents, and I'm honest about this, not one that is talking about income tax to phase it out, but I've got hundreds that want property tax reform," Nicola said.
If the resolution does make it through the legislation, it still must pass muster with Missouri voters.
"It's incredibly frustrating to see it continue moving through the process, and I genuinely hope that if it does clear the House and, you know, make it across the finish line that Missourians vote it down whenever it comes to their ballot," House Minority Leader Ashley Aune, D-Kansas City, said.
The legislation is HJR 173.
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