Capitol Report

By Rep. Therese Sander, District 22

Jobs & Prosperity Act

The Missouri Jobs and Prosperity proposal introduced by Representative Ed Emery (R) 126^th has received a fair amount of discussion in the Capitol this past month, and its proponents will increase the volume next week Tuesday on the South Lawn of the Capitol with an 11:00 a.m. Missouri Jobs and Prosperity Rally featuring Michael Reagan, son of President Ronald Reagan. The House Ways and Means committee had a hearing on HJR56 March 18^th, but no further official action has taken place in the legislative process. On the Senate side, SJR 29 sits on the Senate’s informal calendar.

There are several key points to understand about the proposal in its current form. First of all, this proposal is a sales tax that would replace the Missouri income tax. So right off the bat, if this tax reform proposal were enacted, everyone would see an increase in their take home pay because there would no longer be a Missouri withholding deducted from paychecks. Second, this tax is a consumption tax, meaning that when you purchase goods or services at the retail level, this tax would be charged. Third, a vital component of the Fair Tax proposal, is the concept of a “prebate” by which the Department of Revenue will cut a check to each taxpayer according to parameters set by the legislature. The intent of the “prebate” is to nullify the regressive effects of the sales tax proposal on those in the lower income brackets. In other words, the state would give taxpayers an amount of money to offset the state sales taxes they are gong to pay on the basic goods and services they have to buy in order to survive.

Under this proposal, the taxable base is greatly expanded (because it will include services as well as sales of consumer goods), so every existing local sales tax rate would have to be recalculated downward to bring the amount of money collected back to what would have been collected under the former tax base. It will eliminate the following taxes we now pay and make our businesses more competitive: (1) Withholding taxes and individual and corporate income taxes; (2) Corporation franchise and bank franchise taxes; (3) All existing state sales and use taxes; (4) All local earnings taxes authorized by state law. One of the touted benefits of this tax reform is that it will do away with a lot of hidden taxes that you pay on services you currently receive so the cost of services we buy will go down.

Under the House Committee substitute, certain categories of expenditures are excluded from the sales tax. Excluded are:

• motor fuels
• insurance
• both public and private K-12 and higher education expenses
• charitable donations and purchases
• SNAP purchases
• Business to business transactions
• Investments

The maximum rate on the new state sales tax would be 7%. The Department of Revenue will have the burden of proof to show tax liability. No more guilty until proven innocent. Other exemptions would require a 2/3 vote of the legislature.

When contemplating such a major shift in tax policy as this, it is good to go slowly, but it is also beneficial to discuss the proposal in a public forum like the legislature in order to surface objections that will either be answered with explanations of the process or that will cause the sponsors to modify the proposal in some way that makes it better. For example, the initial proposal which you can read on the internet at the House website only exempted higher education expenses. After objections were raised and discussions were held in committee, the sponsor drafted a House Committee Substitute that broadened the education exemption to include K-12 and both public and private education. That version is not yet public on the House website because no committee executive session has yet been held on the HJR. However, Representative Emery has told me he is willing to share that language with anyone who requests it. Other proponents of this tax reform are former Representative Ed Robb and current Representative Chris Kelley, both of Columbia.   To learn more go to www.nomoincometax.org. 

 As always, you can reach me at 573-751-6566 or by email at Therese.Sander@house.mo.gov.