More good knowledge from AFP Missouri.
Myth Busters has worked diligently over the past few weeks as opponents to sensible taxation in Missouri are engaging in fuzzy math, and providing downright false or misleading information to the public and lawmakers about the Missouri Jobs and Prosperity Act. So from the same people (us) who told you that professional services performed for businesses won’t be taxed, and who showed that sales taxes are a more stable source of revenue than income taxes, we offer the following myth buster: Don’t believe for a second the ever-increasing sales tax rate projections from critics.
One group in particular, the liberal Missouri Budget Project (MBP), in association with its leftist ally, the Institute on Taxation and Economic Policy (ITEP), has thrown out projections ranging from 6.78% to 12.96%. This edition of Myth Busters will use Senate Substitute for Senate Committee Substitute for Senate Joint Resolution (SS SCS SJR) 29. SS SCS SJR 29 varies in several areas from the House Committee Substitute for House Joint Resolution (HCS HJR) 56. However, in busting the myth of the inaccurate sales tax rate projections, most of the facts would apply to both bills.
The first order of business is to understand that the initial MBP/ITEP analysis performed on SJR29 – HJR56 was identical to SJR29 at the time – was itself inaccurate. Once SS SCS SJR29 was developed, the revised sales tax projections being proffered by opponents were built on the inaccuracies of the original analysis making the latest projections by opponents even less reliable.
We’ll explain why.
The original analysis appears to be more of an effort to discredit the Show-Me Institute (SMI) rather than an effort to determine a projected sales tax rate. The analysis compares an SMI paper loosely based on 2009’s HJR36, not SJR29 or HJR56, which were significantly different. Thus, any comparisons or alleged inaccuracies of SMI analyses are not only flawed, but false.
The opponents can’t even get right which tax revenue needs to be replaced. SJR29 has always dealt with the rate it takes to replace various income tax revenue sources. In other words, how much would the 3% general fund sales tax rate (4% when Proposition C is included) have to increase? SJR29 never called for eliminating and replacing the earnings tax, the two constitutional taxes or motor vehicle sales taxes. But the opponents claim it did. Here is their information:
http://www.americansforprosperity.org/files/images/MBP-ITEP%20Revenue%20Table%20MB3.full%20width.jpg
This inaccurate revenue base leads to an inaccurate sales tax rate. It’s no wonder that the opponents developed such an inaccurate sales tax rate!
SJR29 replaces the following income related revenues with a consumption tax: individual income taxes, corporate income taxes, general fund sales taxes, Proposition C sales taxes and corporate franchise taxes. SS SCS SJR29 also provides for the retention of the property tax credit.
SS SCS SJR29 provides for a 5-year phase-out of the various income tax related items and a phase-in of the full sales tax rate. The bill caps the maximum sales tax rate at 7% and uses a moving 5-year average of revenues to be replaced. When you consider the economic growth resulting from the elimination of the income taxes, the projected sales tax rate necessary to replace the current 4% (3% general fund sales tax plus 1% Proposition C) in FY2018 is 6.76%.
The opponents claim that there is no “road map” for taxing services as proposed. It is true that no state has yet to tax as many services as SS SCS SJR29 proposes to do, although Pennsylvania’s Democratic Gov. Ed Rendell has offered up essentially the same approach in his state. Missouri currently taxes the second fewest number of services (26) compared to the surrounding eight states. The lowest number of services taxed by neighboring states is 17 (Illinois), and a high of 94 services (Iowa). Hawaii leads the way in taxing services by taxing 168 different services. A pretty good “road map” exists around the country regarding taxing services.
Missouri has the opportunity to become the economic engine of the Midwest. Eliminating a tax structure that discourages investment and kills jobs with one that provides the opportunity to create jobs and prosperity will benefit all Missourians.
