Missourians now have a realistic estimate of what it would cost to replace the state’s individual and corporate income taxes with higher and broader sales taxes: at least 12.25 cents on the dollar. Add average local sales taxes of 2.75 percent, and Missourians would pay 15 cents on the dollar.
It would be less if you shop in places where local sales taxes are lower. It would be more where local sales taxes are higher. And those taxes would be applied not just to goods, as most current sales taxes are, but to nearly everything you buy, including auto repair, haircuts, prescription drugs, housing rents, utilities and child care. Some proposals also would tax doctor’s visits and prescription drugs.
So forget the 5.11 percent (plus local taxes) estimate in bills currently before the Missouri Legislature. Forget the 7 percent state “cap” contained in nine separate initiative petitions filed by operatives for anti-income tax crusader Rex Sinquefield.
The amount of “consumption tax” necessary to replace the state’s income taxes, plus fund a so-called “prebate” to every Missouri family to offset taxes on basic goods and services, plus an average local sales of 2.75 percent, adds up to 15 percent.
Those are not our calculations, nor are they those of any left-leaning, bleeding-heart, pinko, soak-the-rich advocacy group.
They were compiled by James R. Moody, a public finance consultant and lobbyist in Jefferson City. Mr. Moody was the budget director and director of the Office of Administration for Missouri Gov. John Ashcroft, himself a conservative Republican.
Mr. Moody analyzed the various consumption tax proposals for Missourians Against Higher Sales Taxes, an ad-hoc organization of various groups and industries who would be affected by the tax changes.
In a letter last week to state Auditor Tom Schweich, whose office will have to analyze the fiscal impact of any of the nine consumption tax initiatives that Mr. Sinquefield’s operatives have filed, Mr. Moody minced no words:
“[A]ll of these petitions are fiscally untenable. They will either bankrupt the state, or in the alternative, bankrupt the poor and the working lower and middle-income classes.”
The theology behind the various consumption tax proposals is that income taxes are a major economic disincentive. Replacing them with consumption taxes eventually would cause the state’s economy to boom, proponents believe, though in the short run, consumer spending (and thus the state’s tax base) would fall dramatically.
To offset the pain and to get around the fact that sales taxes affect the poor far more than the affluent, the state would, in theory, pay every Missouri family a “prebate”: a monthly check to cover the cost of sales taxes on basic goods and services, calculated by using federal poverty levels.
But none of the various consumption tax proposals filed — either as bills in the Legislature or as initiative petitions — account for the cost of the prebates. The low-end estimate for that is around $2 billion a year. Mr. Moody accepts $3 billion as more realistic.
“The proponents would leave you to believe that you can have a reduced tax base, a relatively low and capped tax rate and a prebate fully funded,” Mr. Moody writes. “That notion, however, is pure fantasy, and a basic ‘bait and switch’ tactic.”
Here’s the bottom line: 15 percent. On darn near everything. For a pipe dream.