State Income Tax Phaseout Headed to Missouri Ballot

Missourians will soon have the opportunity to vote on a ballot measure that would phase out state income taxes and cut property taxes if sales tax goals are met.

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The Show Me State currently has a graduated income tax rate of about 2-5 percent, according to Ballotpedia. If voters approve of Amendment 5 in early August, Missouri will join nine other states that have no personal income tax.

“The average Missourian stands to benefit $2704 to $2872. And that’s after accounting for all adjustments,” said Bishop Davidson, a member of the Missouri House of Representatives.

Davidson emphasized that the writers of the constitutional amendment had learned from other states’ past mistakes with income tax elimination.

“For instance, Kansas had a plan which was not based off of revenue triggers whatsoever. Instead, it was just a timeline of reductions … then you are just left with shortfalls” Davidson said.

Missouri’s Amendment 5 would require simultaneous action: lawmakers are required to include offsets in income tax reductions in the same legislation that would increase sales tax. Any excess revenue from the sales tax hike would act as a safety net for further changes.

The Trump Administration’s Council of Economic Advisers produced a in January outlining the benefits and feasibility of replacing state income tax with a broader sales tax. Among the report’s key findings were that income tax phase-outs could lead to a $4000 increase in the average wage and a 1 to 1.6 percent increase in GDP for the average state.

Aaron Hedlund, a member of the Council of Economic Advisers and a resident of Columbia, MO, pointed to economic growth and competition as the main benefit for Missouri.

“It’s a huge opportunity for the state,” said Hedlund in an interview.

Proponents of the amendment note that Missouri is falling behind its neighboring states. Tennessee, for example, has no state income tax and has experienced stronger economic and population growth, according to an article by the Show Me Institute.

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Amendment 5 would also grant an opportunity for the state to change its outdated sales tax code.

“We have 200+ exemptions and loopholes within our current sales tax code. And as our economy changes and shifts, we are frozen in the past,” Davidson said.

Missouri, like many other states, has shifted from a goods-based economy to a service-based one in the last few decades. An updated tax code would reflect the modern economy.

In June, an appellate court for the Western District of Missouri rewrote some of the language on the ballot measure, citing concerns that the wording would not properly inform voters what the measure would accomplish. Many politicians and figures in Missouri have railed against the judges’ changes.

Governor Mike Kehoe called the rewrite by the unelected officials “unfortunate” and misleading in a statement on his website. 

The Missouri Budget Project, an organization that Hedlund called “overtly liberal,” opposes the ballot measure. The nonprofit argues on their website that the amendment would “dramatically increase daily costs for Missourians and local businesses.”

Undeterred, Davidson is driving around the state and talking to locals.

“We’ve finally put Missouri on a path of economic freedom and economic prosperity,” he said.

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