Missourians will decide Tuesday whether lawmakers can expand sales and use taxes in order to eliminate the state income tax.
While proponents of the constitutional amendment on the ballot contend it would create growth for Missouri, opponents say it will increase the cost of living in the state.
State Rep. Bishop Davidson, R-Republic, who is one of the sponsors behind the amendment, has held more than 30 town hall meetings to talk with voters about the issue.
"Questions revolve around what is the process for eliminating income taxes," he said. "What do we replace that revenue with? What powers does this or doesn't give to the legislature?"
One of the town halls Davidson co-hosted this month was at Moe's, a restaurant in Washington, Missouri. Around 50 people attended to hear why he says they should pass Amendment 5.
Davidson, along with state Sen. Ben Brown, R-Washington, spent over an hour discussing Amendment 5 and answering questions.
Behla Ascher of St. Clair attended the town hall to learn more about how it would affect Missouri. After the event, she said she was still unsure how to vote.
"I've heard some really good information from both sides, and I'm still trying to understand the total, like all aspects of it. So tonight definitely helped move that along. But I do still feel like I'm on the fence," Ascher said.
Steve Nieder of Washington is in favor of Amendment 5. He said one reason is for future generations, like his son and his grandchildren.
"That's what I'm thinking is the most important part. Of course, I do have some income I'm going to have to take in, and I would rather not pay income tax on it," Nieder said.
However, Nieder also said despite feeling that the speakers did well, he's not sure how many people were persuaded at the meeting to approve the amendment.
"I don't think the audience is convinced that it is a good way to go, and I don't know what that would take to happen," Nieder said.
Davidson said that unlike other forms of taxation, the state income tax affects everyone and is a hidden tax.
"People don't know how much their government costs them, not just in their own pocketbook, but they don't know the cost that that takes on their economy as well," Davidson said.
A week after the town hall in Washington, over 50 people gathered in Union at the library branch for a panel discussion against Amendment 5.
One of the speakers, Amy Blouin, president and CEO of the nonpartisan Missouri Budget Project, called Amendment 5 essentially a bait and switch that will create a tax increase for most Missourians.
"If we are going to really make up for that revenue loss, we would need to increase the sales tax rate to 16% on average across the state," Blouin said. "That would be the combined state and local rate, or we're going to have to expand the sales tax to everything that people purchase and use every day."
The Missouri Budget Project also said replacing the individual income tax with a sales tax would ultimately be an increase on low- and middle-income Missourians.
"We're asking people with the least amount of resources to contribute more to the products and services that we all rely on," Blouin said.
Last week, the Catholic bishops of the St. Louis, Kansas City, Jefferson City and Springfield-Cape Girardeau dioceses issued a statement saying expanding sales and use taxes "should be weighed alongside the potential effects on those who are most vulnerable."
"Tax systems that rely heavily on regressive forms of taxation, such as sales taxes, should be approached with prudence because they can place a disproportionate burden on those with lower incomes," the statement said.
Speaking after the panel in Union, Cheri Stephens said she doesn't believe she'll benefit from Amendment 5 since Missouri lawmakers passed a law in 2023 that eliminates the state income tax on Social Security benefits.
"I'm not taxed on those, and so a vote yes for me would honestly be just I vote yes to have sales taxes increased because it's not benefiting me in any other way," Stephens said.
How the amendment would affect seniors has been a sticking point for many.
Jay Hardenbrook with AARP Missouri spoke against the proposed amendment multiple times during the legislative session.
He said it feels like a bad deal for retirees in the state.
"I think for our folks it's just a no," Hardenbrook said. "I think any association if you saw the possibility of taxes going up on your members by this much and no real benefit on the other side that you would look at it very suspiciously."
Lawmakers don't need voter approval to eliminate the income tax. They could pass a law at any time that does just that. But, according to the Missouri Budget Project, the state's income tax makes up around $8.5 billion in state revenue annually. That's well over half of the general revenue the state sees each year.
To make up for that revenue, other taxes, like sales and use taxes, need to be expanded and likely raised. That ability to expand is what voters are deciding.
Under the amendment, the General Assembly would eliminate the income tax by requiring reductions to the top tax rate based on revenue growth.
Once the income tax is eliminated, lawmakers would be unable to reinstate any version of an income tax, unless a different constitutional amendment is passed.
The proposal gives a five-year window to expand transaction-based taxes, like sales taxes, to make up for lost income tax revenue.
Gov. Mike Kehoe first introduced the plan during his State of the State address in January. At the time, Kehoe noted that sales taxes are not placed on monthly subscriptions and digital services like online advertising and e-books.
"When these types of modern services are taxed, it will create new revenue for local governments," Kehoe said.
Proponents of Amendment 5 maintain that eliminating the state income tax will spur greater growth in Missouri, including enticing people to move to the state.
"When you look across the country at the states that are doing the best economically, they're the states that don't have an income tax," Missouri Auditor Scott Fitzpatrick said during a virtual town hall.
Some of the states that don't have a state income tax that supporters have referenced include Texas, Florida and Tennessee. Fitzpatrick said the most comparable state to Missouri is Tennessee.
"They are a border state to us. They have very similar demographics, similar geography, and they're doing extremely well in their state with no income tax," Fitzpatrick said.
Blouin said Missouri should not be compared to Texas, Florida or even Tennessee.
"Texas has the largest portion of oil production and natural gas in the United States, about 40% of the production, and they charge severance fees on those products," Blouin said. "States like Florida and Tennessee have higher degrees of tourism than Missouri ever would."
Tennessee's state sales tax rate is 7%, the state's principal source of tax revenue, accounting for approximately 60% of all tax collections.
Missouri's current state sales tax is 4.225%, which doesn't include local sales taxes.
Davidson said while there is skepticism as to what the possible future state sales tax would be, he believes it would be between 4% and 6%.
He also said there are guardrails in place within the amendment, including the five-year-limit to change Missouri's tax laws, as well as ensuring that any changes regarding sales and use taxes would be in pursuit of lowering the income tax.
Another perk that proponents tout about Amendment 5 is the additional tax benefits it could create on a local level due to a rollback requirement within the amendment.
Local entities that collect more revenue due to the expanded tax base would be required to reduce other taxes, like local sales taxes or property taxes.
"As the base is expanded, if it's expanded, then at a local level where property taxes exist, because of course the state doesn't charge property taxes, at that local level, those locals have to roll back their tax rates, and that includes things like personal property taxes and real property taxes," Davidson said.
However, Blouin is skeptical that any Missourians would see a reduction in their property taxes because of Amendment 5.
"My guess is that most localities faced with citizens who are facing this extreme sales tax, like no other state has, are going to choose to reduce the sales tax. They're not going to choose to cut the property tax," Blouin said.
The expanded sales and use taxes are not known yet. That's because there is no set plan within Amendment 5 of what will be taxed and what will be exempt.
Kehoe said in January that he would never support extending sales taxes on agriculture, health care or real estate.
Hardenbrook said that though Kehoe said he wants to avoid higher taxes on health care, he would like to see that laid out.
"That's such a gigantic sector of our economy, especially as you age. So, does health care include long-term care? Does health care include in-home care? Does it include over-the-counter medications, which a lot of our folks rely on regularly?" Hardenbrook said.
No exemptions are specifically listed within Amendment 5. Instead, it would be up to lawmakers to create them.
"Nothing's exempt, nothing is protected, and the more things that you exempt, the higher the rate has to go in order to generate the same amount of revenue," Blouin said.
Missouri voters will ultimately have to decide whether to place their trust in lawmakers in how to change the state's tax policy on Tuesday.
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