Missouri House panel backs sales tax proposal on party vote

JEFFERSON CITY, Mo. -- A House committee voting along partisan lines advanced a proposal Wednesday that would let Missouri voters decide whether to replace the state's income tax with a higher sales tax charged on a wider variety of products and services.

The action by the House Tax Reform Committee marked the first step toward placing the so-called "FairTax" proposal on the 2012 statewide ballot. But legislative passage is far from a sure thing.

In the House committee, all Republicans voted for the measure and all Democrats opposed it, but committee chairman Rep. Doug Funderburk, of St. Charles, acknowledged that he and other Republicans still have concerns about the financial effect of the proposal.

"I understand the drama. This is a huge, huge change in how we would collect taxes," Funderburk said after the committee vote. "I think changes are better when they're incremental and slow."

The proposed amendment to the Missouri Constitution would phase out the state's income tax from January 2015 to January 2019 and replace it with a higher sales tax. The tax would be charged on many items that are currently exempt, including groceries and prescription drugs.

Missouri's current sales tax is 4.225 percent, including 3 percent for general revenue and the rest for earmarked purposes such as education, the Department of Conservation, state parks and soil conservation efforts. The proposal backed by the House committee would cap the general revenue state sales tax at 7 percent, meaning the total state sales tax would rise to 8.225 percent if other earmarked taxes remain in place. Local governments could continue to charge sales taxes on top of that.

Although similar proposals have failed in past years, lawmakers are considering the proposed tax changes more fully this year because several versions of a citizen-led initiative petition have been filed seeking to place it on the November 2012 ballot. Supporters, however, would first have to gather enough petition signatures.

Under the legislative proposal, the higher sales tax is intended to offset the eliminated income tax so the state's total tax collections would remain about the same. Supporters contend that eliminating the income tax would make Missouri a magnet for businesses.

Individual income taxes currently account for about two-thirds of Missouri's net general revenue.

Critics of the proposed tax change contend that even a 7 percent sales tax for general revenue would not be high enough to offset the loss of the income tax revenue. The Missouri Budget Project, a group that analyzes state policies for their effect on the poor, suggested that the state sales tax rate may have to be as much as 12.225 percent to offset the lost income tax revenue.

"The cap is actually pretty destructive," said Amy Blouin, executive director of the Missouri Budget Project.

Missouri's current tax structure includes deductions and credits that allow individuals and businesses to reduce the income tax they owe to the state.

The House proposal is intended to continue to provide some tax relief to Missouri residents. As endorsed by the committee, the measure would allow an annual rebate of up to $2,800 per person to offset part of the tax on the purchases they make. An earlier version of the bill had capped that rebate at $11,200 per household, but that ceiling was removed from the version passed by the committee.

Even so, some Democratic lawmakers expressed concern that the higher sales tax could disproportionately affect lower-income and elderly residents who don't pay much in income taxes.

"We are going to tax physical therapy, medications, doctors' visits, rent -- all kinds of things that aren't taxed now. And seniors on a fixed income, they don't have the money," said Rep. Margo McNeil, D-Hazelwood, who voted against the measure in the House committee.