Missouri Voters to Consider Eliminating Personal Income Tax

JEFFERSON CITY, Mo. (AP) — It’s not exactly common for voters to face a choice like eliminating the state’s personal income tax, and this upcoming decision will mark a significant moment. When the proposal appears on Missouri ballots later this year, it will be the first time in over a century that a U.S. state legislature has put such a question to voters about repealing the modern income tax. If they agree, it would also mean a boost in sales tax.

Missouri’s proposal includes a five-year limit on the income tax phase-out. Recent years have seen various states experimenting with tax cuts, especially as many had extra funds during the post-pandemic recovery. Yet, there’s been a shift lately. States, particularly those led by Democrats, are catching on to the idea of lowering taxes across the board, with most cutting some form of tax—whether it be income, sales, or real estate. However, many of these tax cuts didn’t correspond with increases in other taxes. Missouri’s measure realizes that eliminating income taxes could mean finding other revenue sources for government funding.

Background on Income Tax in the U.S.

Income tax as we know it started with the 16th Amendment in 1913, allowing Congress to tax earnings. Many states followed suit, with Missouri implementing its own income tax in 1917. Interestingly, some states like Florida and Texas don’t impose a personal income tax, relying instead on different tax structures.

Alaska is unique as it’s the only state to have implemented a personal income tax only to later eliminate it in 1980 when oil revenues were abundant. On the other hand, Massachusetts residents have voted against repealing the income tax twice, though those referendums were citizen-initiated rather than proposed by legislators.

States Moving Away from Income Taxes

In 2022, Kentucky approved laws to reduce income tax rates and introduce a plan for possibly phasing it out entirely, should certain revenue benchmarks be met. Mississippi also set a pathway to gradually lower its income tax rate, while Oklahoma introduced measures for phased reductions based on revenue growth. South Carolina joined recently with plans to eliminate the personal income tax reflecting revenue increases.

Details of Missouri’s Proposal

The proposed constitutional amendment in Missouri would instruct the General Assembly to progressively cut the personal income tax based on revenues. It also allows lawmakers to raise revenue by extending the sales tax to cover “all goods and services,” bypassing a previous voters’ restriction against expanding the sales tax base.

Voters may not fully grasp what they’re approving, as the ballot language mentions phasing out the income tax while “fixing” the consumption tax, avoiding the use of terms like “increase.” The Legislature has approved this amendment for the November ballot unless Republican Gov. Mike Kehoe decides to move the election to an earlier date.

Business Perspectives

Governor Kehoe is pushing the elimination of the income tax, suggesting it could bolster economic growth and entice businesses and new residents. Will Spartin, a businessman inspired by his experiences in Florida—where personal income tax doesn’t exist—expressed interest in returning to Missouri, contingent upon economic viability. He conveyed to lawmakers that even gradual shifts in this direction could signal Missouri’s intent to compete in modern industries.

Concerns from Residents

Some residents, like Sharon Wells, a retired teacher from a St. Louis suburb, expressed concerns. Having paid several hundred dollars in state income taxes, she fears that replacing the income tax with a broader sales tax might lead to higher overall taxes. With regular expenses like lawn services and haircuts currently untaxed, she’s apprehensive that they could soon be included in taxable items under the new proposal.

Wells shared her worries about rising costs, noting, “We’re already paying much more for groceries, medicine, and all kinds of services than we did in the past. Everything’s going up in price.”

Analysis of Tax Changes

The Institute for Taxation and Economic Policy indicated that if Missouri replaces its income tax with a higher sales tax, households earning between $49,000 and $78,000 could face an average tax increase of about $535. Lower-income individuals might be impacted even more significantly.

Carl Davis, the institute’s research director, remarked on the implications: “Obviously, this is a tax increase for most people.” Data shows that while tax policies might influence state attraction, they aren’t the sole factor. An analysis of IRS data revealed that states like Texas, Florida, and Tennessee have benefited from net interstate migrations of taxpayers, contrasting with higher-tax states like California and New York.

If Missouri voters choose to approve this referendum, it might prompt other states contemplating similar income tax cuts to accelerate their own plans.