Missouri voters will decide in the August primary whether to adopt Amendment 5, a constitutional amendment that would require the state to phase out its individual income tax and give lawmakers broad authority to expand the sales‑tax base.
What Amendment 5 mandates
- Income‑tax phase‑out – If approved, the amendment obligates the General Assembly to enact legislation that gradually eliminates the state’s individual income tax. The timeline for the phase‑out is not specified in the amendment and would be set by the legislature after voter approval.
- Sales‑tax expansion – The amendment grants the legislature the power to broaden the sales‑tax base to “any and all goods and services.” Revenue generated from this expanded base must be used exclusively to pay down the individual‑income‑tax liability created by the phase‑out.
- Legislative implementation – Voter approval would trigger a requirement for lawmakers to design a financing plan that replaces income‑tax revenue with the newly broadened sales‑tax revenue while maintaining fiscal balance.
Potential implications for tax competitiveness
- Shift from progressive to consumption‑based taxation – Eliminating the income tax would remove a major source of progressive revenue, replacing it with a broader consumption tax that applies to a larger share of purchases, including items that are currently exempt such as groceries.
- Impact on household budgets – While high‑income earners would see a reduction in tax liability, lower‑ and middle‑income households could face higher overall tax burdens if the sales‑tax base is expanded to necessities.
- Revenue stability – Sales‑tax revenues are generally more volatile than income‑tax revenues because they fluctuate with consumer spending cycles. The amendment does not specify safeguards against potential shortfalls during economic downturns.
- Competitiveness with neighboring states – Missouri’s current income‑tax rate is modest compared with many states, but the state also has a relatively low sales‑tax rate. Broadening the sales‑tax base could bring Missouri’s overall tax burden closer to that of neighboring states that rely more heavily on consumption taxes.
Considerations for policymakers
- Designing the phase‑out schedule – A gradual reduction would allow time to assess revenue impacts and adjust the sales‑tax expansion accordingly.
- Defining “all goods and services” – Legislators will need to decide whether to include essential items such as groceries, prescription drugs, and utilities, which could affect the regressive nature of the tax shift.
- Ensuring revenue earmarking – The amendment requires that additional sales‑tax revenue be dedicated to paying down the income‑tax liability, but it does not detail enforcement mechanisms or how excess revenue would be handled.
- Monitoring fiscal health – Ongoing analysis will be necessary to track whether the expanded sales‑tax base can fully replace income‑tax revenue without creating deficits.
Bottom line
Amendment 5 would fundamentally restructure Missouri’s tax system by eliminating the individual income tax and expanding the sales‑tax base to fund that elimination. The change promises a simpler, consumption‑focused tax structure but raises questions about revenue stability, equity, and the state’s overall competitiveness. Voters and legislators will need to weigh the potential benefits of a lower income‑tax burden against the risks of a broader, potentially more regressive sales tax.
Source article: taxfoundation.org
