Many states are reducing income taxes.
Nine U.S. states are lowering income taxes on Jan. 1, according to a recent Tax Foundation analysis — a move that could give some taxpayers additional financial breathing room as they head into the new year.
At the same time, groups like the nonpartisan Center on Budget and Policy Priorities have warned that reducing or eliminating state income taxes could stymie investments in public services such as education.
However, Missouri is going to do one better!
Plan to replace income tax with expanded sales tax clears Missouri House
The constitutional amendment would allow sales tax on any goods or services purchased in Missouri. The top income tax rate would fall as new revenue arrives, with income tax elimination targeted for 2032
The proposal now moves to the Senate, where Republican leaders have proclaimed it a top priority and Democratic leaders said Thursday they have strong misgivings.
During the House debate, Democrats warned that Republicans were putting state services, including public schools, in danger of cuts if revenue replacement taxes do not produce the expected revenue.
“If the income tax disappears, the burden will not disappear with it,” Young said. “The burden shifts to you.”
Sales tax in Missouri is already low.
Missouri currently imposes a 3% sales tax for general revenue, plus 1.225% earmarked for particular programs. Local option sales taxes are added to the 4.225% total, and there are more than 50 locations in the state where the total sales tax is 11% or higher.
Each 1% of the general revenue sales tax generates about $1.1 billion. To replace the money raised from the income tax could add 8% or more to the current rate.
Along with the requirement that fuel taxes pay for roads, the measure would also exempt a new sales tax base from constitutional provisions that put goods and services not currently taxed off-limits to lawmakers.
“It is a modernization,” Patterson said. “It’s not just an increase in sales taxes.”
What taxes are most regressive and what does that mean.
A regressive tax is where the tax rate falls disproportionately on those who are in the lower income brackets. In other words, lower-income households face a higher tax rate, as a percentage of their income, than higher-income groups. For example, a retail worker earning $20,000 may pay 40 percent in taxes. If there is a regressive tax, then those earning a higher amount will pay less as a percent. So an executive at a big multinational firm may earn $2 million, but only pay 20 percent in taxes.
Key Points
- A regressive tax is where low income individuals pay a higher percentage of their incomes in taxes than richer individuals.
- A flat tax can also be regressive, as the rich and the poor pay the same value, yet as a percentage of their income, the rich pay far less.
- When a country adopts a regressive tax, it falls disproportionately on the poor, which can lead to inequality and political unrest.
A sales tax is considered the most regressive of taxes. It included everyone.
Property taxes are the next most regressive taxes, but many people do not own property.
The sales tax is usually set as a flat rate across the board. Whether the rate is 5 percent, 10 percent, or 20 percent, it means the same rate on all goods in the economy.
We can class this as a regressive tax as the Walmart employee earning $20,000 per year is going to spend a higher proportion of their income – perhaps even all of it. That means 100 percent of their income will be subject to the sales tax, so at a sales tax rate of 20 percent, that would equal 20 percent of their salary. However, the executive earning $1 million a year may only spend 15 percent of their income. So a 20 percent tax on that would equal 3 percent of their income spent on sales tax.
