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Battle begins over plan to replace Missouri's income tax with sales tax

This article first appeared in the St. Louis Beacon, Oct. 7, 2011 - Wealthy financier Rex Sinquefield's latest $1.3 million donation this week to the political action committee "Let Voters Decide" may be the strongest proof that his effort to persuade Missouri voters in 2012 to get rid of the state's income tax is about to go into high gear.

So are reports from sources that Let Voters Decide is planning to begin running radio ads next week.

Travis Brown, president of Let Voters Decide, declined comment on any plans to run ads, but he and the group have been upfront this week that a "concerted effort'' was about to get under way to promote its initiative-petition drive to replace Missouri's income tax with a higher sales tax.

Just don't call their plan the "Fair Tax,'' the nickname that some advocates have used for years, including some Republicans running for office. Critics have countered by calling the plan the "unfair tax."

Brown said that his camp is calling the proposal the "Missouri Taxpayer Relief Act."

Make that "proposals." The group recently has filed four slightly different versions of the tax proposal with the secretary of state's office -- and withdrawn nine others filed last winter.

Two of the latest versions have been approved for signature circulation, while two others are pending.

If sources are correct about the ads, Let Voters Decide is about to to launch the massive signature-collection effort needed to get the proposed constitutional amendment on the 2012 ballot.

According to the secretary of state's office, the initiative petition drive will require the signatures of 147,000 to almost 160,000 registered voters to get the proposal on the ballot. The signatures would have to be collected from at least six of the state's nine congressional districts. The number of signatures depends on which six districts are selected.

Brown said supporters will circulate petitions even as court battles continue.

Let Voters Decide and a rival organization that opposes the tax plan -- Missourians for Fair Taxation -- have each filed suits to challenge the secretary of state's ballot language and the state auditor's projected financial impact.

The suits reflect the two sides' differing stances. Let Voters Decides says the projected financial impact is too negative, while Missourians for Fair Taxation says the projections aren't negative enough.

Let Voters Decide and Sinquefield already have one statewide win under their belts. In 2010, the group -- financed almost solely with Sinquefield's donations -- successfully persuaded Missouri voters to stop any additional communities from imposing a local earnings tax.

The two cities that currently have them, St. Louis and Kansas City, are allowed to retain the earnings tax but must hold local votes every five years on whether to keep it.

10 Percent Sales Tax Ceiling

The chief elements of the proposals from Let Voters Decide are the same. Missouri's income tax, generally 6 percent, would be replaced with a sales tax of no more than 7 percent. The state's current sales tax is 4 or 4.225 cents on the dollar, and many cities and counties impose additional sales taxes.

At least two of Let Voters Decide's versions would cap all sales taxes at 10 percent, which could potentially prevent some localities from adding any future sales taxes or increases.

All the versions expand the number of items or services subject to the sales tax. (Prescription drugs, child care and rent are among the exemptions for the sales tax.) At least one version would exempt elderly homeowners from paying property tax on homes worth less than $400,000.

Brown says the overall shift from an income tax to a sales tax means that "Missourians would be taxed on those items that they choose to buy, not on the fruits of their labor."

He says the upshot would be "a better, broader tax base,'' while the taxes paid would depend on the consumer choices that people make.

"Taxes are a choice if you set up your tax policy correctly,'' Brown said. In a statement, he added, "This measure would make Missouri a better place for businesses and working families, which is why we believe people will be eager to sign our petition."

Supporters include the conservative free-market group United For Missouri, which has written extensively about the issue on its website.

Critics, including the Missouri Catholic Conference, say that the change would dramatically reduce the tax burden on the wealthy, while increasing it on the middle class, the poor and large families.

The Missouri Association of Realtors, which founded the Missourians for Fair Taxation campaign committee, says the change would result in higher sales taxes on home sales. (Perhaps as a result of that charge, at least one of Let Voters Decide's versions exempts home sales from the higher sales tax.)

Missourians for Fair Taxation calls the plan a "risky unfair tax scheme'' that "would cause the state sales tax on groceries to soar by 350 percent."

Boon or Bust for State Budget?

But the real debate on the tax shift, pro and con, centers on whether the change would boost the state's economy -- and its effect on the state's budget.

Opponents have been circulating analyses by state budget experts, most notably former budget director Jim Moody, that say the new sales tax would need to be increased to 15 percent or more to bring in the same amount of money.

Advocates disagree, saying the change would jump-start Missouri's economy by attracting more businesses and more jobs -- which would mean more people paying sales taxes.

Let Voters Decide points to the economic improvements in states like Texas, Florida and Tennessee that also have no income tax.

Let Voters Decide notes that Missouri was 48th in the nation when it came to growth in gross national product since 2000. Texas, by contrast, was 9th; Tennessee -- the no-income-tax state that most resembles Missouri -- was 36th.

"This is the 'jobs plan' that the governor's race won't talk about,'' Brown said.

Opponents cite the state budget problems in Texas, Florida and Tennessee as evidence that the shift to a sales tax doesn't guarantee economic gains.

That leads to arguably the chief issue in the two court fights: Would the proposal to change the state's tax system be a boost or a bust for the state budget?

The court disputes largely center on state Auditor Tom Schweich's official economic-impact statement that says the tax change could result in an increase to state revenue by as much as $300 million or a loss of as much as $1.5 billion a year.

The statement, which would appear on the ballot with the initiative proposal, now states:

"Annual state government revenue under this proposal may increase by up to $300 million or decrease by up to $1.5 billion. The proposal is estimated to increase state operating costs by at least $15 million, and may accelerate tax credit redemptions. The fiscal impact to local governments is unknown."

Let Voters Decide says that language is inaccurate and, in its suit, says the auditor's assessment would "unfairly create prejudice in the public, potential petition signers and the voters against the proposed amendment."

Brown says the group's expert analysis says the change would produce the $300 million increase early on, with the state collecting more income with the additional projected jobs.

Missourians for Fair Taxation asserts that the real cost to the state budget could be even higher than $1.5 billion a year.

The group's lawyer, Charles Hatfield, contends that Schweich's projection is faulty because it's too broad. "It's like giving a house's sale price as 'between free and $1 million," he said.

Meanwhile, Brown with Let Voters Decide said it's inaccurate to say that the shift from an income tax to a sales tax is aimed primarily at helping the wealthy.

"The rich already have options,'' he said. If they desire, they can move now to a state with low or no income taxes. The poor, he added, usually have no such options.