by Thom Gross, retired Journalist, St Louis, MO
Gov. Mike Kehoe’s signature tax plan, Amendment 5, is a classic bait-and-switch. It dangles before voters the shiny phaseout of income taxes. But if voters take the bait, they’ll find that they have swallowed unlimited new sales taxes and use taxes that they’ll never get to vote on.
In the “bargain,” they will have lost three popular tax-protection laws that they did vote for.
Amendment 5 seeks to phase out Missouri’s individual income tax over five years by granting the General Assembly power to raise sales and use taxes without a statewide vote. It may sound simple, but the process for getting Amendment 5 on the ballot has been marked by deception. Courts have repeatedly rewritten ballot summaries that failed to inform voters clearly about the loss of voter control over tax hikes.
In its ruling, a state appeals court said the ballot summary must emphasize that a broader sales tax is the main mechanism that would allow elimination of the personal income tax.
“It is not fair and sufficient to repeatedly suggest to voters that various tax obligations will be reduced and eliminated without informing them, at any point or in any manner, of the expansive authority that will be granted regarding sales and use taxes,” Judge Thomas Chapman wrote.
Recent ads promoting Amendment 5 suggest the income tax phaseout will thwart the expansion of data centers by making Big Tech pay more taxes. These ads mislead voters, as the amendment contains no mention of data centers — or any specific industry. In fact, Gov. Kehoe has actively sought to recruit data centers to the state, including offers of tax exemptions.
The measure undermines three standing tax protections approved by voters and supported by conservatives and libertarians — a fact its supporters tried to hide until courts revised the ballot language to at least refer to the removal of the protective laws.
The three are:
- The 1980 Hancock Amendment. Missouri’s so-called “taxpayer bill of rights” requires voter approval for major tax hikes. Amendment 5 creates a 5-year loophole letting lawmakers raise and expand sales taxes without a public vote.
- The 2016 Ban on Taxing Services. Voters blocked new taxes on everyday services — doctor visits, car repairs, daycare, haircuts, and more. Amendment 5 “curtails” this protection so politicians can start taxing those services during that same five-year window — to replace the $8.5 billion lost from eliminating the income tax.
- The 2010 Ban of Taxes on Home and Property Sales. Amendment 5 gives lawmakers unchecked authority to bring back these types of property-transaction taxes.
Amendment 5’s language for replacing income tax revenue is vague and open-ended.
It would give the General Assembly complete discretion over what to tax and how much, without requiring voter approval — something Missourians have counted on for 46 years. Voters will face higher taxes on everyday goods and services, from barbers to fitness centers to auto repairs to health care, to rent and home sales.
Missourians for Fair Taxation says, “Amendment 5’s ‘Everything Tax’ will cost Missourians from cradle to grave — from the services of the midwife to the services of the mortician.”
The individual income tax, projected at $8.5 billion this year, accounts for nearly two-thirds of Missouri’s general revenue. Replacing it requires a fundamental restructuring of how the state collects money.
To replace that revenue without expanding sales tax coverage would require increasing the sales tax rate to 10.7 percent from the current 3 percent. An increase that steep would put many retailers out of business and put our state at a competitive disadvantage. It’s more likely that eliminating the income tax would require broad expansion of the sales tax to goods and services not currently taxed.
The ballot language on Aug. 4 is confusing where it states that the amendment will “Require local tax rate cuts without reducing school funding if local sales tax revenue increases.” But several non-partisan groups report that it will indeed directly lead to school funding cuts.
That’s because even with broader and higher sales taxes, there is no realistic way to make up the $8.5 billion from income taxes without substantial cuts to state services, including supports for older adults and schools.
“The proposal would blow a $5 billion hole in the state budget, causing massive cuts to schools, particularly in rural areas. If resulting cuts are equally distributed across the budget, state general revenue funding for local schools would be cut by more than one-third, or $1.4 billion statewide. Depending on the school district, this could result in a nearly 18% cut in TOTAL school revenue, including local funds.”
–The Missouri Budget Project
Perhaps more frightening is that the amendment includes no “guardrails” that would account for population growth, inflation, or economic downturns that dramatically impact the cost of and need for state services. Without an emergency plan, our state could descend into an economic whirlpool.
Replacement taxes will punish working-class Missourians and reward the richest.
Up to 80 percent of Missourians could pay more in total taxes under the amendment because of expanded sales tax burdens, analyses show. Sales tax is regressive — it hits the poor and middle class harder because they spend a higher share of their income on necessities. Seniors and retirees on fixed incomes gain nothing from income tax cuts but will pay more on the basics they need.
Amendment 5 is a significant, largely irreversible tax restructuring that clearly benefits the wealthy, is a gamble for the middle class, and is almost certainly a net negative for lower-income Missourians and retirees.
For the Poor: Someone earning $25,000 currently pays minimal income tax. Under a broader sales tax regime, everyday necessities like utilities, haircuts, and basic services become more expensive, with no offsetting income tax savings. Their total tax burden rises. A tax on rental payments would shift taxes from the wealthiest to the poorest, from investors to workers.
For the Middle Class: If the General Assembly expands sales taxes to services to cover the revenue gap, a family paying $3,000/year in income tax could face new taxes on car repairs, healthcare co-pays, home services, internet, and more — potentially exceeding what they saved. Net result: paying more, not less.
For the State Budget: Taxing the products and services Missourians use every day will make it more difficult for families to get ahead. Economic activity could slow, reducing the new revenue that the amendment depends on to replace income taxes, creating a vicious cycle.
The impacts would depend on what the General Assembly decides to tax and by how much — and Amendment 5 removes the public’s ability to vote on those decisions.
Don’t fall for the illusion of removing the income tax. The consequences will cost more for the vast majority of us and leave us powerless to vote out or lower new taxes.