From Income Tax to Sales Tax: Missouri’s Proposed Overhaul Is One of the Boldest in the Nation

Republican leaders unveiled a revised version of their income tax elimination plan at 11:30 p.m. on a Wednesday inside the Missouri Senate chamber in Jefferson City. Missouri was mostly asleep. There was silence in the gallery. The vote was completed by 18 to 11 at 1:15 in the morning, bringing the state one step closer to trying something that no state in contemporary American history has attempted on this scale: substituting an expanded sales tax for nearly two-thirds of its general revenue.

Missouri’s personal income tax, which is currently set at a top rate of 4.7 percent on income over $9,191, would be gradually eliminated under the plan, which was supported by Governor Mike Kehoe and pushed through the legislature by a Republican majority determined to make it happen before the November ballot. A broader, possibly higher sales tax that covers transactions that are currently untaxed would take its place. labor for home and vehicle repairs. prescription medications. Legal services. Gasoline. accounting costs. digital subscriptions. The list is purposefully ambiguous because the Senate-passed version’s failure to specify what is taxed is one of its more peculiar features. Voters are asked to approve the framework, and the details are left to a future legislature.

Opponents are particularly concerned about this trust, and their concerns are well-founded. Currently, Missouri’s income tax brings in about $8.5 billion a year, or about 65% of the state’s total revenue. The state sales tax rate would need to increase from 4.225 percent to something close to 13 percent in order to replace that without increasing what is taxed. The total bill at the register may be more than twenty percent in areas where local option taxes are already levied on top of the state rate. According to Springfield senator Curtis Trent, who oversaw the bill on the Senate floor, 6 percent is roughly the highest rate that voters could reasonably accept. If that is the case—which the majority of tax analysts think it is—then there must be a source for the discrepancy between the revenue required and the revenue that a reasonable rate produces. There is an expanded base somewhere—more items are taxed, more transactions are recorded, and more aspects of daily life are subject to a levy at the point of sale.

The political choreography at play here is difficult to ignore. Republicans portrayed the vote as a historic chance to implement structural reforms that would increase Missouri’s competitiveness with states like Florida, Tennessee, and Texas. Because polling indicated that the amendment would be difficult to pass and because a high-profile battle over a tax that would increase costs for middle-class and lower-class households while lowering taxes for the wealthy is a campaign issue they believe favors them, Democrats privately indicated that they were happy to let the amendment go to the ballot. The only Democrat to speak during the late-night session, Senator Stephen Webber of Columbia, thanked Trent for the procedure and cast a negative vote. That provides insight into how Democrats interpret the current situation.

There is nothing subtle about the distributional math. According to the Institute on Taxation and Economic Policy, households with annual incomes between $24,000 and $49,000 would pay approximately $850 more under a complete switch from income taxes to sales taxes, while the top 1% of earners would benefit from an average tax cut of almost $40,000. The minimum wage in Missouri is $15 per hour. Currently, there is no state income tax for a single parent who works 32 hours a week and makes about $25,000 annually. They would have to pay more under an expanded sales tax system. Ash Grove Senator Mike Moon attempted to change the plan so that the new sales tax would only apply to new products, sparing low-income consumers who depend on thrift stores. The amendment was unsuccessful.

The core of the Republican argument—and the point at which the case becomes dubious—is the comparison to other states that do not impose income taxes. Unlike Missouri, Florida has a tourism economy that generates enormous sales tax revenue. The oil and gas production in Texas is far greater than that of Missouri. Although Tennessee did away with its income tax, it only collected interest and dividends, never earned wages, and accounted for roughly 2% of state revenue. Missouri’s income tax, which accounts for 65% of the state budget, covers wages, salaries, and business income. Missouri is “an odd duck” in this comparison, according to Sarah Narkiewicz, director of the Low Income Taxpayer Clinic at Washington University in St. Louis. She pointed out that Tennessee has the nation’s second-highest combined state and local sales tax rate. By taking a similar stance, Missouri would be exchanging one type of burden for another while losing out on those states’ inherent revenue advantages.

An additional layer of unease is added by the surplus situation. In 2023, Missouri’s general revenue surplus reached a peak of $8 billion. The balance had fallen to $3.9 billion as of late February, and estimates indicate that it will be close to $265 million by June 2027—even before any changes to the income tax take effect. The House recently approved a budget that mostly used that surplus to close a nearly $2 billion deficit. Depending on your point of view, debating a fundamental tax code restructuring while the cushion is actively shrinking is either an extraordinary act of optimism or a bold statement of fiscal confidence.

There is a functional version of this. The framework’s proponents, including researchers at the libertarian Show-Me Institute, contend that the gap can be closed without blowing a hole in the budget by carefully managing and disciplining the expansion of the sales tax base in conjunction with the income tax reductions brought on by revenue growth. They point to the revenue triggers included in the original House version as safeguards and point out that the plan as written does not raise taxes right away; rather, it establishes a framework that will be filled in by future lawmakers. Voters in Missouri will determine which interpretation they find more persuasive in November, assuming the House approves the amended version in its next vote. That is either responsible incrementalism or a constitutional blank check.