Moving Forward on Progressive Taxation:
With Highlights from the Missouri Preliminary Report of the
Study Commission on State Tax Policy
The Senate Substitute for House Bill 384 formed the Study Commission on State
Tax Policy (SCSTP) in 2015. During the course of 2016, the Commission held public
hearings around the state of Missouri and dedicated considerable time to reviewing the
lengthy array of Missouri Tax Policies.
The Commission was split into three smaller “Work Groups” tasked with the
dealings of focused issues. The three Work Groups included Income Taxes, Sales and
Use Taxes, and a group on Tax Administration. The Commission outlined several
criteria which the Work Groups should use to address the tax policies, they include:
reliability, equity, compliance and administration, responsiveness to competition,
economic neutrality, accountability, transparency, and level of services desired (p.2-3).
Using these criteria, the Commission Work Groups evaluated all current Missouri tax
policy.
Jeanette Mott Oxford, executive director of Empower Missouri, and Amy Blouin,
executive director of the Missouri Budget Project, are citizen members of the SCSTP,
having been named to those roles by the minority caucus leaders of the Missouri House
and Senate in 2015. One of Empower Missouri’s goals has been to encourage dialogue
about the central flaws in current Missouri tax policy and to encourage consideration of
progressive alternatives. As the summary below will illustrate, we had some success in
getting these topics into the Interim Report of the committee, published December 2016.
You are encouraged to read the full report at:
http://www.senate.mo.gov/17web/wpcontent/uploads/2016/06/SCSTP-Interim-Report.pdf.
Missouri Taxes: Unfair, Outdated, an Inadequate
The Commission started this study with the intent to review Missouri tax policy in
light of several guiding principles; fair and adequate are two of those principles
established. The Commission defined fair in part to mean, “laws do not impose a
significant portion of tax on one segment (or limited segments) of the population (p.7).”
They followed with the principle of adequate and noted that “adequate laws should
generate sufficient amounts of revenue to fund desired amounts of government
services. (p. 8).” And yet, our current Missouri tax policy is neither fair nor adequate.
The income tax brackets of Missouri have not been updated since the 1930s; the
Commission’s Income Tax Work Group noted that currently “Missouri’s income tax
structure…contains several antiquated concepts that have lost relevance…(p. 9)”
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Another cause for concern is the prevalence of “unfair disparities between
taxpayers working in different industries, for different employers, and in different
jurisdictions (p. 9).” The Commission found that the “Missouri Department of Revenue’s
1st Quarter 2017 rate chart indicates 2,281 different taxing jurisdictions… that is a
potential for 13,686 different local tax rates statewide (p. 14).”
Within the same realm of sale and use taxes, the Commission found that
Missouri is one of only four states that had “no limit on the amount a vendor can keep”
when it comes to state tax withholdings from the “Timely Filing Discount.” In 2015, this
resulted in “over $110,000,000 in taxes paid by consumers but not collected by the
state. (p.16).”
The preliminary report clearly discusses that current “Department of Revenue
regulations…place an undue burden on taxpayers. (p. 10.)” These concerns and the
current display of discrepancies within Missouri tax policies are far too cumbersome.
Reforms to Missouri’s unfair, outdated, an inadequate tax system are long past due.
Missouri’s Earned Income Tax Credits
Within the list of topics presented and discussed by the Income Tax Work Group,
the discussion emerged about the “enactment of a state-specific earned income tax
credit (EITC) or similar subsidy for certain residents (p. 10).”
Legislation to create a Missouri Earned Income Tax Credit has been filed for
many years, and we came close to passage in 2016. 24 states have enacted State
Earned Income Tax Credits, including Missouri’s border states of Iowa, Illinois, Kansas,
Nebraska and Oklahoma. EITC legislation has been introduced by Rep. Mike Kelley (RLamar) – HB 109, Sen. Caleb Rowden (R-Columbia)- SB 197, and Sen. Jason Holsman
(D-Kansas City) – SB 342.
Streamlined Sales Tax Agreement and Current Complexities
Since 2000, the Streamlined Sales Tax (SSUTA) has made its way into 24 states
with a goal to “simplify and modernize sales and use tax administration in order to
substantially reduce the burden of tax compliance (p. 23).” The SSUTA would drastically
help with the devastating complexity (and often absurdity) of Missouri tax policy by
“establishing a uniform tax base, at least within the boundaries of the state…and
simplify the tax rates so that one rate applies statewide (p. 23).”
The “growing complexity of the Missouri sales and use tax (p. 11)” was the first of
six affairs the Commission’s Sales and Use Tax Work Group published upon. This vast
system, with a myriad of individual complexities buried within it, has led Missouri to a
place in which individual Missouri cities may have over a hundred different possible tax
rates for transactions. I.e. the city of Lee’s Summit, a town of less than 95,000
residents, has “102 possible tax rates for transactions” within its city borders (p.14).
Along with this complexity, the Sales and Use Tax Work also discussed sales tax
holidays, sales tax and state withholding discounts, sales and use tax exemptions, sales
with remote vendors, etc. (p.14- 25), as well as failure to collect sales tax on internet
sales. Empower Missouri supports the Streamlined Sales Tax Agreement because it
levels the playing field somewhat between online merchants and bricks and mortar
stores.
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Federal Income Tax Deductions
Alongside the numerous concerns and topics presented to the Commission, the
Income Tax Work Group made note of discussion of “a redesign of certain deductions,
exemptions, and regulatory provisions that, in their current forms, are perceived to be
ineffective, complex, and/or unfair (e.g. the federal income tax deduction; the individual
income tax combined return filing; etc.) (p.9)…”
Missouri is one of only six states allowing a deduction on state taxes for federal
income taxes paid. This feature of Missouri tax code kept our state from collecting
almost $600 million tax dollars in 2015. More than 80% of the benefit of that deduction
went to the wealthiest forty percent of taxpayers.
Modernization of Missouri’s Fuel Tax System
During the course of the Commission’s public hearings, a representative from the
Missouri Department of Transportation brought forth the information that of the
approximate $2.5 billion dollar budget allotted to MoDOT, the “most revenue comes
from user fees, such as the fuel tax and motor vehicle and driver license fees…(p.5).”
Missouri’s fuel tax has not been increased since 1996, and, combined with
increased fuel efficiency, funds collected are not meeting the state’s needs. An
adjustment to current economic realities should be made and a credit to benefit families
with low-incomes could be introduced as a measure to offset regressivity of fuel tax.
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