PA 8720 - “Fair Tax” Policy Analysis
John Maynard Keynes stated that “the avoidance of taxes is the only intellectual pursuit that carries any reward,” (Waters, 2011). In Missouri, while seeking to avoid an income tax, advocates for the “Fair Tax” have seemingly presented a proposal that is the antithesis of the pursuit Keynes deems worthy. They are proposing a constitutional amendment that would impose a sales tax that no Missourian could avoid. The “Fair Tax” would cost everyone, no matter their income level and even have its greatest impact on the most vulnerable among us. Even as a tax of this type would expand the tax base, the repercussions to the taxpayers, the state budget, and the state economy would present hurdles too high to conquer.
Missourians are facing a tough fiscal environment. They are enduring a slow economic recovery and attempting to overcome a nearly six percent rate of unemployment (DLIR, 2013). If a “Fair Tax” is implemented during this time of fiscal uncertainty, Missouri will be at risk of losing up to $1.5 billion in revenue while increasing its operating costs by $12.8 million (Schweich, 2011). It will also leave Missourians at risk of a reduction in personal funds available for expenditures and could cause a loss in state services.
According to a report released by the Missouri Budget Project ("Four new “mega," 2011), Missouri could suffer a $2.5 billion shortfall if the constitutional amendment were to pass. Totaling roughly one-third of the state’s general revenue, funding to governmental departments and the critical services they provide would be slashed significantly. The report suggests that funding could be cut by the following: $868 million for public schools, $465.5 million for social services and Medicaid, and $291 million for higher education. Departments that support public safety and prisons could lose up to $272 million, and programs for seniors stand to lose $263 million.
A study funded by Missourians Against Higher Taxes found that in order to compensate for the shortfall solely through a sales tax, it would need to be at the rate of twelve percent (Garrison, 2011). The initiative petition however, caps the state sales tax at seven percent ("Constitutional amendment to," 2012); leaving no mechanism for recovering such a substantial loss in revenue. James Moody, a former budget director, called the proposal “fiscally untenable,” stating that it would “either bankrupt the state, or in the alternative, bankrupt the poor and working lower and middle income classes.” (Moody, 2011).
This dilemma is furthered when exemptions are taken into account. Just as Irene Rubin noted in The Politics of Public Budgeting (2010), “as the burden on a group increases, the demand for exceptions for that group is likely to increase.” Moody applies this notion to the “Fair Tax” when stating that “the simple math is that exemptions from taxation lower the taxable base,” and that “the more tax exemptions assumed, the lower...