The Fair Tax

An old adage tells us that high tax rates don’t redistribute income as much as they redistribute people.  In the next census, it is expected that Missouri could lose a congressional seat.  These seats are apportioned by population and this would indicate that Missouri is not growing as fast as other states.  This loss of a congressional seat would reduce Missouri’s representation and ability to influence Washington. 

Where are these people going?  Over 20,000 people a day are relocating from one state to another.  Americans are leaving the Northeast and the Midwest in favor of Southern and Western states.  While a number of factors come into play like climate, quality of life, and housing prices to name a few, it is also true that taxes are a motivating factor.

Of the 12 top states netting new residents, eight of them do not have a state income tax.  Those on the Left would tell us that people are willing to pay more taxes to get better government services, but the migration patterns strongly suggest otherwise.  Interestingly, the people who tend to be the most mobile tend to be the most educated and motivated, or to put it bluntly, are taxpayers – tax them too much and they may not be here in the future to tax at all.

The Missouri House is taking steps to reverse this trend by reducing our state income tax burden.  One proposal (HB64 & 545) would increase the dependency exemption to $1600 per dependent, increase the deductibility of your federal income tax liability ($5000 to $7000 for an individual and $10,000 to $15,000 for married taxpayers), and reduces the income tax rate from 6% to 5½% for all Missouri taxpayers on their income between $8000 and $50,000.  This legislation is pending before the House.

This week the Missouri House passed the Fair Tax (HJR36) which would replace the individual and corporate income taxes and sales and use taxes with a sales tax on retail sales of new tangible property and taxable services at a rate of 5.11%.  This legislation is in the form of a constitutional amendment and would require approval by the voters of this state to become effective.

If approved, the Fair Tax would begin January 1, 2012.  Missouri taxpayers would no longer pay state income taxes, but instead would be taxed on the goods and services they purchase.  The proposed amendment includes a provision to establish a rebate for low-income households.  The rebates provided with the Fair Tax would greatly benefit lower-income Missourians who would keep more of their paychecks and have most of their paid sales taxes refunded to them.

The Fair Tax would provide wage earners with an immediate increase in disposable income as there would no longer be state withholdings from their paychecks.  Taxpayers will be able to decide whether to save or spend giving themselves more discretion and decision making power in deciding how much to pay in taxes.

These proposals are intended to allow people keep more of their own money, to allow them to make decisions for themselves and their families, to give individuals more liberty in their consumption, savings, and debt retirement.