As Missouri’s legislative session winds down, lawmakers took a major step toward eliminating the state’s individual income tax. Both chambers of the general assembly approved HJRs 173 and 174, a proposed constitutional amendment. Voters will now decide whether to authorize the legislature to begin the process of phasing out the income tax.
Here’s a short summary of what voter approval of the amendment would set in motion:
- Requires the general assembly to enact legislation reducing the state’s top individual income tax rate based on revenue growth until it is eliminated. Once eliminated, the tax could not be reinstated.
- Authorizes the general assembly to expand the sales and use tax base to include additional goods and services. Currently, Missouri’s constitution doesn’t allow sales and use taxes to be expanded to any service or transaction that wasn’t taxed on Jan. 1, 2015.
- Requires that any changes to state or local sales and use taxes that generate additional revenue be offset. At the state level, that revenue must be used to reduce the individual income tax rate. At the local level, governments receiving additional revenue must reduce one or more other local taxes by a commensurate amount, choosing from a specified list that includes earnings taxes, personal property taxes, real property taxes, or local sales and use taxes.
This move comes at a time when Missouri is struggling to keep pace nationally. As my colleagues and I have written about repeatedly, the state’s population growth has been flat, and economic growth ranks in the bottom half of the nation. And while Missouri has reduced its top income tax rate from 6 percent to 4.7 percent over the past decade, many neighboring states have moved faster. Across the country, states are enacting policies that make them more attractive in the competition for families, workers, and investment, and it’s clear that states with low or no income taxes are pulling ahead.
If Missouri wants to change that trajectory, its tax structure has to be part of the conversation.
As I wrote when I testified on the amendment, this proposal does not eliminate the income tax overnight or answer every question up front. What it would do is give the legislature clear authority to move in that direction if voters approve. That matters because any serious effort to phase out the income tax will, sooner rather than later, require a rethinking of the state’s tax structure, especially its outdated and broken sales tax system.
In that sense, the amendment is less about a single policy change and more about forcing decisions state officials have avoided for years. What is a fiscally responsible pace to phase out Missouri’s individual income tax, the state’s single largest source of revenue? How much faster could that process move if the state modernizes its sales tax base? How should the tax policy actions of surrounding states impact that timeline?
There will undoubtedly be difficult tradeoffs if voters approve the proposed amendment, but it’s important to recognize that they are unavoidable. Improving Missouri’s economic prospects will require decisive action and an acknowledgement that maintaining the status quo has produced slow growth and will leave the state further behind its peers.
There are real concerns about how a transition like this would work and who it would affect. Those details will matter, and they will be decided through the legislative process if voters approve the amendment.
With the legislature’s work complete, the remaining question is when voters will weigh in. Under Missouri law, the governor has until May 22 to determine whether the measure will appear on the August or November ballot. The timing of that vote will shape how quickly Missouri can begin addressing these questions and close the gap with states that are already ahead.
