A version of this commentary appeared in the St. Louis Post-Dispatch.
Missouri voters will soon decide the most consequential tax policy question in a generation. If approved, Amendment 5 would require lawmakers to phase out Missouri’s individual income tax based on revenue growth and allow them to modernize the sales tax during the process.
Understandably, voters have concerns about giving lawmakers more authority over the sales tax. Doing so would raise questions about what could become taxable, how high rates could go, and whether taxpayers would be adequately protected. Amendment 5 addresses those concerns through new constitutional safeguards included in the amendment.
The driving force behind the amendment is the push to eliminate the income tax, and the argument for doing so is straightforward. Missouri’s economy continues to underperform nationally, while competition among states for families and businesses is heating up. Decades of economic research suggest that income taxes are especially harmful because they discourage work, investment, and entrepreneurship.
Since lawmakers adopted the first revenue-based triggers in 2014, Missouri’s top individual income tax rate has fallen from 6 percent to 4.7 percent. Current law allows two additional reductions, which would bring the rate to 4.5 percent, but no lower. In the years since the triggers were enacted, net state general revenue collections have grown by more than 50 percent, far exceeding inflation. Amendment 5 would continue the current approach, allowing additional income tax cuts only when revenue growth shows the state can afford them. Once the state’s individual income tax is fully eliminated, the amendment would prohibit the state from bringing it back.
Missouri’s sales tax code was written nearly a century ago for an economy in which consumers primarily bought tangible goods in physical stores. Today, a growing share of household spending goes toward digital goods and services that fall outside the tax base. But while Missouri’s economy has changed, the state’s constitution makes it difficult for the sales tax to change with it. A constitutional amendment passed in 2016 bars the state from applying a sales tax to anything that was not already taxable on January 1, 2015. Amendment 5 would create a limited exception to that prohibition.
Amendment 5 does not specifically list which additional goods and services might be taxed, set a new sales tax rate, or require lawmakers to make any change to the sales tax at all. Future lawmakers could propose changes, but any proposal would have to go through the normal legislative process, including public hearings and recorded votes. Any resulting revenue would also be subject to the amendment’s offset requirements.
Amendment 5 guarantees that any sales tax change that generates additional revenue must be offset by tax reductions elsewhere. At the state level, additional sales tax revenue must be matched dollar-for-dollar by individual income tax cuts. Because state and local sales taxes apply to the same tax base, broadening the base would also increase local sales tax collections. Amendment 5 requires local governments to offset that increase by reducing property, earnings, or sales taxes, while funding for public schools is protected. The additional revenue cannot be used to increase government spending.
Another important question is how Amendment 5 would affect other taxpayer protections in Missouri’s Constitution. The original Hancock Amendment, passed in 1980, is completely unaffected, including its state revenue provisions, property-tax rate rollbacks, and requirements for public votes on local tax increases.
A separate provision of the Hancock Amendment approved in 1996 currently allows lawmakers to increase net state taxes or fees by around $150 million a year without a vote of the people. Under Amendment 5, revenue from sales tax changes enacted during the first five years for the purpose of reducing the income tax would not be treated as new annual revenue under that provision. During that window, any sales tax change that raises revenue would still need to be offset, regardless of size. That makes Amendment 5’s offset requirement a stronger taxpayer protection than current law.
Even with these safeguards, it’s important to remember that elected lawmakers would still decide whether to make any changes to the sales tax, and voters can hold them accountable for those decisions. Revenue triggers control how quickly the income tax rate falls, and offset requirements prevent any sales tax change from producing a windfall for state or local government.
Unfortunately, Missouri has gradually boxed its tax policy into an unenviable corner. The sales tax reflects an economy that no longer exists, while the state’s heavy reliance on the income tax makes it less competitive with other states. Amendment 5 offers a path out while preserving the principle embodied in the Hancock Amendment: When the tax code changes, taxpayers, not government, should reap the benefits.
