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Friday, February 4, 2011

Sinquefield's Tax Reform Labeled "Fiscally Untenable"; Could Require 12% Sales Tax

Posted By on Fri, Feb 4, 2011 at 1:33 PM

  • James Moody
Updated with correction.

An analysis of nine ballot initiatives financier Rex Sinquefield submitted to state officials this month calling for the elimination of Missouri's income tax has concluded that the state would require a sales tax of 12 percent in order to make up for lost revenue if any of the initiatives became law.

And it wouldn't just be retail items that would have to be taxed under the analysis funded by Missourians Against Higher Taxes. Everything would be taxed -- including the rent for your apartment and a trip to visit your doctor.

By the way, this analysis wasn't done by some left-wing hack either. James Moody, the state's former budget director under Republican Gov. John Ashcroft, crunched the numbers. In his report submitted to Missouri Auditor Tom Schweich last month, Moody calls Sinquefield's petitions "fiscally untenable."

"They will either bankrupt the state, or in the alternative, bankrupt the poor and the working lower and middle income classes," writes Moody, who for 14 pages goes on to debunk the assertions of Sinquefield's think tank Show-Me Institute and other advocates of so-called "Fair Tax" proposals.

Moody's analysis found that Sinquefield's nine ballot initiative fail to provide any funding for a so-called "prebate" -- a key component of most "Fair Tax" doctrines -- that are designed to assist the poor by reimbursing people each month for part of their increased sales tax burden.

Such a prebate would have to be approved in addition to Sinquefield's ballot initiatives and passed by a majority of Missouri voters under the Hancock Amendment. That said, you know how easy it is to get people to increase their taxes, especially for the betterment of the poor. Warns Moody of Sinquefield's prebate oversight:
"If any of the initiatives submitted through these proposals is adopted by the voters, since there is no possible way to fund a prebate without another Constitutional amendment, the tax burden will fall disproportionately on the lower-income and middle class population of the state."
But wait, it gets worse.

Sinquefield's ballot initiatives cap the state sales tax at 7 percent, but that's way too low, according to Moody. For starters, it fails to include an additional 3 percent needed to fund a prebate. Also, it fails to adequately exclude some items -- such as Medicare -- that wouldn't be taxed under the proposals. The result?

Sinquefield's initiatives would require a state sales tax of at least 9 percent. That figure raises to 12 cents if a prebate is added. And that number doesn't include local sales taxes, which average around 3 percent in Missouri. In St. Louis, though, the local sales tax over 4 percent, meaning total sales tax would approach over 16 cents per dollar here -- worse than DailyRFT predicted last month.

Moody ends his letter to the state auditor with his suggestion on how the financial impact statement on Sinquefield's ballot initiative proposals should be presented to voters.
Caps consumption tax at 7%, which is inadequate to replace current state revenues repealed. Shifts burden of taxes through consumption tax to lower and middle income citizens. Confiscates hundreds of millions in tax credits from taxpayers without compensation. Consumption tax is expanded to housing rents, food, utilities, child care, professional services.
Note: This article incorrectly stated that St. Louis' municipal sales tax was over 8 percent. Actually it's just over four percent.

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