The Associated Press March 4, 2010, 5:49PM ET

New 'fair tax' plan debuts in Missouri Senate

Advocates of replacing Missouri's income tax with a broader sales tax presented a new plan Thursday that would phase in the tax changes over five years instead of making an abrupt switch.

A proposed constitutional amendment outlined Thursday in the Senate would eliminate corporate income taxes in 2013 and begin gradually reducing individual income taxes that year. By 2018, all state income taxes would be gone.

In their place would be a higher sales tax applied to a wider variety of items -- a plan referred to as a "fair tax" by supporters.

Missouri charges a 4.225 percent sales tax, with cities and counties imposing their own taxes on top of that. The proposal by Sen. Chuck Purgason, R-Caulfield, would allow a state sales tax of up to 7 percent to offset the revenues lost by the income tax repeal.

The intent is that the tax change would be revenue-neutral to the state, though certain people would pay more while others paid less. The proposal allows the Legislature to create a tax rebate, which would cover a certain amount of people's annual sales taxes.

The sales tax would be applied to many things now exempt from taxation, including medical care. But the new plan would keep tax exemptions for tuition at private K-12 schools and any colleges and universities. It also would exempt motor fuel, insurance premiums and purchases for charitable organizations.

The Senate discussed the tax proposal -- which would appear on the November ballot -- for barely 30 minutes before setting it aside Thursday without hearing from opponents. Senators then adjourned for an annual weeklong spring break.

Senate President Pro Tem Charlie Shields, R-St. Joseph, said the measure is unlikely to pass.

"When we bring it out the next time, I think you'll see a flood of amendments out there designed to start chipping away at those exemptions," he said.

The more items that are exempt from the sales tax, the higher the tax would have to go to offset an income tax repeal.

The tax-change proposal is backed by Rex Sinquefield, a wealthy businessman who has founded a free-market think tank and become one of Missouri's top political donors.

Outside the Capitol on Thursday, about 100 people affiliated with Mexico, Mo.-based Grass Roots Organizing protested the sales tax proposal and Sinquefield's perceived influence. They said lower-income residents would be hit harder by the sales tax, because it would eat up a larger portion of their money.

"We need an economy that's going to work for all of us," said one of the protesters, Myra Lewis, 23, of St. Louis.

Senate supporters of the tax change asserted that it would attract businesses to Missouri, thus creating more jobs and improving the economy overall.

Under the current income tax, "it doesn't seem like the government wants you to be successful," Purgason said, because those who earn more pay more in taxes.

"If we did this right," added Sen. Luann Ridgeway, R-Smithville, "it could become the most important -- and probably the most dramatic -- chance for economic activity and job growth the state of Missouri has ever seen."

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Associated Press writer Sarah D. Wire contributed to this report.


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