This has been a tough couple of weeks for tax fairness advocates in the Show Me State. Yesterday, the Missouri House of Representatives passed House Bill 64, a regressive and costly piece of legislation that does three things. First, it raises the starting point for the 6 percent top income tax bracket from $9,000 to $50,000 of taxable income. Second, it raises the dependent exemption from $1,200 to $1,600. Third, HB 64 increases the deduction for federal income taxes paid from $10,000 for married couples ($5,000 for single filers) to $15,000 for married couples ($7,500 for singles).
See ITEP's fact sheet, which estimates that this legislation would cost $311 million in 2007 if it was in effect in that year. We expect the cost of the legislation to increase in future years as income grows.
Worse than the huge revenue loss is the regressive impact of the bill. About 88 percent of the benefits from these three tax changes would go to the wealthiest 40 percent of Missourians.
But this week was a demonstration of responsible lawmaking compared to what went on in the Missouri Capitol last week, when the notorious, so-called "fair" tax reared its ugly head and passed the House of Representatives. Advocates expect the bill will go before the Senate Ways and Means Committee next week. The ridiculously named legislation would replace the state's individual and corporate income taxes with sales tax revenue generated from a massive base expansion (including adding food and prescription drugs back to the sales tax base) in a supposedly revenue neutral way.
When advocating in favor of the bill, legislators pointed to Tennessee as an example of a state that reaps benefits from not having much of an income tax. Clearly lawmakers haven't investigated many quality of life indicators in the Volunteer State. For example, Tennessee ranks 6th in infant mortality rates, 9th in percent of children living in poverty, and 4th in percent of senior citizens living in poverty. It's pretty obvious that income tax elimination isn't guaranteed to create a high quality of life. The one thing that income tax elimination is guaranteed to create is a more regressive and unfair tax structure. To read more about this legislation, see the Missouri Budget Project's brief.