Missouri policymakers continue to propose the elimination of Missouri’s individual income tax. But evidence from states without income taxes shows that these states are only low tax for the highest earners. Instead, they rely heavily on sales & excise taxes that hit low and middle-income folks hard while giving large tax breaks to the wealthy.
Swapping income taxes for sales taxes is a windfall for the wealthy, but most Missourians would see little savings – or pay more just to get by.
A balanced tax system creates a level playing field, where people at different income levels pay a comparable portion of their earnings in state and local taxes. Unfortunately, Missouri has an upside-down tax structure, where low- and middle-income Missourians pay more than their fair share of the costs required to fund state government.
Regressive taxes like sales taxes require low- and middle-income Missourians to pay a greater share of their earnings in taxes than higher income Missourians.
For example, when Missourians shop for school supplies or basic necessities, families with lower incomes pay a higher share of their earnings in sales taxes on these products than do those with higher incomes.
Importantly, most Missourians pay the majority of their state and local taxes in sales & property taxes – not income taxes.
As a result, swapping income taxes for sales taxes means that those earning hundreds of thousands of dollars would see a larger portion of their incomes go untaxed – while low and middle income taxpayers would pay even more for what they need just to get by, like toothpaste, car repairs, or haircuts. For most families, these new sales taxes would add up to far more than any savings they might see from eliminating the income tax.
States that do not levy an income tax are not low-tax for everyone.
Instead, they are only low tax for the wealthy. In fact, many living in those states pay more in taxes than they would in others. That’s because states without income taxes fund their budgets through sources like sales & excise taxes, which are a much higher share of income for most families.
Most states with no income tax rely heavily on state sales & property taxes to fill the gap in revenue.
Nearly all states without an income tax fill the revenue gap with unusually high sales, excise, or property tax collections. The few exceptions are New Hampshire, which levies unusually high taxes on corporations and other businesses, and states with revenue options that are not available to Missouri. For instance, Alaska, Wyoming, and Texas tax the extraction of natural resources such as oil and gas – resources Missouri does not have.
