Missouri Is Voting To Abolish Income Tax — Is Your State Next?

Paying state income taxes isn’t anyone’s favorite part of living in their home state (unless you live in one of the nine states without income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming). Depending on where you live, a portion of every dollar you earn goes to the state before you ever have a chance to spend it. Now, Missouri voters are set to decide whether that system should disappear altogether, and if they should become the 10th state without an income tax, per Missouri Independent.

This August, Missourians will vote on Amendment 5, a proposed constitutional amendment that would require lawmakers to begin phasing out the Show Me State’s individual income tax based on revenue growth. The measure has become one of the state’s biggest political battles in recent memory — and it’s adding to a broader conversation about whether more states could move away from taxing income.

What Would Change?

Amendment 5 wouldn’t eliminate Missouri’s income tax overnight. Instead, it would force lawmakers to eventually phase out the individual income tax only if certain revenue growth targets are met. Crucially, to help make that possible, the proposal would also give those lawmakers a greater power to expand sales and use taxes in order to achieve that growth. This would allow for new ways for the state to generate revenue as income tax collections decline.

Further, the proposal cleared a major legal hurdle in June when the Missouri Court of Appeals ruled that it could remain on the August ballot, as long as it provided voters with a clearer explanation about how the amendment expands lawmakers’ authority over sales taxes (while also scaling back constitutional limits on taxation).

Why Is This So Divisive?

Amendment 5 supporters argue that it would allow workers to keep more of their paychecks while also making Missouri more attractive to new businesses and new residents. Fox 2 News reported that Republican Rep. John Martin asserted that states without an income tax have generally experienced stronger population growth, and that giving consumers more control over how they spend their money is a better approach than to simply tax income.

Amendment 5 opponents, however, have insisted that the math isn’t so simple. They contend that if income tax revenue shrinks, lawmakers will have to make up the difference by massively expanding sales taxes in order to cover more everyday purchases or services. These critics are also concerned that the amendment would give legislators far too much leeway to raise sales taxes in the future.

Are Other States To Follow?

Missouri hasn’t been the only state to rethink how to collect tax revenue. In the last several years, a number of states have lowered individual income tax rates. If Missouri were to abolish its income tax, many other states may follow suit.

That makes Amendment 5 an important test case. If voters approve it, officials in other states may craft similar legislation to begin abolishing state income taxes.

The Bottom Line                            

Amendment 5 isn’t just a vote to end Missouri’s income taxes. It’s a vote on whether or not to fundamentally change how Missouri raises revenue. The outcome could not only shape Missouri’s tax future for years, but it could also provide another point in the national debate over whether income taxes should play a much smaller role in state budgets.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.