Is it even possible to trigger the relief promised by the 0% Income Tax
Relief Bill? The math says no. 0% means nothing left untaxed.
By David Rice
Yesterday, I wrote an article exposing the swindle by the Americans for Prosperity (AFP), American Legislative Exchange Council (ALEC), and Governor Mike Kehoe with their new Tax Increase on Missouri families. I shared how State Senator Mike Moon’s alternate Senate Bill 1029 would
reduce Corporate Taxes to 0% (which reduces everyone’s costs at the
store because taxes belong to the consumer, not corporations).
House Bill 100 and House Joint Resolution 1 both
seek to defraud the voters with language that appears to reduce the
Income Tax to 0%, but only after a complex series of triggers occurs,
guaranteeing that the State continues to receive all of its income, plus
it never reduces its spending.
When I ran the numbers on the
AFP/ALEC plan to replace Missouri's income tax with their proposed Value
Added Tax (VAT), I found the numbers came up short. There doesn’t seem
to be a way for the VAT taxes to rise to the amount that would provide
relief for the State Income Tax. Even with the most generous
assumptions, the math exposes why this plan either can't work or isn't
what they claims.
This leads to the inevitable conclusion—this is a
swindle, and they are only creating this as a new tax burden because
they are afraid they won’t be able to balance the budget if the Federal
gravy train disappears.
Current Revenue vs. Proposed Collection
Missouri currently
collects $13.35 billion in income tax revenue. To replace this through
the proposed 3.775% VAT, let's calculate the maximum possible
collection:
Monthly VAT from Average Family:
These are just some small examples of how the State will implement
new taxes on your income. They say it’s a 0% Income Tax, but any new tax
is an Income Tax. Once the State has decided that tax services are
acceptable, local counties and cities will follow suit.
Remember, and this is important, the proposed bill doesn’t replace the current sales tax system already in place. IT ADDS TO IT. This is a new tax, not a replacement tax.
Annual VAT: $2302.75
If, and only if, we based our VAT collection on the best-case
scenario where a Median Missouri household purchased large appliances,
repaired their home, and bought a new car, they would pay $2302.75 in
taxes. While this seems like a good deal, remember that your income
taxes are only reduced by 1% if they have a surplus of $120M in reserves
first. So, they have to first make all of their revenue.
So,
that begs the question, in the best-case scenario for AFP/ALEC, can this
tax scheme generate enough money to come up with $13.35B?
Let's go with a more reasonable estimation that every family will
spend $75 a month in Value Added Taxes, which seems less at first than
the $225 a median family pays on average in State Taxes (that makes
around $69K), and do the math. We see that the basic VAT revenue isn’t
nearly enough.
Per family: $75.51 × 12 = $906.12
Missouri households: 2.5 million
Maximum annual collection: $2.265 billion
Even Adding Big Purchases:
New car ($30,000): $1,132.50 VAT
Home repairs ($5,000): $188.75 VAT
Appliances ($2,000): $75.50 VAT
Total big purchase VAT: $1,396.75
If every household made these major purchases annually (an absurdly generous assumption), it would add another $3.49 billion.
If
we add the best-case scenario where every family makes major purchases
like a car yearly (remember they only make $69K annually), we only come
up to ~$5.76B. This is far short of the $13.35B needed to make up the
current State Income Tax.
Best Case Total: $5.76 billion
They
have done the math at the AFP/ALEC, still wrote the bill, and sold it
to Davidson and Trent to champion. Though Davidson and Trent probably
aren't intelligent enough to read bills given to them, Mike Kehoe is
smart enough to know the purpose of this bill. One should not
underestimate Kehoe’s intelligence or ruthlessness.
Hidden Utility Costs
Further,
the AFP/ALEC plan contains another cost many might miss. The bill
removes Missouri State constitutional protections against taxing
services, specifically repealing this protection:
"[In order to
prohibit an increase in the tax burden on the citizens of Missouri,
state and local sales and use taxes (or any similar transaction-based
tax) shall not be expanded to impose taxes on any service or transaction
that was not subject to sales, use or similar transaction-based tax on
January 1, 2015]."
It replaces it with language applying the new
3.775% tax to "all sellers for the privilege of selling tangible
personal property or rendering taxable services."
Here's what this
means: Without specific exemptions for utilities (which the bill
doesn't provide), Missouri families would pay this new 3.775% tax on:
For a family with average utility costs:
$200 monthly electric bill: $7.55 new tax
$100 monthly gas bill: $3.78 new tax
$75 monthly water/sewer: $2.83 new tax
$150 monthly telecom: $5.66 new tax
Total New Monthly Utility Tax: $19.82
This
would be in addition to existing utility taxes and fees, adding nearly
$240 annually to an average family's utility costs. Services, utilities,
and groceries will go up in cost, while the Missouri Budget will also
magically increase because of the extra revenue. You grow poorer while
the government grows wealthier. Isn’t this why you vote for a Republican
Supermajority?
The Gap
As extremely generous as these
assumptions are to give them the benefit of the doubt, the VAT would
collect less than half of current income tax revenue. This means one of
three things must be true:
1. The VAT rate would need to be at least triple the proposed rate
2. They plan to keep both tax systems indefinitely
3. State spending would need to be cut by over $7 billion
Option
three seems unlikely since Kehoe has presided over increasing the
spending from $27B to $54B as Lt. Governor. One of the things he has not
promised on the campaign trail is to cut spending.
This leaves
us with a much higher VAT rate or a permanent dual tax system. I expect
they will provide us with a dual tax system that our cities and counties
will replicate.
What They're Not Telling You
The
requirement that the Tax Reform Fund maintain a $120 million balance
before any income tax reduction makes more sense now. Even the language
is ambiguous. It has to be equal to or greater, which means reaching
$120M doesn’t mean an automatic trigger. It could be delayed if they
choose not to provide the tax cut to the Income Tax rate. Even generous
math shows this VAT can't possibly replace income tax revenue, and it’s
hard to believe they don’t know it is limited in its ability to generate
its promised results.
This means Missouri families would:
Pay new VAT taxes on everything—everything
Keep paying income tax because revenue targets won't be met
End up with a higher total tax burden
People
will develop an underground system to avoid the VAT system, leading to
regulations and fines by these managing bureaucrats to take more money
from everyone.
Under Mike Moon's plan, Senate Bill 1029,
corporate tax reduction directly lowers prices without adding new
taxes. The AFP/ALEC plan adds new taxes, making it mathematically
impossible to deliver promised relief.
The numbers don't lie. This
isn't a tax reduction plan—it's a tax expansion plan disguised as
relief. It was like this was written by Joe Biden to give money to the
Ukrainian refugees, but then only a fraction of the funds actually
provided any relief, and $100B just disappeared.
We should see
Kehoe as just another Joe Biden—a career politician only interested in
stealing money from you to give to his political allies and government
bureaucracies.
We need to eliminate our Income Tax. We need to
eliminate our Corporate Taxes. We should minimize any taxes, including
property taxes. We have too much Government, which creates this heavy
tax burden. We should cut as much of both as possible, eliminating taxes
and government to the bare bone. This would Make Missouri Great Again.
These
Bills, introduced by Davidson and championed by the grunts like Trent,
are designed to swindle voters into thinking they are getting relief
from oppressive government overspending but are increasing the taxes and
guaranteeing the government can continue to spend at the astronomical
rates it is paying.
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