One of the least-noticed stories in politics was the passage of Amendment 4 in Missouri earlier this month. The amendment, now embedded in the state’s constitution, prohibits Missouri and its local governments from applying sales taxes to services that aren’t currently taxed.
That means, at least for the foreseeable future, your root canal will still be sales-tax free in Missouri.
Amendment 4 was seen as a way to block rich-guy Rex Sinquefield. He wants to end the state’s income tax, and he’s said taxing some services would be a way to replace some of the lost revenue.
Opponents call Sinquefield’s approach an “everything tax.” The vote on Amendment 4 suggests Missourians don’t want to tax everything, which isn’t a surprise.
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But the debate over the amendment was important. Governments are running out of room to raise taxes, and they’re looking at ways of taxing more things in order to raise revenue.
At the federal level, this is called “closing tax loopholes.” The tax deduction for mortgage interest, for example, may be on the table as Congress and the Trump administration ponder tax reform. The money your company pays for your health insurance isn’t counted as income, a loophole that “costs” Washington more than $200 billion a year. And so on.
At the state level, tax loopholes are equally interesting. Tax breaks for development projects are a concern, and will likely be on the table in Jefferson City and Topeka next year. Taxing online sales remains an issue for state and local governments, too.
But expanding the sales tax to services like haircuts and lawn mowing are a tempting alternative in some states. California cities are thinking about taxing some internet services. This year North Carolina started collecting sales taxes on some kinds of labor — now, when you get your car fixed there, you pay sales taxes on the parts and the labor needed for the repair.
That approach is now precluded in Missouri. Kansas is another matter.
By common agreement, Kansas faces a massive budget deficit. Also by common agreement, its sales tax rate — 6.5 percent — is uncommonly high.
Few lawmakers appear to have the stomach for a general income tax increase. Property tax boosts seem equally unpopular.
But expanding the sales tax base could bring in enormous amounts of money: when Democratic Gov. Joan Finney proposed taxing services in Kansas in 1991, she estimated it would bring in $664 million in its first full year. Today, because of higher sales tax rates and inflation, a similar effort might generate more than $1 billion in revenue, far more than the state needs.
Kansas already taxes car repair labor, dry cleaning, pet grooming and some services. But accountants, lawyers, architects and engineers are exempt from collecting sales taxes on the services they provide. Child care and lawn mowing are also sales tax free.
We don’t know if Gov. Sam Brownback or conservatives in the Legislature would consider such an approach. We do know Republican lawmakers are generally fond of sales and excise taxes, having raised them several times to cover the budget shortfall.
Expanding the state sales tax base would be highly controversial. It would further shift the tax burden to the poor and middle class, and would touch off a furious argument over which services would be taxed. Finney’s plan collapsed, even after she promised to use most of the money to reduce property taxes.
She left office after a single term.
Brownback won’t suffer a similar fate. We’ll know next year, though, if he likes her approach to fattening the state’s bank accounts.