JEFFERSON CITY - A Democratic House Appropriations Committee chairman has proposed a bill that would slash income tax while expanding sales tax, a proposal similar to a Republican-supported tax plan to completely abolish the income tax.

Rep. Chris Kelly, D-Columbia, has proposed a bill to temporarily expand Missouri's sales tax, lower the income tax and abolish the corporate income tax in order to collect revenue for the state.

If passed, the bill would include a timeline for the proposals, starting from the beginning of 2014 to the end of 2019. Kelly said this allows legislators to review the effect of the sales tax and decide whether or not to extend the tax system changes.

"I think any great experiment like this should have a sunset, so we will have a chance to look at it again," Kelly said.

Kelly, who has supported similar legislation in the past, wants to use his bill as a means to study the effects of a broader sales tax on state revenue. The proposed changes would be made to the state's statute rather than to its constitution.

"It's as much research as it is anything else," Kelly said. "I think it's a mistake to lock the tax code in the constitution because we are certain to make mistakes, and I don't want to make mistakes in the constitution; I'd rather make them in statute so we can fix them."

In the last budget year the income tax generated more than $5.5 billion, the sales tax generated more than $1.8 billion and the corporate income and franchise tax generated more than $500 million, which shows an overwhelming majority of the General Revenue comes from the income tax. The sales tax would have to generate more than $4 billion in the fiscal year to make up for losses if the income tax and corporate income and franchise tax were completely eliminated.

Another appropriations committee member, Rep. Pat Conway, D-St. Joseph, said he does not support Kelly's bill because the income tax is a more reliable way to collect revenue for the state — a problem also posed by the "fair tax."

"My main concern is with the fair tax, which proposes to raise the sales tax 7 percent, and we aren't sure how to collect on that. I think we are going to have to figure out what type of government mechanism would be used," Conway said.

Kelly said there are three main problems that arise with implementing a sales tax:

• The amount of revenue the state would receive from a sales tax is unknown. Kelly said there is no current data to determine how much revenue will be gained or lost if a sales tax is used instead of an income tax. Kelly said it is necessary to collect and analyze this kind of data before permanently implementing an expanded sales tax.
• A sales tax is regressive, meaning it will impact poorer consumers more than richer ones. Since richer consumers have more disposable income they will not feel the effects of a broader sales tax as greatly as poorer consumers, making the sales tax a greater burden on lower income taxpayers, Kelly said. To combat this problem, the bill includes a proposal that would allow the Department of Revenue to implement a sales tax rebate program based on income levels.
• Consumers could avoid the tax by shopping out-of-state. An increase in the sales tax could cause people to go across state borders or shop online for products to avoid the sales tax. To dissuade people from shopping in other states, sales tax rates would not be raised but simply apply to more services. In other words, the sales tax would be more expansive, rather than more expensive so consumers would not pay more for goods.

Due to these problems, Kelly said that he is using his proposal as a step toward the idea of moving to a sales tax.

"This is such a big change that we have to move slowly, the previous sponsors have scared the moderate middle away. There's people on the left that are never going to like this and there's people on the right that are always going to like this. But there are people in the middle who don't know," Kelly said. "If we are not careful this will be the Missouri nightmare instead of the Missouri dream and we will kill the possibility of this change anywhere."   

Conway also said a similar bill is already under discussion in the House which would completely eliminate the income tax in favor of a sales tax. Conway said Kelly's bill would be more palatable to him, although he still opposes the more expansive sales tax.

"I could see where lowering the income tax rate would be useful, but I wouldn't support the sales tax portion of the bill," Conway said.

Kelly said there are practical reasons for using a sales tax, despite arguments from other Democrats who say the income tax is a more just system for taxation.

"A sales tax is much cheaper to collect, much more universal, much harder to cheat and it's much more popular with the citizens," he said.

In addition to the sales tax, Kelly proposed the elimination of the corporate income tax, which he thiniks will boost corporate interest in the state.

"I believe that overall it will spur economic development and that there will be more total jobs and total state revenue and economic prosperity with sales tax than with income tax," Kelly said. "I think the marketplace works and that if we remove the corporate income tax, it will be a good incentive to encourage corporate development."

Sen. Chuck Purgason, R-Caulfield, who proposed an amendment last year to end the income tax and increase sales tax to make up for revenue loss, applauded Kelly's efforts.

"I think income tax punishes people for basically going out and earning income," Purgason said."Change is always hard for people, but to keep being broke every year isn't much fun either, and if you can replace it with something that allows job growth and is a more fair taxing system then that should be the goal."

Purgason also supports abolishing the corporate income tax to create more business for Missouri.

"If you want corporations and businesses to relocate to Missouri then you have to stop putting roadblocks in the way," Purgason said.

Republican legislators have warned that if General Assembly does not deal with an income tax/sales tax change, a petition campaign will be launched to repeal the current legislation.