Missouri Amendment 7 weighs future tax relief against spending needs today

FOX23 News at 9 p.m.

CAPE GIRARDEAU, Mo. (KBSI) — Missouri’s Amendment 7 proposes creating a permanent investment fund with the goal of eventually replacing state taxes, but a Southeast Missouri State University professor says building it would involve a tradeoff between saving for the future and funding services today.

The proposed constitutional amendment would establish the Show-Me Prosperity Fund. It could receive money appropriated by lawmakers, along with gifts, donations, grants and bequests.

The state treasurer would invest the money in exchange-traded funds tracking the S&P 500 stock index.

Dr. James Newman, who teaches American government and public policy at Southeast Missouri State University, compared the approach to a household saving for a major purchase.

“But basically what it does is they’re putting money from the budget and setting it aside, just like any person would for a savings account,” Newman said.

The amendment does not establish a fixed contribution amount. Lawmakers would decide how much state money to put into the fund.

Approval would not immediately increase or decrease residents’ taxes. Before money could be appropriated from the fund, the state treasurer would have to determine that the previous fiscal year’s net investment earnings were sufficient to replace revenue from the state taxes listed in the amendment. The legislature would also have to approve that determination.

Those taxes include individual income taxes, state sales and use taxes, corporate income taxes and other state-imposed taxes. The proposal does not eliminate local or federal taxes.

Annual withdrawals would be limited to 3% of the fund’s average market value over the previous five fiscal years. The fund’s principal could not be spent, pledged or borrowed against.

Newman said the political appeal includes the hope that lower taxes could attract residents and businesses to Missouri. However, he said companies consider more than taxation when deciding where to locate.

“Taxation is always a part of the consideration, but there are many other considerations that corporations have,” Newman said. “You have to have an educated workforce.”

For Cape Girardeau County residents, the nearer-term issue would be how contributions to the fund affect money available for state-supported services.

Newman said directing existing revenue into investments would leave less of that money available for current spending.

“So there will be less money in the short term for the typical uses of state money, such as education, prisons, roads, health care, whatever it is that the state decides to spend money on,” Newman said.

The amendment does not require specific cuts to those services. Any budget effects would depend on lawmakers’ contribution decisions, the source of that money and other state budget choices.

The proposal also does not set a deadline for eliminating state taxes. That outcome would depend on the fund’s investment earnings and the requirements for using them.

Newman said residents should not expect tax relief anytime soon.

“And so that’s really this is something that we wouldn’t see any kind of impact on our taxation for at least ten years, I’ll say that,” Newman said.

That is Newman’s assessment, rather than a timeline established by the amendment. The proposal sets no deadline for eliminating state taxes.

If taxes were eventually eliminated but the fund later could not meet its obligations, the amendment would allow lawmakers to establish or increase taxes or other revenue to continue funding state programs.

A yes vote supports creating the constitutional fund under those rules. A no vote rejects the proposed fund.