A5: New report shows no GDP gain from income tax/sales tax swap

By Ray McCarty, President and CEO, Associated Industries of Missouri

July 28, 2026 - The Taxpayers Research Institute of Missouri, a division of Associated Industries of Missouri, today released a report entitled, "Replacing a State Individual Income Tax with and Expanded and Increased Sales and Use Tax, Impact on State Economic Growth."

State gross domestic product (GDP) growth is a measure of economic output of a state. Amendment 5 is a proposal that will appear on the August 4 ballot. If approved by voters, Amendment 5 would mandate the Missouri legislature replace the individual income tax with a sales/use or similar transaction based tax.

Supporters of Amendment 5 have argued that the proposal is necessary to improve Missouri's GDP growth. The report is a collection of studies that show there is no direct cause-and-effect relationship between shifting funding for state services from the individual income tax to an expanded and increased sales/use tax.

"While proponents may be accurate that eliminating the individual income tax may have a positive effect on GDP, it is clear simply shifting the tax burden from income tax to sales and use taxes, rather than eliminating the income tax with no replacement tax revenue, does not necessarily lead to growth in GDP for a state," said Ray McCarty. "Increasing and expanding the sales tax places an economic burden on consumption, one of the factors in calculating GDP."

The report examines the actual annual state GDP change for all 50 states from 2024 to 2025. Of the 37 states that have higher GDP growth than Missouri, 19 of those states have top individual income tax rates higher than the top individual income tax rate in Missouri. In fact, five of those states (California, Hawaii, New York, New Jersey, and Minnesota) have top individual income tax rates more than double Missouri's top individual income tax rate.

"The real-world answer is eliminating a tax burden by reducing state spending may have a positive impact on GDP and a state's competitive position. But shifting the tax burden from individual income tax to sales/use taxes does not improve GDP or Missouri's competitive position. Spending cuts are not anticipated if Amendment 5 becomes law - only a shift in the type of tax taxpayers will be paying."

Amendment 5 appears on the August 4, 2026, ballot. Readers are encouraged to fully research the proposal before deciding how to vote on the measure.

You may access the full report HERE.