More About the Earnings Tax
The 1-percent earnings tax on Kansas City and St. Louis residents and workers has received a lot of press as of late. The Kansas City Star published an article about the “city’s crucial earnings tax.” Christine Harbin recently posted about the earnings tax in Kansas City, pointing out how a land tax would be better than an earnings tax, because it would encourage landowners to utilize their property productively. The St. Louis Post-Dispatch wrote about the earnings tax from another angle, mentioning Show-Me Institute President Rex Sinquefield and the institute’s research on the tax.
The Post-Dispatch editorial used a loaded term, “public safety tax,” to describe the earnings tax, not because it pays for the Metropolitan Police Department — it doesn’t — but because its revenue is coincidentally equal to the Police Department’s budget. This is not the first time the Post-Dispatch has taken a contrary position regarding the earnings tax than Show-Me Institute writers, though it has toned down its rhetoric since August. The new article discusses a need for a replacement tax for the earnings tax revenue, neglecting to mention that the Show-Me Institute has suggested a replacement: the land tax.
Specifically, Show-Me Institute publications have suggested a two-tiered land tax that would impose separate taxes on property and buildings. Land is fixed in quantity, so this would encourage long-term development. In the long run, rescinding the earnings tax could cause the St. Louis city population to double.
Both St. Louis and Kansas City have watched their city populations and businesses stagnate while their suburbs have grown, and the earnings tax is one contributing component that needs to be addressed. Petition proposals have been approved to collect signatures for the St. Louis earnings tax to be reconsidered on the ballot, with the stipulation that a revenue replacement needs to be found. For St. Louis, the land tax makes the most economic sense as that replacement. When an editorial claims that eliminating the earnings tax is infeasible, it’s important to take into account the potential of the land tax to provide a less-distortionary source of revenue and ultimately promote future economic growth.
Isn’t the stagnation of large city populations better explained by white flight?
Comment by Andrew Hanson — January 18, 2010 @ 1:06 p.m.
Population stagnation and decline of the St. Louis has little-to-nothing to do with the 1% earnings tax. The reality his St. Louis has terrible schools. Fix the education problem (which could take a generation) and you will see the population begin to grow. In my 10 years as a City resident I have never heard of anyone moving out of the City because of the earnings tax, but I know scores of people that have moved because of the schools. Let’s look at the real issue.
Additionally, “In the long run, rescinding the earnings tax could cause the St. Louis city population to double.” What’s the basis for this statement? I think its preposterous and would like to see that study that suggests removal the 1% earnings tax predicates this type of growth.
Comment by Seth Teel — January 18, 2010 @ 1:15 p.m.
Seth,
Thank you for your comments. I actually linked to the study explaining the economic model within my blog post, but for your benefit, I’ll repost it:
http://showmeinstitute.org/publication/id.42/pub_detail.asp
Not knowing anyone who left because of the earnings tax is hardly scientific or even conclusive. In fact, it might even be expected, since the earnings tax is more likely to effect people’s decisions to move INTO the city rather than out of it. It is one of many components in a decision of where to base one’s company or residence. All other things equal, why not locate in the suburbs of Clayton or U City than in the Central West End, if it will save money long term? Not everyone will be swayed by the tax, but there are people on the margin who will make that decision. (I explained this phenomenon in another blog post, also linked within the article: http://www.showmedaily.org/2009/09/st-louisans-are-smarter-than-the-post-dispatch-implies.html)
I wholeheartedly agree that fixing education is another issue that definitely needs attention. It’s one of many reasons though, just like the earnings tax. Showmeinstitute.org has policy studies and articles in regards to education that you may find interesting.
Comment by Caitlin Hartsell — January 18, 2010 @ 2:31 p.m.
There is no solution to this at City Hall, in Clayton or
in Jefferson City. Solutions in these locations are rare-indeed.
1.) Step process. Cut it in half first: $71 million a year
is easier to find than $141 million. As you see step one work-
then do step two.
2.) How do you find $71 million a year without raising taxes?
a.) collect the EXISTING entertainment tax-the tax levied on every ticket to every admission to every professional entertainment event-sports, shows,whatever. $30 million a year. Simply collecting this tax-no exceptions. $30 million a year.
b.) Grow the entertainment market – Reopen Kiel and Oerate MUNY
100 nights a year. Another $10 million in direct entertainment
tax revenue. Yes, know MUNY is not-for-profit. Collect a portion
anyway. A portion of 900,000 admissions rather than a portion of
450,000 admissions.
c.) In fact, collect a portion, a fair amount from every
entertainment event, show, play, concert given in the not-for
profit-places. Entertainment and events are big profit centers.
for these not-for-profit places. So some of the revenue should
Zoo, Museums, Science Center, Botanical Gardens, all of them.
They are in the entertainment business and that’s MONEY. Another $10 million a year. Direct. May be $15.
So that’s 55…Now somebody else step up and come up with 15.
Do not even think of ‘end-running’ the people of St. Louis County
for this money..Don’t go there. We are tapped out. And any increase in any tax is regressive, including the sales tax.
Comment by Ed Golterman — January 18, 2010 @ 3:38 p.m.
People working in St. Louis commercial real estate will readily disclose that selling property within the city limits is more difficult than the county due to the Earnings Tax. It is one of the first questions they get asked about a property…
Comment by DaveG — January 20, 2010 @ 11:32 a.m.