A Kansas City citizens’ commission that the mayor appointed recently released a draft report on changes to the city’s municipal revenue structure. Not surprisingly, for a commission stacked with former city and county employees, the report avoids anything substantive or radical. When you load up a finance commission with lawyers — and do not put one economist on it — this is what you are going to get. Here are some brief comments on the good and bad ideas in the report.
Kansas City’s business and occupational license system is very complicated (p. 41-42). The Citizens’ Commission on Municipal Revenue (CCMR) has decided to continue its work with a singular focus on simplifying and improving the license system. It has identified the problem, and seems serious about a solution. Kansas City would greatly benefit from these changes that would treat businesses equally and require less work to administer.
Dedicated taxes with sunset provisions are good things. However, it is possible to go too far with dedicated taxes, and Kansas City has probably done so. For example, Kansas City previously, and unnecessarily, chose to dedicate its entire 1 percent baseline sales tax to capital improvements (p. 29-30). The committee is right to suggest that Kansas City loosen the requirements for that tax so that it can be used for more general purposes.
One of the major disappointments in the report is the refusal to take on Tax Increment Financing (TIF) (p. 18). It is difficult to see how a commission tasked with reviewing municipal revenues could overlook TIF beyond a meekly-worded warning that Kansas City carefully evaluate future TIF projects.
One of the most audacious suggestions was, to be fair, not included in the final recommendations. The commission considered suggestions to end earnings tax refunds to non-residents for work out of the city (p. 26). Put another way, the city wants to tax the income of people who do not live in Kansas City for work they did not do in Kansas City. The fact that the commission even considered ways to keep tax money it does not have a moral or legal right to is disturbing.
One tax idea that has widespread agreement among economists is the benefits of land taxation to fund local governments. Land taxation is fair, consistent, has very limited economic distortion, encourages investment, and is easy to collect. Kansas City is the only local government authorized to collect a land tax in Missouri. So, what does the CCMR want to do with the single-best tax that Kansas City enacts? Get rid of it, of course, and replace it with higher sales taxes (p. 36-37).
Kansas City has a tax that other cities in Missouri should envy and economists would almost universally encourage. And this is what the CCMR wants to eliminate.
The mayor wishes to enact the changes suggested in this report by putting it on the ballot later this year. I hope the city council thinks twice before replacing less harmful taxes like the land tax with broader, higher, and more damaging substitutes.