The question of earnings taxes

The question of municipal earnings taxes have been raised once again last week:
“A series of proposed ballot initiatives unveiled by the Missouri secretary of state this week could spell the end of the city’s much-maligned 1 percent earnings tax.The ballot questions – five of them – were approved only for circulation, meaning that supporters are free to begin the process of gathering the 100,000 or so signatures needed to put any one of them on the statewide ballot.
The initiatives were officially submitted to the secretary of state by a Jefferson City attorney, but the push itself is being led by – who else? – wealthy financier Rex Sinquefield, who has flooded the coffers of Missouri politicians with campaign cash.” Source: P-D Political Fix)
The following is the news release from Missouri Secretary of State Robin Carnahan (link):
The first ballot title for the petition relating to earnings taxes reads:
Shall Missouri law be amended to:
- repeal the authority of certain cities to use earnings taxes to fund their budgets;
- require voters in cities that currently have an earnings tax to approve continuation of such tax at the next general municipal election and at an election held every 5 years thereafter;
- require any current earnings tax that is not approved by the voters to be phased out over a period of 5 years; and
- prohibit any city from adding a new earnings tax to fund their budget?
The proposal could eliminate certain city earnings taxes. For 2010, Kansas City and the City of St. Louis budgeted earnings tax revenue of $199.2 million and $141.2 million, respectively. Reduced earnings tax deductions could increase state revenues by $4.8 million. The total cost or savings to state and local governmental entities is unknown.The second ballot title for the petition relating to earnings taxes reads:
Shall Missouri law be amended to:
- repeal the authority of certain cities to use earnings taxes to fund their budgets;
- require voters in cities that currently have an earnings tax to approve continuation of such tax at the next general municipal election and at an election held every 5 years thereafter;
- require any current earnings tax that is not approved by the voters to be phased out over a period of 10 years; and
- prohibit any city from adding a new earnings tax to fund their budget?
The proposal could eliminate certain city earnings taxes. For 2010, Kansas City and the City of St. Louis budgeted earnings tax revenue of $199.2 million and $141.2 million, respectively. Reduced earnings tax deductions could increase state revenues by $4.8 million. The total cost or savings to state and local governmental entities is unknown.The third ballot title for the petition relating to earnings taxes reads:
Shall Missouri law be amended to:
- repeal the authority of certain cities to use earnings taxes to fund their budgets;
- require voters in cities that currently have an earnings tax to approve continuation of such tax at the next general municipal election and at an election held every 10 years thereafter;
- require any current earnings tax that is not approved by the voters to be phased out over a period of 10 years; and
- prohibit any city from adding a new earnings tax to fund their budget?
The proposal could eliminate certain city earnings taxes. For 2010, Kansas City and the City of St. Louis budgeted earnings tax revenue of $199.2 million and $141.2 million, respectively. Reduced earnings tax deductions could increase state revenues by $4.8 million. The total cost or savings to state and local governmental entities is unknown.The fourth ballot title for the petition relating to earnings taxes reads:
Shall Missouri law be amended to:
- repeal the authority of certain cities to use earnings taxes to fund their budgets;
- require voters in cities that currently have an earnings tax to approve continuation of such tax at the next general municipal election and at an election held every 5 years thereafter;
- require any current earnings tax that is not approved by the voters to be phased out over a period of 10 years; and
- prohibit any city from adding a new earnings tax to fund their budget?
The proposal could eliminate certain city earnings taxes. For 2010, Kansas City and the City of St. Louis budgeted earnings tax revenue of $199.2 million and $141.2 million, respectively. Reduced earnings tax deductions could increase state revenues by $4.8 million. The total cost or savings to state and local governmental entities is unknown.The fifth ballot title for the petition relating to earnings taxes reads:
Shall Missouri law be amended to eliminate the ability of cities to use earnings taxes to fund their budgets by phasing out any existing earnings tax over a ten year period and prohibiting any city from adding such a tax as a potential source of revenue?The proposal could eliminate certain city earnings taxes. For 2010, Kansas City and the City of St. Louis budgeted earnings tax revenue of $199.2 million and $141.2 million, respectively. Reduced earnings tax deductions could increase state revenues by $4.8 million. The total cost or savings to state and local governmental entities is unknown.These five petitions relating to earnings taxes, which would amend Chapter 92 of the Missouri Revised Statutes, were submitted by Mr. Marc H. Ellinger, 308 East High Street, Ste. 301, Jefferson City, MO 65101-3237.
That is a lot to absorb. Each of the five relates to how “certain cities use earnings taxes to fund their budgets.”
If wealthy financier/political activist Rex Sinquefield (right) gets his way and eliminates the city of St. Louis’ earnings tax, city officials say the impact would be “both disastrously serious and disastrously negative,” according to documents filed with the state auditor’s office.
In fact, city officials say that if St. Louis loses the $141 million collected annually from the one-percent tax, which provides close to 40 percent of the city’s income, “it could no longer function as a viable city government.”
Loss of the earnings tax, without replacing it with a roughly equal source of revenue, “would result in cuts to public safety services so deep as to end the City’s viability as a place to live, work and visit,” officials say. (Source: St. Louis Beacon)
Tax policies can be an important growth factor for municipalities, regions and states. The wrong policies and growth can be above average. Have the wrong policy and growth can lag behind the national average. The latter is the argument put forth by Sinquefield’s Show-Me Institute:
Missouri’s economic development and growth rates are chronically below average. During the past 10 years, employment has grown 8.8 percent nationally, while Missouri has boosted jobs by only 6 percent. Economists have provided one explanation for the state’s lagging performance: Missouri’s personal income tax rates. (Source)
My gut tells me the city & state would eventually be better off if we eliminated the earnings tax. That increased population and taxable activity would make up for the loss. The trick is how to get to that point. I’m all for trying to figure out how to increase our population, our employment base and other factors. We can’t just say the earnings tax is etched in stone.
So take the poll in the upper right corner and add your thoughts below.
– Steve Patterson