Readers on earnings taxes

Last week I posted about an effort to eliminate local earnings taxes (The question of earnings taxes). The discussion in the comments was deep, diverse and divided.  This post introduced the reader’s poll for the week.  First the results and then I’ll share my thoughts.

Q: Should Missouri take away the authority of St. Louis to collect individual earnings taxes?

1. No, too critical to the St. Louis’ budget to eliminate 94 [42%]
2. Yes, phase out over a 10 year period 39 [17%]
3. Yes, where there is a will there is a way 27 [12%]
4. Yes, new taxes would make up the difference 18 [ 8%]
5. No, just keep the earnings taxes in Missouri 14 [6%]
6. Yes, St. Louis should cut city services to deal with loss of revenue 10 [4%]
7. Unsure 8 [4%]
8. Other answer… 8 [4%]
9. Yes, if they give us back control of our police dept. 5 [2%]

The “other” answers given were:

• With specific authority for the replacement revenue source(s).
• phase in a $100 K cap.
• Stop giving tax abatement to $800K houses on the Hill
• No. In fact, expand it to cover all of Missouri!
• Phase out over a three year period
• Jane Jacobs prefers cities tax themselves, not divert the money to rural places.
• implement an earnings tax in St. Louis County
• find alternative funding source first

In my 19 years in St. Louis the 1% never once bothered me.  But as the poll and comments show, the views on the issue are wide-ranging. These different views are the significance of the topic.  More than half the 223 respondents favored a change.

Slay said he’s opposed to any statewide ballot proposals that would do away with the 1 percent tax, even with a 10-year phaseout period, unless the matter is left up to voters in the city of St. Louis.“If it allowed the voters of the city to decide the matter, and if voters subsequently decided they wanted to replace the tax with something else, and if it gave us a decade to come up with a solution, I would support it,” Slay wrote in a lengthy entry today on his blog.

He also made clear that he opposes one tax alternative — a land tax — that has been floated by wealthy financier Rex Sinquefield, who is behind the various initiative-petition options that have been approved for circulation by the secretary of state’s office. The aim of Sinquefield and his allies is to collect enough signatures to get at least one of the proposals on this year’s November ballot. [St. Louis Beacon, Slay says regional changes necessary before city earnings tax could be ditched]

Eliminating the city’s right to collect the tax without any other changes would certainly be a recipe for disaster.  Revenue, city services, population and jobs, would decline.  But doing nothing continues to set the City of St. Louis apart from the rest of the region. So what do we do?

As I see it we have several courses of action:

1. Change nothing, keep everything as is.
2. Begin phasing out the earnings tax and deal with the consequences (other taxes, reduced services)
3. Or restructure the City of St. Louis top to bottom

#1 above is the likely route favored by St. Louis natives as it doesn’t involve change.  The anti-tax types would go for #2.  My preference is #3. a complete restructure.

What does a restructure look like? In my view we’d look at every policy, procedure, and position in every aspect of city government.  We’d toss out everything and start anew.  We might bring in some of the old but only after exploring all choices and determining the old way is the best way based on current conditions.  Given this approach, we might emerge with an earnings tax.  It might be be reduced for non-residents.  It might be expanded throughout much of the region (huge task).  We need to get rid of the city’s excess baggage.

Why such a radical restructuring? As we can see from the nearly 20 audits conducted by Missouri Auditor after a petition by the Green Party, all sections of government have oversight issues:

• St. Louis Board of Police Commissioners, Nov 2009
• Dept of Public Safety, Nov 2009
• Lambert-St. Louis International Airport, Nov 2009
• Office of the License Collector, June 2009
• Dept of Streets, June 2009
• Office of Collector of Revenue, June 2009
• Dept of Human Services, June 2009
• Lead Safe St. Louis Program, June 2009
• Dept of Health, June 2009
• Community and Economic Development Offices, April 2009
• Information Technology Services Agency, April 2009
• Office of Treasurer, December 2008
• Dept of Park, Recreation and Forestry, December 2008
• Office of the Comptroller, December 2008
• Board of Aldermen, September 2008
• Dept of Public Service, September 2008
• Supply Division, September 2008
• Dept of Personnel, Sept 2008

I don’t for a minute believe then men that governed the city 50-60 years ago made decisions that we should be expected to keep around long after they have passed. Ongoing evaluation and change to adjust to new circumstances is logical.  We don’t do that, unfortunately.  Instead various interests pick away one issue at a time.

The word “Mayor” is etched in stone above the door to room 200 in City Hall so I’d keep the office of mayor, besides every city has a mayor.  I don’t recall if Board of Aldermen or other offices are also etched in stone.  Even if they are, we are still be free to change how our government is structured, including the names of elective offices.

So no, I don’t want to pluck out one tax and call it a day.  I want to get a fresh start for the 21st century.

– Steve Patterson

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

Pro Sports Teams in St. Louis

St. Louis has a long history with professional sports teams, but, except for the Blues and the Cardinals, there’s also been a lot of changes over the years. The Browns, the Hawks and the football Cardinals have all left town. We invested heavily to get the Rams. We were once the epicenter for professional wrestling, and we currently support, among other sports, roller derby (ArchRivalRollerGirls.com).

Supporters of pro sports view them as being critical to a major city’s identity and for attracting new businesses. This is backed up with public investments like those in the Jones Dome, Busch III and Scottrade Center. But there are always groups advocating for more and different. One thing St. Louis lacks, in the traditional sense, is a pro basketball team. The Hawks were here from 1955 to 1968, but they were sold and moved to Atlanta. There are also “newer” pro sports leagues that are growing around the country, in sports that appeal more to the younger generations, sports like soccer and lacrosse.

With some regularity, we’ll see proposals, many times in Illinois, to build a new pro sports facility to support one of these new leagues. The Rams continue to make noises about the need to improve or replace the Jones Dome.  We just had a successful weekend of bike racing and the possibility of bringing the Olympics back to St. Louis is always a remote one.  There are those of us who would like to see a bigger investment in expanding our trail system, and there are others who value motorsports like NHRA and NASCAR.  Heck, there are even people willing to spend money watching monster trucks or lawnmower racing.

This all boils down to priorities.  We can’t be everything to everybody, so choices have to be made.  The Cardinals and the Blues seem to be relatively satisfied, for the time being, which leaves everyone else.  Should we focus our efforts on keeping the Rams or should we try to get an Arena Football team?  Would pro soccer be a better investment than pro lacrosse?  And should St. Louis work to keep any new facility in or near downtown, ar should we let other cities in the region share in both the glory and the headaches any pro team brings?

– Jim Zavist

Bill Before Missouri Legislature Could Stall Revitalization Efforts in St. Louis

Tax credits can be an effective tool to accomplish certain goals. For example, the federal mortgage deduction is meant to encourage home ownership.  But in truth the fed is subsidizing home ownership.  Tax credits are a trade off — a credit in exchange for something of value.

But an amendment tacked on to Missouri’s jobs bill (SB45) could severely limit the state’s Historic Preservation Tax Credit that has helped St. Louis, Kansas City and towns throughout Missouri since taking effect on January 1, 1998.  The landscape in Jefferson City is changing daily so I know I don’t have the latest.  But know that the very tax credits which have been a key player in renovation projects downtown and throughout the city, may get limited.  We need this tax credit to continue the redevelopment of historic buildings in St. Louis and in communities across the entire state.

Further reading:

• Missouri Coalition for Historic Preservation and Economic Development
• Ecology of Absence post
• St Louis Post-Dispatch Editorial
  
• Culprits are Sen. Brad Lager (R-12) & Sen. Jason Crowell (R-27)

Tax incentives that produce results (jobs, reinvestment in established areas, etc) should be expanded – cut capped.

Sales Tax Rates Will Vary

The rate of 7.25% seems stuck in my head as reasonable.  But recent receipts in the city show a rate of 8.241% on non-food purchases.  Yikes!  Last month I brought stuff at the Ikea store in the Chicago suburb of Bolingbrook which had a rate of 8.5%.  Food purchases have a rate of 5.1409%.  I forget how that came to be — I think it was the elimination (or reduction) of the state portion?  Most of my purchases during the last year have been food and books for school.  But boy those 1/8th of a cent tax increases add up.

We tax ourselves in order to provide services.  These can be everything from public schools to police/fire/ems to public libraries, transit, street lighting, parks and on and on.  Taxes come in many forms depending upon the jurisdiction where you live.

A decade ago I had my luggage stolen from my car the day I was traveling to Seattle.  I arrived in Seattle with the clothes on my back and a magazine purchased in the Minneapolis airport.  The next morning we were driving from Seattle to visit Portland, OR.  Oregon has no sales tax so as I bought clothes (& luggage) to replace those that were stolen the savings added up.  That $24.99 shirt was just $24.99.  That same shirt bought today in St. Louis would cost another $2.50.

As a tourist enjoying tax-free purchases I likely paid more for some items because other taxes, such as property taxes, are often reflected in the final price of the goods & services.The renter doesn’t escape property taxes — part of the rental rate is there to cover those taxes.  The issue of evaluating tax levels from city to city within the same region and state is complicated enough but comparing region to region gets even more complex.  I’m sure somewhere out there I could find a study to show what a family might pay in various taxes in the St. Louis region vs. Dallas vs. San Diego and so on.

Sales taxes just happen to be one we see regularly.  We have the option to order online and potentially avoid paying sales taxes (although not necessarily).  If our online purchases exceed I believe $2,000 annually in Missouri we are supposed to pay use tax on those purchases.  My online purchases never come close to approaching that amount.

But then we go back to figuring in services relative to taxes paid.  Some places have lower tax rates but they also have a reduced level of services.  Thus it comes back to the question if you are pleased with the level of services provided by your government based on your total annual tax bill?  As consumers cut back on spending and shift more purchases away from retailers in their communities to online stores local & state government budgets are going to feel the pinch.  With less money that means less services.

Share your views below on taxes.