In some quarters, the battle over the city earnings tax is being framed as a Tea Party-style fight against big government.
It shouldn’t be. Instead, we should be debating the most efficient way to fund local services. Whether you think of the folks at City Hall as sainted public servants or a bloated bureaucracy, you should want to pay their expenses with a tax system that does as little damage as possible to the local economy.
That’s not the earnings tax. It encourages companies and residents to leave the city for the suburbs, weakening the region by leaving it without a strong center. Even Mayor Francis Slay, certainly no right-wing bomb-thrower, last week that the tax “is a disincentive to some residents and businesses.â€
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The 1 percent earnings tax is in the Missouri Legislature. A related tax, the half-percent payroll tax, has been ºüÀêÊÓƵ voters have a say on April 5, when they vote to either keep the earnings tax or phase it out over 10 years.
Wealthy activist Rex Sinquefield has to an anti-earnings-tax political committee, so we can expect to see TV ads on the subject soon. Let’s hope they explain how the earnings tax could be replaced.
Howard Wall, a Lindenwood University economist, says one alternative is higher property taxes. In a for the Sinquefield-funded Show-Me Institute, he pointed out that ºüÀêÊÓƵ’ heavy reliance on wage taxes is unusual.
The typical U.S. city gets 17 times as much revenue from taxing property as from taxing work; here, property taxes bring in less than half as much as the earnings tax.
ºüÀêÊÓƵ also might be able to extract some revenue from its large nonprofit institutions. These universities and hospitals depend on city services but don’t pay property taxes. Boston and other cities have negotiated payments from their big nonprofits; ºüÀêÊÓƵ could try to do the same. Eliminating the 1 percent earnings tax should make it easier for these institutions to attract and retain employees; wouldn’t they pay something to make the tax go away?
City residents and leaders tend to defend the earnings tax on us-vs.-them grounds. They say they need to tax suburbanites who commute to work in ºüÀêÊÓƵ, because those commuters rely on city police and other services.
A property tax, Wall points out, does much the same thing. In other cities, an employer who owns a large office building pays enough to cover the city services used by the building’s workers.
In ºüÀêÊÓƵ, the tendency has been to abate property taxes in hopes of keeping jobs — and earnings tax revenue — in the city. Jobs have left anyway, and in recent years the city has handed special payroll-tax breaks to companies such as Anthem and Wells Fargo Advisors.
Those deals add a new level of unfairness to a tax that was already a slow-motion disaster for the city. It’s hard to explain to a fast-food worker that the city needs 1 percent of her wages but can forgo part of the same revenue from a well-paid investment banker or insurance executive.
So let’s not debate whether the city needs the $160 million a year it gets from the earnings tax. Clearly it does.
Let’s talk instead about fairer and more efficient ways to fund city services. Five years ago, the last time voters considered the earnings-tax issue, ºüÀêÊÓƵ officials some alternatives. It’s high time we learn what those alternatives are.