The old saying about democracy — it’s the worst system, except for the alternatives — might also apply to ºüÀêÊÓƵ’ earnings tax. The 1% assessment on income earned from people who work in the city, including workers who live outside its boundaries, is regularly targeted by critics who say it’s taxation without representation and that it hampers the city’s economy by giving employers one more reason to move out.
On the other side of those arguments are these two: The rationale for the tax — that people whose employment relies on use of city infrastructure and services should help fund those things, regardless of where they live — is as logical now as it was when the tax was first established in 1946. And eliminating or significantly reducing the roughly $200 million the tax brings in annually (about a third of the city’s general revenue) would be a devastating blow to those services and infrastructure.
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We’re in favor, always, of discussing realistic alternatives to the earnings tax. But unless and until those alternatives are on the table, the latest effort by Missouri legislators to target the tax is irresponsible.
State House Speaker Dean Plocher, R-Des Peres, on Monday announced the formation of a committee to study the economic impact of the tax. “As costs rise and more Missourians are facing financial difficulties, it’s more important than ever to look at the data and have a meaningful discussion about these taxes and see just how they are affecting Missourians as well as employment and economic growth in our state,†said Plocher.
Anyone familiar with the long history of conservative attempts to undermine or eliminate the tax knows that isn’t the benign announcement it might sound like.
In each of the three times in the past dozen years that the tax has been put to a citywide vote, it has garnered north of 70% support. But in an era in which Republican politicians have all but ditched their once-sacred philosophy of respecting local control over government, it wouldn’t be surprising to see the state stomp in and try to deprive the city of this revenue stream.
The fact that the critics don’t appear to be focused on how, exactly, that revenue would be replaced is especially troubling. If Plocher and other critics think the earnings tax is a disincentive for businesses to locate here, just imagine the exodus when already-inadequate police service is gutted still further for lack of funding.
The earnings tax already faces a serious threat unrelated to the Legislature: A judge in January ruled that the city must refund the earnings tax to non-residents who worked from home during and after the pandemic instead of commuting to their ºüÀêÊÓƵ offices. If that holds (the city is appealing), it could mean something like a $50 million annual loss going forward, given that work-from-home culture is clearly here to stay.
There’s an argument to be made that out-of-town telecommuters should still be taxed, because their paychecks still rely on employers that rely on city services. But that’s not necessarily where the courts will land.
Between that and the latest rumblings out of Jefferson City, ºüÀêÊÓƵ’ leaders would be wise to open serious discussions about what other revenue streams might be available to replace a reduced or eliminated earnings tax. And if state officials are sincere in their concern about the city’s economy, they will make the revenue-replacement issue a front-burner part of their own talks.