|Kansas City Citizens’ Commission: One Step Forward, Two Steps Back?|
|By David Stokes|
|Tuesday, June 12, 2012|
If you were trying to break a gambling problem, would you want your intervention team to consist of a bunch of guys you know from the blackjack tables? Probably not. In some situations, taking advice from people outside of your circle is a good idea. You should not count on the people who helped put you into a problem situation to help get you out of it.
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, this commission that is stacked with former city and county employees avoids anything substantive or radical in its report. 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. However, not all of the Citizens’ Commission on Municipal Revenue’s (CCMR) recommendations are bad. Indeed, there are several good ones in the report.
Kansas City’s business and occupational license system is very complicated. The system is unfair to businesses and city government alike. Collection costs are higher for this tax than others because it is so complicated. The 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. They let taxpayers know exactly what they are voting on, and give taxpayers a chance to judge results. However, it is possible to go too far with dedicated taxes, as Kansas City has done. For example, Kansas City previously, and unnecessarily, chose to dedicate its entire 1 percent baseline sales tax to capital improvements. 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). 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. TIF has been abused in Kansas City and throughout Missouri. A true analysis of municipal revenues would encourage its elimination, not gloss over it.
One of the most audacious suggestions was to tax income from non-residents earned outside the city. Essentially, 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. To be fair, this was not included among the final recommendations. 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 benefit 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 Kansas City enacts? Get rid of it, of course, and replace it with higher sales taxes.
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. When you load up a commission on taxation with lawyers and bureaucrats, this is what you are going to get.
The mayor wishes to enact the recommended changes by putting them on the ballot later this year. He wants voters to approve higher sales and property taxes while removing certain taxes. I hope the city council thinks twice before replacing effective taxes like the land tax with higher and more harmful substitutes.
David Stokes is a policy analyst for the Show-Me Institute, which promotes market solutions for Missouri public policy.