Earnings Tax Burden Is Too Heavy
In a recent article for the St. Louis Beacon, the Show-Me Institute’s vice president Joseph Haslag and intern Alex Schulte explore the ways in which the earnings tax is failing St. Louis and Kansas City. It is indeed odd that two of the state’s largest cities face relative worsening and weakening of their economies, irrespective of the boom and bust cycles that the nation at large faces. Both cities are burdened with shrinking populations and falling total personal incomes.
As increasingly effective technological gains continue to erode the comparative advantage of doing business in these cities (location, transportation, centralization, etc.), the existing incentive structure is tipping the scales toward suburbs and other states. Haslag and Schulte write:
According to our calculations, ending the tax would reverse St. Louis’ current negative growth rate. If St. Louis were to eliminate its earnings tax, our projections indicate that during the next 25 years, the cumulative discounted income gains would be $1.5 billion. If Kansas City were to do the same, its cumulative discounted income increase would be even more substantial, totaling an additional $3.2 billion in personal income for the next generation.
It is becoming clear that the 1-percent earnings tax contributes to a burden that is far from modest. Shifting to an alternate mode of raising city revenue would be better for citizens, and for restoring the vitality of cities that should be a source of pride for Missouri.
For other Show-Me discussions of the earnings tax, see: