More About the Earnings Tax

The 1-percent earnings tax on Kansas City and St. Louis residents and workers has received a lot of press as of late. The Kansas City Star published an article about the “city’s crucial earnings tax.” Christine Harbin recently posted about the earnings tax in Kansas City, pointing out how a land tax would be better than an earnings tax, because it would encourage landowners to utilize their property productively. The St. Louis Post-Dispatch wrote about the earnings tax from another angle, mentioning Show-Me Institute President Rex Sinquefield and the institute’s research on the tax.

The Post-Dispatch editorial used a loaded term, “public safety tax,” to describe the earnings tax, not because it pays for the Metropolitan Police Department — it doesn’t — but because its revenue is coincidentally equal to the Police Department’s budget. This is not the first time the Post-Dispatch has taken a contrary position regarding the earnings tax than Show-Me Institute writers, though it has toned down its rhetoric since August. The new article discusses a need for a replacement tax for the earnings tax revenue, neglecting to mention that the Show-Me Institute has suggested a replacement: the land tax.

Specifically, Show-Me Institute publications have suggested a two-tiered land tax that would impose separate taxes on property and buildings. Land is fixed in quantity, so this would encourage long-term development. In the long run, rescinding the earnings tax could cause the St. Louis city population to double.

Both St. Louis and Kansas City have watched their city populations and businesses stagnate while their suburbs have grown, and the earnings tax is one contributing component that needs to be addressed. Petition proposals have been approved to collect signatures for the St. Louis earnings tax to be reconsidered on the ballot, with the stipulation that a revenue replacement needs to be found. For St. Louis, the land tax makes the most economic sense as that replacement. When an editorial claims that eliminating the earnings tax is infeasible, it’s important to take into account the potential of the land tax to provide a less-distortionary source of revenue and ultimately promote future economic growth.