Saint Louis Earnings Tax Is Bad for Our Health – But Do We Care?

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Call it “the smoker’s dilemma”: Everyone knows that smoking kills, but a habitual smoker may be convinced that he needs the steadying effect of cigarettes. When voters in Saint Louis go to the polls on April 5, they will confront a similar dilemma in deciding whether to maintain the current earnings tax.

Show-Me Institute research has established that the 1-percent earnings tax hurts economic growth in our state’s largest cities. But many officials think that their budgets will collapse without the revenues they receive from it.

If voters decide to rescind the earnings tax, would Saint Louis city government collapse? No, but there is no magic bullet for replacing the revenue it generates. If the earnings tax is eliminated, it would be phased out over a 10-year period. During that time, Saint Louis could adjust to the new realities through a combination of changes.

The city of St. Louis could follow the county’s example by selling its municipal water utility to a private company. That could be worth hundreds of millions of dollars. It would give the city a quick infusion of money that would more than offset the initial hit without the earnings tax.

There are many opportunities for Saint Louis to consolidate services. During the 10-year phase out, city officials can work to re-enter Saint Louis County. Consolidating certain government functions along with a county takeover of some things like highways and bridges could save the city millions of dollars.

All taxes are not equal. As the earnings tax is phased out, it could be replaced by less harmful taxes. For years, Kansas City has charged a land tax to fund parts of its transportation system. Land taxes are property taxes based only on the value of the land rather than the building. Many economists think they are among the least harmful methods of taxation. This type of tax system could be adopted in Saint Louis.

All budgets can be cut. Saint Louis should embrace this opportunity to cut unnecessary services. For instance, the city already has both the Police and Sheriff’s Departments, so why does it need a third law enforcement agency, the City Marshal? Every duty of that office can be transferred to the police or sheriff, and that department can be eliminated entirely, saving the city more than a million dollars a year.

Perhaps the most important thing that Saint Louis can do is eliminate tax subsidies. As of 2009, Saint Louis had $683 million in tax-abated property. If the city stopped issuing abatements, a large percentage of that property would return to the tax rolls during the following 10 years.

Quitting smoking may be hard, but doing so is in any smoker’s long-term interest. A 10-year phase-out period allows plenty of time for Saint Louis to kick its habit and make the changes needed to continue providing necessary services without relying on the earnings tax.