According to legend, Alexander the Great solved the riddle of the Gordian knot with one swing of his sword. I recommend we take a similar action to resolve an arcane but important debate about the future of sales tax distributions in Saint Louis County.
Cities in Saint Louis County are either “point-of-sale” or “pool” cities. Most “point-of-sale” cities, such as Des Peres, have major shopping centers. They keep most of the sales taxes collected within their boundaries, but submit a portion to the pool. “Pool” cities, by contrast, share all the sales taxes they collect with other members of the pool. Some of the cities that are currently in the pool have joined the hunt for the almighty sales tax dollar, and want to become point-of-sale cities. They are now seeking legislation that would authorize such a change.
The current debate hinges on the choice between preserving the status quo or adding more point-of-sales cities. There is, however, a third — and better — option: Combine all general sales tax collections within the county into a single pool shared by every city, with no exceptions.
In one stroke, the elimination of point-of-sales cities and the move to a fully pooled sales tax system would reduce the use of tax increment financing (TIF), eliminate the primary incentive for eminent domain abuse, encourage regional growth, and limit government planning in our economy. It would end a good deal of the unhealthy competition between municipalities that subverts, rather than supports, private enterprise.
All of the major examples of eminent domain abuse by local governments in Saint Louis County have occurred in point-of-sale cities. Beyond that, the unending search for the almighty sales tax dollar has led to vast public tax subsidies for retail developments across the county. As documented in a report by the East-West Gateway Council of Governments, the prevailing addiction to TIF and other subsidies for retail development has expended billions tax dollars, but, in their words, has “not resulted in economic growth for our region.”
Fenton Mayor Dennis Hancock is among those who have argued that changing — or eliminating — the pool system would encourage pool cities to take charge of their own development. But when you hear local officials talking about “economic development,” they do not envision government stepping back in order to allow market forces and entrepreneurs to determine the best use of commercial property. To the contrary, city planners and officials would seek to subsidize retail developments with tax dollars, in the hope of generating sales taxes that would disproportionately benefit their own cities. This kind of beggar-thy-neighbor practice is only destructive in the long run.
Nobody, including local officials, has any idea what the right amount of retail is for Saint Louis County. However, as long as individual municipalities within the county have a point-of-sale tax option, many cities will use tax incentives to favor retail development over other types of business and industry. As shown repeatedly, this approach fails to grow our regional economy. Arm-in-arm with this planning comes the abuse of eminent domain, wielded to acquire the properties that cities and developers want to take. Moreover, school districts, which depend on property taxes, are harmed when cities give away property tax abatements in favor of sales taxes.
Under a fully pooled sales tax system, people in the county would benefit from all types of economic development, regardless of its location. Retail centers would locate where they are most suited, as determined by best business practices rather than by government subsidies. Cities would benefit as much from office buildings or factories as they would from retail. A pooled sales tax system helps remove government from the real estate development industry, but adding new point-of-sale cities would cement the government’s involvement even further.
Those who support the pool system should do more than fight for the status quo. They should take this opportunity to expand the pool system to include all general sales taxes within the county. In a single stroke, it would be possible to reduce tax subsidies, limit government involvement in our economy, ensure our property rights, and promote more vibrant economic growth for everyone.
David Stokes is a policy analyst with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
