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City governments provide important services to city residents, and these services need to be financed through taxation. In turn, taxation alters the decisions of those being taxed, and these effects need to be considered when city officials are deciding how to finance the services provided. Put simply, a city government needs to be mindful of the aphorism “If you tax something, you will get less of it.” Because of the relative immobility of property, property taxes are the most important source of tax revenue for cities; however, both the City of Saint Louis and Kansas City are relatively reliant on income taxes from their 1 percent earnings tax instead of property taxes. There is strong evidence that the economies of Saint Louis City and Kansas City have been harmed because of the cities’ reliance on earnings taxes.

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About the Author

Howard Wall
Research Fellow
Howard J. Wall directs the Hammond Institute for Free Enterprise and the Center for Economics and the Environment at Lindenwood University. Prior to joining Lindenwood in 2011, he was a vice president and regional economics adviser at the Federal Reserve Bank of St. Louis.