They say that the best time to plant a tree was 20 years ago, and the second-best time is now. That about sums up my opinion on the City of St. Louis’s one-percent earnings tax, the continuation of which is before St. Louis voters on the April ballot. The best time to start phasing out the earnings tax really was 20 years ago, and the second-best time is still now.

The 20 years in the saying is particularly appropriate in this case, as the Show-Me Institute released its first study on the earnings tax almost exactly 20 years ago. Professor Joseph Haslag, then at the University of Missouri, documented how the earnings tax reduces overall income and employment in the city by encouraging businesses and individuals to locate outside of the city. Additional studies conducted by Show-Me Institute analysts and others have found similar results regarding the harms of local income taxes generally.

Haslag didn’t just demonstrate the harm of the earnings tax; he also recommended a strategy to replace it in order to maintain necessary city services. Haslag suggested changing state laws to allow St. Louis to institute a land tax, which is simply a property tax on the value of the land only. Pittsburgh is one city that had beneficial results from implementing land taxation in the 1980s. Alas, while land taxes are popular with economists and fiscally beneficial, they are politically unpopular to say the least. Needless to say, land taxes have never been adopted in St. Louis (nor has state law been amended to allow them). But the harms of the earnings tax have continued to help drive St. Louis’s population and economy lower, and those fiscal harms were exacerbated during the pandemic.

An easier change (legally, if not politically) than a land tax would have been to start phasing out the earnings tax 20 years ago while increasing a combination of property and sales taxes over time to replace the lost revenues (while cutting spending where possible as well). Poor decision-making over the past two decades has made that already-difficult change almost impossible. Damaging special sales taxes such as community improvement district (CID) taxes are now ubiquitous throughout shopping areas in the city. Primarily used as a smokescreen for harmful corporate welfare, CIDs and other special sales taxes have driven sales tax rates sky high. While the sales taxes have gone up, commercial property values have plummeted. According to the St. Louis Business-Journal, downtown St. Louis office buildings have lost 19 percent of their assessed value since 2019, and even more if you go back further. The largest office building downtown, the AT&T building at 909 Chestnut, paid $5.5 million in property taxes in 2009. It paid just $200,000 in 2024. While that is the most extreme example, similar examples can be found throughout downtown.

The economic situation in the city was already bad, and the tornado that hit in May made it even worse. It was the type of disaster that could make people consider radical changes, and perhaps the land tax is the type of radical change the city needs. (For the record, the Show-Me Institute’s offices were destroyed in the tornado, and while we’re a nonprofit, our office building is subject to property taxes.)

As large parts of the Central West End and the Northside are still recovering from the tornado, St. Louis city government has commendably allowed homeowners with damaged homes to reduce their tax payments, but the long-term impacts on city tax revenues may be significant. The population of New Orleans still hasn’t recovered from Hurricane Katrina and, while the damage to St. Louis was not that severe, the risk is the same.

I suggest it is time to change state law to allow for a land tax, including on land owned by larger “nonprofits” like Barnes Hospital. The land tax could be imposed on the value of the land throughout St. Louis at a level that would gradually increase to make up for revenue lost as the earnings tax is phased out over a period of 10 years (or more). (Other changes would be necessary, including ending the tax subsidies the city gives out.) What makes land taxation so beneficial is that as homeowners and businesses rebuild their damaged property, they aren’t hit with higher taxes for the home or building. The tax is set to the land, which can’t be altered, rather than the building. So, return to the city, rebuild your home or business, make it even larger—do whatever you want—and you won’t be punished with higher taxes.

Pittsburgh in the 1970s was experiencing economic difficulties just as St. Louis is now. Land taxation helped spur investment in Pittsburgh, and it could have the same effect on St. Louis. The city has been hemorrhaging population, jobs, and wealth for decades. Honestly, at this point in its history, what does St. Louis have to lose?

The post It’s Time to Phase Out the Earnings Tax. Honestly, Nothing Else Has Worked . . . appeared first on Show-Me Institute.

Fast forward to 2024, and that sales tax is up for renewal. However, because the pension system is much better funded now, city leaders don’t want to renew the 3/4 cent sales tax as it is. That would generate more money for the pension than it needs.

So Springfield leaders put a commission together to come up with ways to alter the tax revenue distributions before it goes to voters in November.

A Kinsley Gaffe is when politicians accidentally say something truthful they didn’t mean to. (This is the second such gaffe worth highlighting in Missouri in the past few months.) In this case, the statement is filtered through the media, I admit, but the reporter must have got the gist of it from local leaders:

The tax will sunset at the end of March 2025, hence why the city has been adamant to put a replacement tax on the November ballot to avoid a lapse in the sales tax that local shoppers would feel. (emphasis added)

A lapse that voters would feel? Meaning a tax reduction Springfield residents may actually like? Dear Lord, we certainly can’t have that. If they like the reductions, they may not vote to increase the tax when we want them to, Oh, the humanity.

The new proposal is for voters to keep a 1/4 cent sales tax for public safety—which can still include pension costs—and change the rest of the tax (1/2 cent) to fund “comprehensive plan capital and parks projects and neighborhood and community initiatives.” (More on that issue later.)

Springfield still has a defined-benefit pension plan for its public safety employees. It should have switched to a defined-contribution plan years ago. At least the city, according to the article, closed the old plan to new members several years ago and, presumably, replaced it with a less generous plan for new hires. That’s progress, but a defined-contribution plan for Springfield employees would have been better for the taxpayers and the city. Throwing tax dollars at the pension fund appears to have worked for now, but further change is needed. As former Show-Me Institute Chief Economist Joe Haslag wrote about the Springfield pension situation years ago: “The existing approach got Springfield into this situation. Some reform is needed to avoid the same problems in the future.”

The post Springfield Wants to Be Darn Sure Its Sales Tax Rate Doesn’t Ever Go Down appeared first on Show-Me Institute.

And over the past few months in Missouri we’ve seen claims like this made repeatedly in anti–Right to Work advertisements. Show-Me Institute chief economist Joe Haslag recently wrote about one such ad that claimed that in Oklahoma, passage of Right to Work caused wages to fall while simultaneously encouraging businesses to leave the state. That just doesn’t make any sense!

Suffice it to say, I’m used to seeing this type of over-the-top claim in opposition to Right to Work, so I wasn’t surprised by most of the arguments in the Columbia Missourian piece. That is, until I got to the part where the author argued against Right to Work because it would make it harder for unions to engage in political activity. She writes, “weaker unions mean less organized ability to advocate for social justice issues and progressive campaigns.” That’s exactly the point! Conservatives, libertarians, and many other Missourians do not want to be forced to support “progressive campaigns” and policies they don’t agree with. That’s why they want out.

As stated in the Show-Me Institute’s 2018 Blueprint, “Right to work ends forced unionism and lets workers decide whether joining a union best serves their interests.” The economic arguments for and against Right to Work are important, but the fundamental issue here is worker freedom. Should someone be forced to support causes they disagree with as a condition of being employed? The answer seems obvious.

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So why is President Donald Trump taking Harley-Davidson—another U.S.-based global super-brand—to task?

A day after the company announced plans to serve the European market with motorcycles built in Europe, the president thundered: “A Harley-Davidson should never be built in another country—never!” He accused the company of hoisting the “white flag” of surrender and predicted “If they move, watch, it will be the beginning of the end.”

Harley-Davidson, Inc., made its announcement after the European Union raised tariffs on U.S.-made motorcycles by 25 percent—in retaliation to the 25 percent tariff on European exports of steel to the U.S. imposed by the Trump administration. Noting that the higher EU tariff would add approximately $2,200 to the average cost of a motorcycle exported from the U.S. to Europe, the company said:

Increasing international production to alleviate the EU tariff burden is not the company’s preference, but it represents the only sustainable option. Europe is a critical market for Harley-Davidson. In 2017, nearly 40,000 riders bought new Harley-Davidson motorcycles in Europe, and revenue generated from the EU countries is second only to the U.S.

The president said that he had “chided” Harley-Davidson executives on an earlier occasion for moving production to India as a way around high motorcycle tariffs in that country. But is it reasonable to expect a profit-seeking enterprise to keep all production and employment in the U.S., regardless of the cost in lost sales, profit, and overall competitiveness?

Certainly, the Trump Organization has not followed such a policy. Under licensing or other arrangements, it has fancy hotels bearing the Trump name in four different cities in India (Mumbai, Delhi, Pune, and Kolkata). Apart from Chicago, however, the Trump Organization has no luxurious hotels anywhere in the great American heartland. Why not?

Presumably, it made more sense from a business perspective to build hotels for the super-rich in India—though other cities in the American Midwest would have welcomed the same investment.

The president faulted Harley-Davidson for not being more “patient”—suggesting that his deliberately provocative approach to trade negotiations would force other nations to bend to his will for fear of losing access to the rich U.S. marketplace. As he said a couple of months ago— “Trade wars are good, and easy to win.”

But as Joe Haslag, the chief economist for the Show-Me Institute, notes, the president is playing “a very dangerous game,” because “the size, scale, and scope of the products that we are now talking about in increasingly acrimonious trade negotiations are staggering—a potentially U.S.-GDP-changing event.”

A grand strategy? Maybe, but early results are not promising. Mid Continent Nail in Poplar Bluff says its orders have dropped in half as a result of having to raise prices to make up for the higher cost of importing steel from Mexico. It has laid off 60 workers and says it may have to dismiss all of its 440 remaining workers by Labor Day.

In 2017, the Trump administration withdrew from the Trans Pacific Partnership—an agreement that would have reduced tariffs in Asian markets on motorcycles made in the U.S. That seems to have prompted Harley-Davidson’s earlier decision to build a manufacturing plant in Thailand. It may also have been a factor in the company’s decision to close its Kansas City manufacturing facility by 2019.

What caused the world-famous company with the “HOG” stock exchange symbol to make those choices? Surely it was rising tariffs on manufactured goods—a problem that does not exist in the luxury hotel business.

The post Trump vs. Harley-and the World appeared first on Show-Me Institute.

But one of the most attention-getting findings contained in a newly released report from the Brookings Institution titled “How Trump’s Steel and Aluminum Tariffs Could Affect State Economies“ might cause you to think otherwise.

As the Brookings report points out, Missouri’s imports of steel and aluminum amount to $1.4 billion, or 7.4 percent of our state’s total imports. By that measure, Missouri’s exposure to tariff-driven increases in the price of those two commodities is the highest of any state in the country. But how meaningful is that metric?

Joseph Haslag, chief economist for the Show-Me Institute, points out that the metric is misleading for a couple of reasons. One is the presence of a large automotive sector in our state, and the other is the simple fact that Missouri is just not a large importing state.

A better measure, therefore, is to look at Missouri’s exposure relative to our state’s total output of goods and service—its gross domestic product. By that measure, Missouri falls from the state that is “most exposed” to steel and aluminum purchases to the 8th most exposed state—still not anything to be happy about.

At both the state and national levels, agriculture is one sector of the economy that is likely to suffer. As Blake Hurst, president of the Missouri Farm Bureau, told me, “Farmers are going to be hit two ways—having to pay more for tractors, combines, and other equipment made from steel and aluminum, and also having to deal with the possible loss of foreign markets due to retaliatory tariffs on U.S. agricultural exports.”

 Watch this space for further information on how changes in tariffs and trade agreements are likely to affect Missourians.

The post How Would Missouri Fare in a Global Trade War? appeared first on Show-Me Institute.

Over the years, we have marked the progress (or lack thereof) that Missouri has made by reporting new data on gross domestic product (GDP) released by the Bureau of Economic Analysis (BEA). If you pick out a single year’s data, Missouri seems to do okay. From 2015 to 2016, for instance, real GDP in Missouri increased at a 1.15 percent rate, ranking 31st out of the 50 states and the District of Columbia. Washington recorded the fastest growth rate, at 3.7 percent. It was a bad year for states that rely on natural resources: Louisiana, West Virginia, Oklahoma, Wyoming, Alaska, and North Dakota all reported declines in real GDP from 2015 to 2016. So, it looks like the recent decline in oil and coal prices helped push Missouri up into the middle of the pack. For reference, in the United States as a whole, reported real GDP increased at a 1.54 percent rate in 2016—much faster than in Missouri.

But year-over-year data doesn’t reveal larger, more important economic trends; any given year can be dominated by business cycle fluctuations. Growth is focused on long-term trends. When you look at the entire 1997–2016 period, the picture is quite different from 2015. Little wiggles in the year-over-year data get smoothed out and show the economic fundamentals operating within a state. Over the full two-decade period, we see that Missouri’s growth has been paltry.

During this period, Missouri has grown at half the pace of the United States as a whole (1.024% compared to 2.05%). Out of all 50 states and the District of Columbia, Missouri ranks 48th in economic growth; we trailed Mississippi by 0.001%—we were almost 47th. For an idea of the impact of Missouri’s poor performance, imagine you and a friend had started at the same job in 1997, each making $50,000 a year. If your friend’s salary grew at the rate of the country as a whole, and yours grew at Missouri’s rate, the friend would have made about $72,800 in 2016 while you’d have made roughly $60,400!

In a recent essay, Joe Haslag and Michael Austin identified some policies that could help explain why Missouri took a nosedive after 1997. There was the corporate income tax rate hike in 1993. There was a shift of spending from education and infrastructure to social services. There was the sharp increase in the state’s tax credit programs. And, though more difficult to measure, there was the regulatory burden that seems only to have increased over time. (Do you remember a time when the state government eliminated a regulation?)

The bottom line is that state government needs to take a thoughtful approach to policy if it is to boost economic growth. Lower tax rates, for example, result in higher returns on capital and labor. The state should look for high returns on its own investments as well, just like a private citizen or business would. Common-sense adjustments to emphasize education and infrastructure over policies that transfer wealth from one group of citizens or businesses to another are needed unless Missouri’s policymakers are satisfied with 47th place.

The post Almost 47th appeared first on Show-Me Institute.

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Which brings us to 2015: Bombardier, back in Canada, now needs a bailout.

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Why the marked differences in population growth between Missouri’s two major cities and their surrounding areas? Undoubtedly, there are a number of factors involved, like housing prices, amenities, and school quality. But what about taxes? Specifically, what about the 1 percent earnings tax that both cities impose on everyone who works there and on everyone who lives there even if they work someplace else? A new study by Howard Wall, commissioned by the Show-Me Institute, suggests that the earnings tax could be impeding the population growth of both cities.

In 1947 the Missouri Legislature authorized cities with populations of 70,000 or more to levy an earnings tax, capped at 1 percent. Only Saint Louis and Kansas City chose to impose this tax. But earnings taxes are known to have bad economic side effects. A study by Dr. Joseph Haslag of the University of Missouri–Columbia found that Saint Louis and Kansas City’s earnings taxes help explain the decline in personal income in those cities relative to the surrounding non-taxed metro areas during the first part of the 2000s. Wall, the director of the Hammond Institute for Free Enterprise and the Center for Economics and the Environment at Lindenwood University, tackles a different question: Does the imposition of earnings taxes help explain differences in population growth across cities?

Wall conducted his investigation using population growth rates for 185 cities (population 25,000 or more) over the period 2000 through 2010. Seventy-nine of the cities included in his study levy an earnings tax. Nineteen Missouri cities are included, of which only Saint Louis and Kansas City have an earnings tax.

After controlling for other factors that might explain differences in population growth, Wall finds that having an earnings tax has a statistically significant, negative effect on population growth. And the impact is not small: A 1 percentage-point increase in the earnings tax is associated with about a 4 percentage-point reduction in population growth over a decade.

What does that mean for Saint Louis and Kansas City? Based on his results, Wall suggests that the earnings tax in Saint Louis accounts for about half of the population decline experienced over the decade. For Kansas City, the earnings tax may have cut its population growth in half.

The effects of the earnings tax apparently do not stop at city borders. Wall finds that there are negative metro-wide effects emanating from the central city’s earnings tax. The population loss of Saint Louis City dwarfs the population increase in its ring cities, yielding a net reduction in the metropolitan population. The effect is similar for Kansas City. There are substantially fewer residents living in the metro area than there would have been were it not for Kansas City’s earnings tax. Employing an earnings tax has adverse effects on population growth for the taxing city that spill over into surrounding communities.

Even though the earnings tax produces such negative effects, how would cities replace the lost revenue if they were removed? One option is to reorder tax priorities. Wall notes that, on average, property taxes account for about 17 times as much in revenue as income taxes in cities across the country. In sharp contrast, Saint Louis and Kansas City rely more heavily on taxing income. In Saint Louis, the earnings tax revenue is more than twice that from property taxes; in Kansas City it is a little over 1.5 times as big.

The evidence in Wall’s study and in previous research lends credence to the view that shifting priorities from taxing income to taxing property may be the answer to reversing the negative economic effects of the earnings tax on Missouri’s major cities.

R. W. Hafer is the distinguished research professor of economics and finance at Southern Illinois University Edwardsville and a research fellow at the Show-Me Institute.

The post Taxing a Population: Saint Louis and Kansas City’s Earnings Tax Draw People Away appeared first on Show-Me Institute.

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In a recent Saint Louis Beacon editorial, I noted that budget decisions have reduced funding for higher education. Spending on higher education has declined in real terms since 1990. This has had several effects, including forcing Missouri universities and colleges to raise tuition. It also has affected the educational accomplishment of the average Missourian.

How does Missouri stack up when compared to other states in educational achievement by its citizens? In 2008, Missouri ranked 33rd out of the 50 states using the statistic “percent of adults having a bachelor’s degree or more.” Don’t like “number of degrees” as a measure of what you have learned? Using standardized test scores (the National Assessment of Educational Progress, or NAEP) as a measure of educational attainment, Stanford University professor Eric Hanushek recently reported that since 1992, the gain in NAEP test scores for Missouri relative to other states is unimpressive.  On this score, Missouri ranks 27th out of 41 states for which data are available.

Missouri’s lackluster educational record is one of several factors that has negatively affected our economic standard of living. In a 2012 Show-Me Institute study, SMI economists Joseph Haslag and Michael Podgursky reported that Missouri’s economy expanded at a slower pace than any of its neighbors since 1997. Compared to all 50 states, Missouri ranked 48th in terms of economic growth. Even in a world of social promotion, this is not a passing record of achievement.

Nixon has called for additional funds for higher education in the fiscal year 2015 budget. Whether these funds survive the political battlefield and find their way to colleges and universities is a dubious proposition. Nor do I mean to suggest that simply throwing more dollars at education is the answer to improving the situation. One thing is certain, however: Unless Missouri’s educational report card improves in the coming years, do not expect to experience an economic boom any time soon.

The post Governor Nixon And Higher Education appeared first on Show-Me Institute.

Suburbanization, whether between or within states, doesn’t happen in a vacuum. Lots of factors are considered when people decide to move, and among those considerations is taxes. And to be clear, tax policy matters not just when taxes are reduced or repealed, but also when bad tax policies persist. And a bad, bad tax that both Kansas City and Saint Louis have had for a long time is the earnings tax. As our own Joe Haslag concluded in a policy study way back in 2006:

[T]he growth rate in [the modeled] economy where there is no city earnings tax is 1.72 percent, while the growth rate in the economy with a city earnings tax is 1.66 percent. Thus, a city earnings tax results in the growth rate falling by 0.06 percentage points on an annual basis.

That might seem small, but it can result in large differences in the size of the economy. Suppose that the initial value of the economy’s income is $78 billion. (This is the 2002 personal income level in the Missouri part of the St. Louis metropolitan area). After a generation (25 years), the no-tax economy would be $1.78 billion larger than the economy with a one percent tax rate. That is a difference of 1.5 percent.

Indeed, tax policy can be a contributing (rather than motivating) factor in where people live and grow their businesses. Even small tax policy mistakes can be economically destructive for a city — just more quietly and over a longer horizon. If you hurt your city’s capacity to grow economically, you truly hurt your city’s future.

Alas, unlike Iocane powder, it’s very difficult to build up an immunity to destructive taxes over time. And obviously, suburbs developed around Kansas City on the Missouri side as they did on the Kansas side. But the fact that Jackson County lost “only” a half billion dollars of Missouri income to Johnson County before Kansas enacted significant tax cuts in 2012 (and 2013) should be cold, cold comfort to Missouri tax cut opponents. Tax policy was a factor considered in moving from Missouri to Kansas before; it may be the preeminent factor considered today. Where people retire is a thornier proposition bound up with both economic and non-economic considerations, but one thing is certain — Kansas Citians haven’t moved, and won’t be moving, en masse to Olathe, Kan., for its sun-kissed shores. Will they move there for its tax climate? Quite possibly. And that’s the problem.

On a more personal note: I have heard from businessmen and businesswomen across Kansas City about the pressure longtime-Missouri businesses are under to consider a move to Kansas — motivated almost entirely by the new taxing environment there. Businesses already are asking the question, “Is it time to leave Kansas City?” I cannot stress enough how serious their concerns are. How long can Kansas City and the state of Missouri afford to ignore them before risking a plunge off the Cliffs of Insanity?

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Moody’s Investors Service has changed the rating outlook to negative from stable on nine state and local governments, including the State of Missouri, and two state housing finance agency programs, in conjunction with an updated analysis of which Aaa-rated issuers have indirect linkages to the federal government.

KBIA, Columbia’s NPR affiliate, had a very interesting story this weekend that more closely examined Moody’s decision. In a story that quotes Show-Me’s own Joe Haslag, the reason for the change in outlook is pretty clear: Medicaid. Indeed, the Medicaid expansion under the Affordable Care Act will cost Missouri (us) nearly $3 billion over the next decade, and that does not include the cost to the federal government (again, also us.) How will we pay for all of this spending? Those plans do not appear to be forthcoming, unless “rack up a bunch of debt” constitutes a plan these days.

And increasingly, Missouri legislators are getting more vocal about their concerns regarding Medicaid:

“We’re faced right now with making a pretty darn big decision on Medicaid, and that is if we’re going to basically hitch our wagon a lot tighter to the federal government,” said Senate Appropriations Committee Chairman Kurt Schaefer, R-Columbia. “What does that mean for long-term economic stability for the state of Missouri?

“It appears to me that what got us the negative outlook, we are simply going to double down on that now if we do Medicaid expansion,” Schaeffer [sic] added.

Schaefer and Moody’s are correct in questioning the financial position of the state in the context of potentially massive new state spending that is heavily reliant on federal dollars. We should all be so concerned.

The post Prospect Of Medicaid Expansion Appears To Have Turned Missouri’s Credit Outlook Negative appeared first on Show-Me Institute.

So what exactly is the reckless Kansas policy that the Post-Dispatch editors tell us must be avoided at all cost? First, Kansas lowered its income tax rate from 6.45 percent to 4.9 percent on individual income. For small businesses, namely those organized as S-Corporations, LLCs, Partnerships, and Sole Proprietorships, cases in which business income that is passed through to owners, Kansas eliminated the income tax altogether.

What does economics tell us about the likely effect of such a policy? For simplicity, assume that there are two main sources of income: labor and capital. The former is the payment for supplying work effort to a firm. The latter is the payment for resources that you provide to companies and is usually returned to you after the risk you face is realized. So income from loans and other assets, along with returns to entrepreneurial activity, are deemed capital income. Given that government has to raise revenues for public needs, which should be taxed more — capital or labor? In research that Christophe Chamley and Kenneth Judd conducted independently, the conclusion is unambiguous: tax rates on capital income are very detrimental. Chamley’s and Judd’s work is in line with the analysis that two Nobel Laureates put forward: Peter Diamond and James Mirrlees, who argued that taxes should be applied to the most inelastically supplied goods. Because capital is so mobile, its supply is very elastic and the optimal tax rate on capital income is zero.

Ironically, the editors at the Post-Dispatch accept that people on the Kansas border are very mobile, just not in response to taxes. They argue that people move from Missouri to Johnson County, Kan., because of school quality. The unstated premise is that these people still work in Missouri. Will a substantial tax nudge not lead to even more people seeking out those Johnson County schools? Or, more importantly, induce employers to plant businesses where their employees want to live?

The issue for policymakers is this: for a given level of state revenue, what set of tax policies will yield the revenues while doing the least economic damage? Kansas is trying an experiment. There is an economic rationale for this experiment. If you have to tax income, there is good reason to try to separate out taxes on labor income from taxes on capital income, because capital is highly mobile. In spite of the editorial board’s heated rhetoric, the economic fundamentals favor Kansas on this one.

Joseph Haslag is chief economist and Michael Podgursky is a co-founder and director of the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Taxes Do Harm Growth appeared first on Show-Me Institute.

Health Outcomes Sciences, a health care software firm that started recently in Kansas City, is relocating to Overland Park and plans to expand its workforce from 13 to 37 employees over the next five years. …

The firm is seeking assistance from the Kansas PEAK program, which allows employers to keep up to 95 percent of their employee state income tax for up to seven years. Fiorito also said other factors figuring into the decision included the 1 percent city earnings tax charged in Kansas City and the new office’s proximity to where most of the company employees reside in Johnson County.

The Show-Me Institute has written extensively about the damaging effects of Kansas City’s and Saint Louis’ earnings taxes. In 2006, our chief economist, Joe Haslag, explained the impact of an earnings tax with this example:

[S]uppose that City A has no earnings tax, while City B has a 1 percent earnings tax rate. Other things being equal, the regression suggests that we should expect City B’s city-to-MSA per capita ratio to be 5.1 percent lower than City A’s city-to-MSA ratio. To put that in dollar terms, the average per capita income in 1990 was $13,076. Holding MSA per capita income constant, a 1 percent increase in the earnings tax rate translates to city per capita income falling by $667.

Translation? Even a 1 percent tax can be an ample incentive for workers to move out of a higher tax jurisdiction. That is a problem, especially if a city wants to retain its talent and grow its tax base. In the case of Health Outcomes Sciences, the workers were already outside the city. The business appears to have followed them out of town. And in case you were wondering, the Show-Me Institute has published a how-to for eliminating the earnings tax in Kansas City, appropriately titled “How to Replace the Earnings Tax in Kansas City.” Worth a read, particularly today.

There are many factors that go into a business’ decision to move from one state to another, but it is pretty clear that the earnings tax is not a negligible consideration. Kansas City should do a serious review of its own tax policies.

The post Another Missouri Company Leaving for Kansas, Citing, in Part, Kansas City’s Earnings Tax appeared first on Show-Me Institute.