Kansas City voters overwhelmingly approve earnings tax renewal

The 1 percent earnings tax got another big thumbs-up Tuesday night from Kansas City voters, with an approval margin of more than three to one, just like five years ago.

The tax on wages, which is paid by both Kansas City residents and nonresidents who work in the city, was supported by 77 percent of city voters, according to complete unofficial returns.

That’s compared to a 78 percent approval margin the last time the issue came up for a vote in 2011. It got even higher support this time around from Kansas City voters in Clay and Platte counties, with 70 percent voting yes versus 68 percent five years ago.

Mayor Sly James said it showed that Kansas City voters understood how essential the tax is to the city’s basic services budget.

“The local voters who are affected by this have clearly spoken about the needs of their community, and their voice should be the final word on the issue,” James said.

But local voters may not have the final say. Despite their strong support, the earnings tax in both St. Louis and Kansas City is likely to remain a topic of debate and a target for critics pushing for its elimination.

“I don’t know how much of this has been driven by the fact that this is an election year or whether this is the new normal, that every year we’re going to have to fight this battle (in the state legislature),” James said.

Woody Cozad, a spokesman for the opposition campaign, said he wasn’t shocked by the result, but he had hoped at least 30 percent of residents would see the wisdom of phasing out the tax. Still, Cozad said the opposition campaign had raised public awareness about Kansas City government’s high taxes, spending and borrowing.

“That discussion is not going away,” Cozad said.

The tax constitutes about 40 percent of the city’s basic services budget and is projected to generate about $240 million in the fiscal year starting May 1, to pay for police, firefighters, ambulance, trash collection, street maintenance and other services.

It is a tax paid on earned wages and business profits but not on Social Security or pensions. The average annual earnings tax paid in Kansas City is about $340, and the average business profits tax paid is about $2,050.

Nearly 50 percent of the tax is paid by people who don’t live in Kansas City but work within the city limits; about 20 percent comes from Kansas residents and 30 percent from residents of the Missouri-side suburbs. Those taxpayers do not get a vote, because taxes are generally decided on by residents of the city that imposes them.

If voters had opposed renewal, the tax would have phased out over 10 years and could not be reinstated.

Yet even with renewal, the tax’s long-term future remains uncertain. Various outstate Missouri lawmakers and politicians have floated a variety of proposals this session to eliminate the tax, either swiftly or over time. While none of those measures has yet passed, they remain in play and could also return next session.

While the approval margin remained high in Kansas City, it eroded in St. Louis this time around. Five years ago, 88 percent of St. Louis residents supported renewal. In Tuesday’s vote, the margin of support was still strong, but dropped to 72 percent.

For decades, the earnings tax in Kansas City was an integral — and unquestioned — part of the Kansas City basic services budget. It first went into effect as a half-percent tax in 1964, when the city was having trouble maintaining an adequate police force. Voters increased it to a full percent in 1970 and it remained in effect thereafter.

Then in 2010, St. Louis multimillionaire Rex Sinquefield, who believes that the tax is a disincentive to business growth, helped finance a statewide initiative that now mandates that Kansas City and St. Louis voters re-up the tax every five years.

Sinquefield played a minor role in those local 2011 elections, but he contributed $2 million this time around for campaigns arguing against the earnings tax renewal. Most of that money was spent in St. Louis, but a small portion went for anti-tax mailers in Kansas City.

Opponents said Kansas City leaders could run government more efficiently and be less generous with economic development taxpayer subsidies. They also argued Kansas City would have 10 years to figure out how to make up for that lost revenue.

One group that opposed renewal was Citizens for Responsible Government. Group spokesman Dan Coffey said opponents had not expected to prevail in this election, but the campaign was still worthwhile.

“We wanted to raise awareness and to get the public involved,” he said. “We don’t plan on ending the conversation. Is the city being good stewards of taxpayer money?”

The pro-earnings tax campaign raised $1.17 million and included television ads, mailers and door-to-door visits to frequent voters. That campaign argued Kansas City is experiencing a lot of economic momentum, and now is not the time to interrupt that progress.

The pro side was endorsed by numerous neighborhood, civic and civil rights clubs and the business community, including the Greater Kansas City Chamber of Commerce. Despite Sinquefield’s argument that the tax is a business disincentive, the chamber argued the tax helps promote a stable government and a decent municipal bond rating, while loss of that revenue would be deeply destabilizing to city government and, by extension, to area businesses.

This story was originally published April 5, 2016 at 9:27 PM with the headline "Kansas City voters overwhelmingly approve earnings tax renewal."