Kansas City’s earnings tax is safe, at least for the moment.
St. Louis isn’t so lucky.
A bill that would have eliminated the earnings tax in in both cities by 2017 was amended Thursday morning to exclude Kansas City. It now focuses exclusively on St. Louis’ earnings tax, phasing it out over 10 years.
The Missouri Senate Ways and Means Committee approved the bill on a 4 to 2 party-line vote. It now goes to the full Senate.
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Kansas City leaders weren’t ready to celebrate or declare victory. The session is only in its first month, and the Senate could always reverse course. Meanwhile, there are a handful of bills that still aim at Kansas City’s earnings tax in the Missouri House.
But more importantly, Kansas City continues to vehemently oppose the legislature eliminating St. Louis’ tax. Mayor Sly James said in a statement Thursday that removing Kansas City from the bill is a step in the right direction, “but this is a local control issue that needs to be put to rest.”
“Cities — all cities — should have right to decide how to govern themselves,” he said. “That is why we oppose this ill-advised legislation.”
Both cities rely on the 1 percent tax. It generated nearly 45 percent of Kansas City’s general fund last year, paying for police, fire, trash removal and other services.
In St. Louis, the tax makes up one-third of the city’s general revenue, or about $185 million.
The bill is being sponsored by Senate Appropriations Chairman Kurt Schaefer, who floated the idea last summer in response to Kansas City and St. Louis pushing local minimum-wage increases over the opposition of the legislature.
Schaefer, a Columbia Republican, has downplayed the wage increase as a motivation, instead focusing on a U.S. Supreme Court ruling last May that faulted Maryland’s policy of providing only a partial credit for income taxes paid to other states as unconstitutional.
Schaefer says Kansas City’s and St. Louis’ earnings tax are thus unconstitutional. Kansas City was excluded from the bill, he said, because local leaders made it clear they are unwilling to negotiate an end to the tax.
Additionally, Schaefer said the fact that Kansas City offers a credit for taxes paid to other cities makes its tax less “egregious.”
“St. Louis doesn’t allow any credit to anyone.” Schaefer said Thursday. “So we’ll start with St. Louis.”
Senate Minority Leader Joe Keaveny, a St. Louis Democrat, said Schaefer’s logic makes no sense. “I guess the city of St. Louis is the target of the week for Sen. Schaefer.”
Critics of Schaefer have noted repeatedly that he has accepted $750,000 in campaign donations from Rex Sinquefield, the St. Louis area mega donor who spent $11 million in 2010 to bankroll a successful ballot measure that forced St. Louis and Kansas City to hold votes on their earnings tax every five years.
Despite his criticism, Keaveny agreed with Schaefer that the earnings tax in both cities is unconstitutional unless each city offers a credit for taxes paid in other states.
St. Louis made an administrative change last week, he said, and now offers the credit.
“We’ve addressed the issue,” Keaveny said. “If Kansas City doesn’t offer a credit for out-of-state taxes paid, then they still have a constitutional problem.”
Attorneys for Kansas City vehemently disagree. They contend that because Missouri offers a credit to residents for any taxes paid in other states, Kansas City doesn’t need to. Forcing Kansas City to give residents a credit for out-of-state taxes, the city argues, would essentially create a “double credit” that allows a resident who earns income in Kansas to pay less taxes than neighbors who earn all of their income in Missouri.
The city’s argument is backed up by attorneys from the law firm Husch Blackwell, who provided analysis of the earnings tax that was circulated to lawmakers this week and concludes that Kansas City’s tax is constitutional.
Kansas City leaders had made defeating the earnings tax repeal a top priority of the 2016 legislative session. When the public hearing on the bill was held earlier this month, the committee room was filled to capacity with Kansas City elected officials, police and firefighters, business executives and others.
Mayor James was among those who testified at that hearing. He returned to the Missouri Capitol on Tuesday to speak with senators to try to convince them that ending the earnings tax would have dire consequences for both Kansas City and St. Louis.
St. Louis Mayor Francis Slay also testified against the bill, but the amount of public opposition from the Kansas City leaders far outweighed that from St. Louis.
Slay released a statement Thursday saying he doesn’t believe the bill will ever actually become law.
“The Missouri General Assembly considers far more bills than it passes,” he said. “Many of them are proposed to attract attention to a theoretical cause or an ambitious sponsor. They are not actually meant to pass. I believe that bills aimed at the earnings taxes of St. Louis and Kansas City belong in that category.”
Despite the success, Kansas City’s earnings tax isn’t completely out of the woods. Even if city leaders avoid a legislative repeal, they must still persuade voters to reauthorize the tax in April when the earnings tax is placed on the citywide ballot.
In 2011, Kansas City voters overwhelmingly approved the five-year renewal, 78 percent to 22 percent.
Sen. Jill Schupp, a St. Louis County Democrat, argued that the state should leave it up to voters to decide whether to impose the earnings tax.
“This is the heavy hand of state government once again imposing its views without due consideration of its other options and putting St. Louis’ finances in jeopardy,” Schupp said.
Keaveny said he will “do everything in my power to stop” Schaefer’s bill. He hopes Kansas City lawmakers will assist in the effort.
Sen. Jason Holsman, a Kansas City Democrat, said St. Louis won’t be left in the lurch.
“Kansas City’s delegation is committed to supporting St. Louis,” Holsman said, “and uphold the will of the people.”
For his part, Schaefer says Kansas City and St. Louis cling to the earnings tax at their own peril. Eventually a lawsuit will be filed challenging the earnings tax, he said, and “ St. Louis or Kansas City will lose that lawsuit.”
“And a federal judge will cut that tax off cold turkey,” he said. “A federal judge won’t negotiate a period to find a resolution.”