Government & Politics

KC counts on earnings tax to fund key services. So why is GOP always trying to kill it?

Republican state lawmakers are once again eyeing the e-tax for extinction
Republican state lawmakers are once again eyeing the e-tax for extinction

A tax that makes up a huge chunk of local budgets in both Kansas City and St. Louis is once again in the crosshairs of the Missouri General Assembly.

Two years ago, Kansas City government, civic and business leaders rallied to beat back an effort by Republican lawmakers to phase out the 1 percent earnings tax, which generated more than 40 percent of Kansas City’s general fund last year, helping to pay for police, fire, trash removal and other services.

St. Louis and Kansas City are the only cities in Missouri allowed to levy an earnings tax.

Now, a Republican state senator from St. Charles County has vowed to push again for repeal when lawmakers return to Jefferson City in January.

Sen. Bill Eigel, R-St. Charles, has filed legislation that would slowly phase out the earnings tax in both cities over 10 years, starting in 2020.

Eigel, two years into his first senate term, has sponsored numerous tax cut bills. He said the earnings tax is hurting the state as a whole by discouraging job creation and economic development.

“This is not just a local issue,” Eigel told The Star. “The fate of St. Louis has a huge impact on areas around St. Louis. It’s hard to argue this is a local issue when the impacts are felt throughout the entire region and the entire state. We need to have a strong St. Louis and a strong Kansas City. And right now those cities are struggling.”

House Speaker Elijah Haahr, R-Springfield, was among those who unsuccessfully pushed for repeal two years ago. He called the earnings tax “archaic” and said lawmakers in 2016 urged leaders in both cities to find another way to fund services.

“I don’t know if they’ve looked for another source of funds,” he said, “but it is past time for them to start.”

Just how much traction Eigel’s bill will get is unclear. But Kansas City leaders caution losing the earnings tax would be “devastating.”

“There’s no substitute for it,” Kansas City Mayor Sly James said.

James said state legislators overstep their appropriate role when they interfere with a decision by city voters to tax themselves. State lawmakers, he said, “chafe whenever they feel the federal government is imposing on their turf.”

“And yet they turn around and do the same thing to us.”

In the fiscal year that ends next April 30,Kansas City is expected to take in $258.9 million in earnings tax revenue — 42.1 percent of the city’s $566.3 million general fund. Other parts of city government, including water and sewer services and the airport, generate and spend their own funds from user fees.

Mayor Pro Tem Scott Wagner, who represents the 1st District at-large and chairs the Finance and Governance Committee, said the vast majority of general revenue dollars go to fund public safety.

“If that were to go away, we are unable to effectively provide any public safety service at all, let alone some of the other services people expect from us, which includes everything from codes enforcement all the way down to snow removal,” said Wagner, who is running for mayor.

Sam Panettiere, a lobbyist who represents the city at the Statehouse, said he couldn’t speak for St. Louis but that Kansas City’s progress refutes the argument that the tax hinders growth. He cited plans announced this week for a major new downtown office tower.

“So clearly, as has been suggested, that it’s a natural deterrent to businesses and job creation is just false,” Panettiere said.

The earnings tax has been in place in Kansas City since 1963.

In 2010, a successful ballot measure spearheaded by GOP megadonor Rex Sinquefield mandated that the earnings tax be reauthorized by local voters every five years. The measure also bannedother cities from implementing the tax.

The next year Kansas City residents voted by a 3-to-1 ratio to keep the levy in place.

GOP lawmakers began seriously eying the elimination of the earnings tax in late 2015. The move was widely seen as retribution for the Kansas City Council’s vote to increase the minimum wage in the city above the state level. Lawmakers saw it as an unconstitutional rebuke of the state legislature.

In 2016, bills eliminating the tax began picking up steam in both the House and Senate before a coalition of Kansas City leaders and local lawmakers banded together.

That April, Kansas City voters once again overwhelmingly approved thetax, with 77 percent of voters in support. In St. Louis, 72 percent voted in favor.

“We have people here who voted 75 percent for this tax, to tax themselves because they know the value of it,” James said. “We have a legislator — who I don’t know at all — who seems to think that they know better, but at the end of the day, Kansas City is the Kansas City that we know and love today because the things that we’ve done and the earnings tax is absolutely vital to that.”

James said he wasn’t sure how much support Eigel’s bill enjoyed, but that the city fights the issue every year and will continue to do so.

“As long as we have a legislature that is ideologically focused and unfamiliar with the things going on in Kansas City but focused on some political ideologies, I think it’s going to be an issue for a long time,” James said.

Eigel said the overwhelming voter support of the earnings tax is misleading because non-residents who work in the cities must also pay

In Kansas City, that means 50 percent of the tax is paid by those who do not reside in the city.

Panettiere noted that most people who cross state or county lines usually end up paying some sort of tax they didn’t get to vote on.

“If I go to a grocery store in Kansas, I have to pay the sales tax rate that they have on the books even though I didn’t vote on it,” he said.

Wagner argues that, as the heart of a metropolitan area, Kansas City provides assets and services enjoyed regionally. He called the earnings tax an “equitable” way to and argued it ensures the cost of providing city services is spread across a wide base.

“If you go to Power and Light or to the Plaza and you’re from Johnson County and you’ve got a problem and you need to call 9-1-1, well, it’s not going to be the Overland Park Police that shows up,” Wagner said. “It’s going to be KCPD.

Sen. Jason Holsman, D-Kansas City, was among those who fended off the 2016 push to end the earnings tax. He said Eigel has made tax reform his signature issue, so “it’s not surprising he would file legislation addressing the earnings tax.”

He vowed to once again block any legislative effort to end or phase out the earnings tax.

“During my time in the Senate, the Kansas City delegation has successfully defended past attempts to end the tax,” he said, “and I do not anticipate that changing so long as the residents of our city continue to vote in overwhelming support to maintain the tax.”

Regardless of whether his bill gets across the finish line, Eigel said he hopes it jumpstarts a dialogue about taxes in Missouri

“I acknowledge it hasn’t gotten anywhere in prior years,” he said. “But I hope we at least continue the conversation and look for different ways to move away from this method of taxation as both cities move forward.”