Some GOP lawmakers want to end KC’s earnings tax because of minimum wage increase

A handful of Republican lawmakers think it’s time for the state legislature to consider ending a local tax that makes up more than one-third of Kansas City’s budget.

Their motivation: the Kansas City Council vote last month to increase the minimum wage in the city above the state level of $7.65 an hour, an act lawmakers say defies the will of the Missouri General Assembly.

Some local politicos see the threat as hollow, simply a shot across the city’s bow that’s unlikely to get much legislative traction. Yet others say Kansas City’s reliance on the voter-approved earnings tax is too great to dismiss any threat, especially when it comes from legislators with clout in Jefferson City.

“Certainly, there is room for civil disagreement on matters of public policy,” Kansas City Mayor Sly James said in a letter to the state senator who first publicly proposed ending the earnings tax. “However, I encourage you to refrain from engaging in political brinksmanship.”

The back-and-forth over the earnings tax is just the latest in a long string of policy skirmishes between the leaders of Missouri’s largest cities and the Republican-dominated state legislature. Last year lawmakers voted to void any local regulations on the open carry of firearms, and this year they approved a bill that prohibited cities from outlawing plastic grocery bags, mandating benefits such as vacation or sick leave and boosting their minimum wage.

Gov. Jay Nixon, a Democrat, vetoed that bill, saying it “usurps local control and supplants it with edicts emanating from Jefferson City.” Lawmakers will return to the Missouri Capitol next month to consider whether to override that veto.

In the meantime, the Kansas City Council voted 12-1 last month for a gradual minimum wage increase that calls for $13 per hour by 2020. St. Louis is considering a similar proposal.

Sen. Kurt Schaefer, a Columbia Republican and chairman of the powerful Senate appropriations committee, dismissed the move in both cities as “political stunts” that are “disappointing and potentially devastating for Missouri’s economy.”

In a letter to his legislative colleagues this summer, Schaefer — who is also running for Missouri attorney general — said that if St. Louis and Kansas City move forward with minimum wage increases, “the only way employers will have the money to pay those wages is if the General Assembly takes immediate action to eliminate the one percent earnings tax currently imposed in both cities.”

If the goal of the proposed minimum wage hike is to “put more money in the peoples’ pockets to later spend in the local economy,” Schaefer said, the best way to accomplish this is to allow “businesses and all of their employees to keep 1 percent of their paychecks.”

Rep. Scott Fitzpatrick, a Republican from Shell Knob who is in line to become House budget chairman, agreed with Schaefer that the earnings tax had to be on the table in light of Kansas City’s actions.

“When we take action, and a city doesn’t want to respect that action, the legislature has to do something,” he said. “We can’t just allow our branch of government to be ignored. Are we practicing brinksmanship by considering an end to the earnings tax, or is the city practicing brinksmanship by ignoring the will of the legislature?”

The earnings tax brings more than $200 million into Kansas City’s coffers every year, “75 percent of which supports police and firefighters,” James said in his letter to Schaefer. He called the tax “an absolute necessity in order to avoid drastic cuts in basic services.”

Pam Whiting, spokeswoman for the Greater Kansas City Chamber of Commerce, said that while the city’s business community opposes the minimum wage ordinance approved by the City Council, “we strongly support the earnings tax as a critical source of revenue for Kansas City.”

But Patrick Ishmael, a policy analyst with the conservative think tank the Show-Me Institute, calls the earnings tax harmful “precisely because it immediately takes money from laborers that could have been saved or spent on things they really need.”

In 2010, a successful ballot measure spearheaded by GOP mega-donor and Show-Me Institute founder Rex Sinquefield mandated that the earnings tax be re-approved by local voters every five years.

The next year, Kansas City residents voted 3 to 1 to keep the tax in place. It will go on the ballot again next year.

Lara Granich, executive director of Missouri Jobs With Justice, believes the push to end the tax is motivated by Sinquefield, who spent more than $11 million in 2010 on the ballot measure forcing local votes on the earnings tax and banning any municipality from establishing one.

Schaefer, she points out, received a $250,000 donation from Sinquefield last year. Schaefer did not respond to a request for comment.

Republican lawmakers who disapprove of Kansas City’s vote to increase the minimum wage say it is a violation of state law regardless of whether the vetoed legislation is ultimately overridden by lawmakers.

But Granich said the issue isn’t so cut-and-dried.

Missouri lawmakers passed a bill prohibiting local minimum wage increases in the late 1990s, but the statute was struck down in 2001 by a St. Louis judge who deemed it unconstitutional based on procedural grounds.

Besides, Granich said, “if the legislature didn’t think cities had the authority to increase the minimum wage, they wouldn’t have passed a bill this year trying to stop them.”

Shortly after the Kansas City Council approved the minimum wage increase a petition drive was launched to repeal it led by restaurant, hotel and other business associations in Missouri. If enough signatures are gathered, the question could go on the ballot next year, delaying the date the wage hike would go into effect.

That could prove fatal to the Kansas City ordinance, Granich said. If the wage increase doesn’t go into effect before Missouri legislators override the governor’s veto of the pre-emption bill, Granich said, then the state law would void the local ordinance by making it illegal.

The pre-emption bill cleared the Missouri House with 105 votes, four shy of the two-thirds majority needed for an override. But seven Republicans were absent for the vote, and House Majority Leader Mike Cierpiot said he’s confident the veto will be overridden.

The bill cleared the Missouri Senate with 24 votes, one more than the two-thirds needed. Even with Senate President Pro Tem Tom Dempsey’s announcement that he’s resigning from the chamber this month, the GOP should still have enough support for an override.

Regardless of how the issue plays out in the coming months, Granich said, supporters of a minimum wage increase will continue their efforts. A possible petition drive in Kansas City to boost the minimum wage to $15 an hour is still being considered, as is an effort to put the issue on the statewide ballot next year.

“This is an incredibly popular idea,” she said. “When wages go up, consumer demand and productivity increases and turnover decreases. When you look at the whole equation, communities that raise the minimum wage come out ahead.”

As for the earnings tax, Cierpiot — a Lee’s Summit Republican and the second highest ranking member of the Missouri House — said while he’d prefer to see the earnings tax go away, “I’m also aware of how dependent Kansas City is on that tax.”

“I don’t think it’s a good idea to tie the earnings tax and minimum wage issues together,” he said. “A few years ago I may have a different position. But now that it goes on the ballot every five years, I say let the local residents decide whether to keep it in place or not.”

This story was originally published August 9, 2015 at 5:51 PM with the headline "Some GOP lawmakers want to end KC’s earnings tax because of minimum wage increase."