Kansas Citians will hear a lot about the city’s 1 percent earnings tax in coming months, and for a very good reason.
It raises $228 million a year, or 43 percent of the all-important general fund, the primary supporter of the police and fire departments.
At an election in early 2016, city voters will have to make a decision.
Should they renew the earnings tax for another five years? Or should they phase it out over 10 years, as state law allows?
Mayor Sly James and the new City Council will answer with a resounding “yes” to keeping the tax.
My verdict: Not so fast.
This community needs to have a much more extensive discussion than it did in 2011 — when voters overwhelmingly endorsed the tax for five more years — on whether this is really the best way to build an economically vibrant city.
This time around, Kansas Citians deserve to receive extremely clear information from James and others, especially City Manager Troy Schulte.
▪ What would happen if the earnings tax disappeared slowly over a decade, at a cost of $23 million a year in lost revenue?
The go-to response from City Hall will include lots of scary stuff, led by the possible decimation of public safety.
▪ What other revenue sources could replace some or all of the earnings tax receipts?
For example, the city’s property tax raises $56 million a year for the general fund. Could that revenue be doubled or tripled while keeping property taxes on houses and businesses in line with others in the metropolitan area when assessed values are taken into account?
▪ How could the city more efficiently use the tax revenue it now receives?
That’s the kind of information residents would love to see and would be in line with James’ contention that the city is “data driven” in what it does. One key point: The city already diverts more than $60 million in total tax revenue to economic development projects, which includes allowing businesses to effectively keep some or all of the earnings taxes they would owe to City Hall. The city could approve fewer and less generous tax incentives in the future.
Critics offer legitimate reasons to question continuation of the earnings tax.
It hits low-income residents at the same 1 percent rate as wealthy Kansas Citians. That’s hardly the mark of a progressive city.
The earnings tax is unusual. No other city in the metropolitan area imposes one, and yet all provide public services. Why can’t Kansas City?
Groups that oppose the earnings tax also contend it holds down Kansas City’s growth in population. That’s a logical complaint when one considers that the tax adds, say, a $500 annual burden to someone making $50,000, a burden avoided by living and working outside the city.
Proponents will come armed with their own points, beyond “we can’t afford” to lose the tax.
They can accurately note that the earnings tax is levied not just on residents but also on more than 150,000 nonresidents who work in the city. That approach brings in tens of millions of dollars a year, which helps pay for the roads, public safety and other city services that residents and nonresidents alike benefit from.
The earnings tax also allows the city to hold down other taxes, permits and fees.
As happened in 2011, many business leaders likely will rally around the tax, partly because they don’t have confidence City Hall can come up with better ways to fund the annual budget. Also, keeping the status quo is the easy way out.
Still, before Election Day in 2016, proponents will need to provide hard evidence that the earnings tax is still the best way to fund a good supply of basic services in Kansas City.