Kansas City’s earnings tax is a regressive giveaway to big corporations | Opinion

Early next month, Kansas City voters will decide whether to renew the city’s 1% earnings tax on people who live or work within its limits. It may seem like a routine renewal. It is not.

The earnings tax is regressive: It taxes wages while excluding investment income, hitting workers harder than the wealthy. It also sustains a subsidy culture that diverts public dollars to favored projects while insulating the city from confronting difficult spending choices.

The debate exposes a contradiction in how local leaders talk about tax policy. In 1996, two journalists at The Kansas City Star were Pulitzer Prize finalists for reporting on how Kansas municipalities used tax incentives to lure employers across state line. Tax policy, the series showed, mattered deeply in business recruitment. Yet three decades later, some pundits still argue that we shouldn’t consider tax policy a factor in where businesses choose to set up shop.

Both claims cannot be true. If tax policy plays no meaningful role, Kansas City’s expansive incentive culture makes little sense. But if taxes do influence where businesses choose to locate and expand, maintaining a tax that penalizes living and working in the city is counterproductive.

Research in Missouri and elsewhere demonstrate that tax policy does affect economic growth.

Agencies that hand out incentives clearly agree. But their tax relief is tailored to wealthy companies with development attorneys, government relations teams and political influence.

Even supporters of Kansas City’s earnings tax acknowledge some of its structural quirks. It garners support from the wealthy whose money primarily comes from investments, not employment income. Every dollar of wages is taxed, with no exemption for low-income workers, while revenue from accumulated wealth often is not.

For progressives concerned with economic justice, a tax that amounts to little more than reverse Robin Hood — taking from the poor to give to the rich — raises obvious concerns.

Supporters of the tax argue that without it, Kansas City would be forced to slash public safety or raise other taxes. It’s a claim they repeat every time. But that framing obscures the real problem. Even with the earnings tax in place, the city faces a deficit of $55 million or more. One reason is that roughly $120 million a year is diverted to subsidies for headquarters, data centers, entertainment districts, hotels and other private developments — and perhaps soon a new downtown stadium.

The problem is spending. Many comparable municipalities deliver core services without imposing an earnings tax. Kansas City leaders could do the same — they just refuse to.

The usual business groups will line up behind renewal. Many of their leaders neither live nor work in the city and therefore do not pay the tax. None have reason to disrupt a system that serves them well.

In 2011, Burns & McDonnell’s then-CEO publicly said he was proud to pay the earnings tax. Three years later, he sought to have a portion of his company’s earnings tax payments returned to finance a new corporate headquarters. As a reporter for The Pitch observed, future “city and civic (leaders) will implore voters to retain the tax to fund basic city services, but voters should also know that it’s a money pool for corporate tax incentives.” This is still true today.

Despite the incentives, Kansas City’s growth has lagged behind our neighbors for years. The earnings tax may not be the sole cause, but it is a significant contributor.

A yes vote would preserve a tax that falls hardest on workers while enabling continued diversion of public dollars to the politically favored. A no vote would phase out the tax over a decade so that Kansas City can pursue a fairer and more disciplined approach to taxation and spending — one that broadens opportunity rather than narrowing it.

Phasing out the earnings tax would not solve every challenge facing Kansas City, but it would align tax policy with the city’s stated commitments to growth, fairness and fiscal responsibility.

City leaders have shown little willingness to curb subsidies or reconsider spending priorities. This election gives voters the opportunity to require it.

Patrick Tuohey is co-founder of Better Cities Project, a 501(c)(3) nonprofit focused on municipal policy solutions, and a senior fellow at the Show-Me Institute, a 501(c)(3) nonprofit dedicated to Missouri state policy work.