Kansas City’s earnings tax faces a big battle next year, and not just at the ballot box.
The 1 percent tax on people who live or work in Kansas City has to be approved by voters every five years, but not if a mid-Missouri state senator gets his way.
Republican Kurt Schaefer of Columbia has pre-filed legislation to repeal the taxes in Kansas City and St. Louis. In a statement, Kansas City, Missouri, Mayor Sly James has already vowed to fight “this wrong-minded legislation.”
The earnings tax brought in $228 million last year for the city.
“It really isn’t an unfair tax in that the people who work in Kansas City and come from Kansas gain substantial advantages from the city of Kansas City,” says William Black, an economics professor at the University of Missouri-Kansas City. “The argument really isn’t that it’s unfair, but that it creates competitive pressures.”
For example, a company worried it couldn’t attract top talent because of the earnings tax could move across the state line to Kansas.
But Black calls that a “zero sum competition” as states and municipalities try to one-up each other with incentives for companies to relocate at the expense of the local tax base.
He adds that conservative Missouri politicians such as Shaefer may be motivated by Kansas Gov. Sam Brownback’s “march to zero” taxes. The senator has said he believes the tax is a violation of the Constitution’s Commerce Clause.
Historically, the earnings tax has allowed Kansas City to pay for police, fire and other services even as people left the urban core in droves to avoid sending their kids to the struggling public school district.
The tax has the support of key groups such as the Civic Council and the Chamber of Commerce.
Still, Black says the political winds may be right to end the tax for good. Missouri’s legislature has turned red, even though the governor is a Democrat.
“The Republicans are going to win the statewide offices sooner or later, and when they do, there will be wholesale changes, and they will almost certainly ban ... the earnings tax,” Black says.
Elle Moxley is a reporter for KCUR. You can reach her on Twitter @ellemoxley.
