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Governor Candidates Differ On Earnings Tax Repeal

Dr. Joseph Haslag, holder of the Kenneth Lay Chair in Economics at MU conducted the research on replacing the earnings taxes.
University of Missouri Photo
Dr. Joseph Haslag, holder of the Kenneth Lay Chair in Economics at MU conducted the research on replacing the earnings taxes.


Like about 25 percent of major American cities, Kansas City and St. Louis have their own income tax - the Earnings Tax. The state legislature passed the law allowing the cities to tax income in the late 1940's.

Gubernatorial candidate Sarah Steelman says the tax is stifling the economies of the two cities. She would repeal the tax, counting on an economic boost for the cities as former taxpayers spend what would have gone to city coffers. Steelman adds, "And I think it's a better way, a better approach than always taxing people, especially at a time when Missouri families are hurting and can always use the money. "

Steelman would phase out the tax over a five or six year period and work with the cities on solving any temporary shortfall. She also comments that the cities could probably trim some wasteful spending to make up a good part of the shortfall until new economic gains kick in.

Steelman doesn't specify what alternate revenue sources she has in mind, but says she draws ideas from conservative think-tank The Show Me Institute in St. Louis. MU economics professor Joseph Haslag has done most of their earnings tax research.

Haslag would replace the Kansas City E-Tax with a new 6.7 percent tax on the assessed value of land, but not on anything built on it. Haslag says because you can't move a plot of land, a land tax wouldn't drive residents or businesses to the suburbs or other cities.

Haslag says his studies of cities with earnings taxes show that the higher the tax the lower the city's income compared with that of its suburbs.

State Treasurer Steelman's opponent, Congressman Kenny Hulsof says he is familiar with Haslag's study, but he is not willing to endorse repealing the earnings tax. Hulshof says though, as a conservative he is always looking for counterproductive taxes that can be eliminated. He believes the earnings taxes probably do discourage economic development, then adds, "But it is not sufficient for me to tell you, 'Oh, yes, I'm for the repeal,' but not offer you anything substantive, then, as a solution for those revenues."

St. Louis mayor Francis Slay has said he would be interested in a practical way to end the earnings tax. Kansas City officials were not at all enthusiastic. City council budget chair Deb Herman summed up the repeal idea in one word: "Devastating."

Herman says the earnings tax provides almost half of the money in the city's general fund. She is also skeptical about getting voters to support any new tax if it is repealed, especially a land tax. And she objects to the fact that a land tax would put the full burden of regional city amenities like Bartle Hall and Liberty Memorial on the shoulders of Kansas Citians. "I've always believed the earnings tax is kind-of our regional tax." she says.

Herman also notes recent failed attempts to get suburban voters to tax themselves for center-city services like Union Station and light rail. She says Kansas City leaders would fight hard to keep the E-Tax.

State Senator Matt Bartle of Lee's Summit, on the other hand, says the repeal idea is popular elsewhere. Bartle opines: "Kansas City would fight it tooth and nail but all over the state there would be support for this, and certainly I represent a district of people that pay that tax and don't like paying that tax. I know it would be popular in places like Lee's Summit and Blue Springs."

Sarah Steelman promises E-Tax repeal on page one of her web site platform. Opponent Kenny Hulshof says for the foreseeable future the tax should remain in place. Election returns from places like Lee's Summit, Raytown, St. Charles and Clayton should tell us how suburban Missouri voters stand.

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