By Seann McAnally
Earnings tax or no earnings tax?
That’s the question that was debated at a March 18 South Kansas City of Commerce luncheon. R. Crosby Kemper III, an anti-tax activist, and Troy Schulte, acting city manager of Kansas City, squared off in a polite but blunt discussion about the tax, which is 1 percent on paychecks from Kansas City businesses. It is paid by the employee.
Meanwhile, a petition to abolish the tax, led by St. Louis billionaire Rex Sinquefield, is making the rounds in an attempt to get a repeal of the tax onto a statewide vote.
Dee-Dee Stokes, president of the chamber and the owner of Affordable Elegance, said the purpose was to “educate and inform.”
“The chamber, at this point, is taking no sides on the issue,” Stokes said.
Vickie Wolgast, executive director of the chamber, said the chamber may take a position eventually.
“We will discuss it,” she said. “We haven’t brought that before the board.”
Kemper is, among other things, chairman of the Show-Me Institute, a think tank that opposes the earning tax and suggests a land tax instead.
Kemper said the earnings tax is bad for Kansas City.
“We should get rid of it,” he said. He said the Kansas City area is behind comparable Midwest cities like Indianapolis, Omaha, and Denver.
“They are all experiencing better economic growth,” Kemper said. “Kansas City is not growing.”
He acknowledged that there has been some growth north of the river, but that compared to the population, job growth has been small over the last few years.
“There are about 5,000 new jobs in the Northland, but the population has grown by 50,000,” he said. “Those are bad numbers, and those jobs are mostly retail.”
That slow growth can mean only one thing, Kemper said.
“Our economic development policies and our tax policies are wrong,” he said, adding that the earnings tax is just one piece of a flawed puzzle. He also blamed tax increment financing and the difficulty of doing business in Kansas City for slow growth.
“It takes about six days in Johnson County (Kan.) to start business,” Kemper said. “It takes about six months in Kansas City.”
Kemper pointed out that Kansas City is the only city in the Metro area with an earnings tax, and while 1 percent may not seem like much, people don’t like to pay it – especially if they work in Kansas City but live elsewhere. He said it was unfair to “export” a tax to the suburbs.
“It’s impossible to tell why people move, but it’s fairly easy to understand that if there is a tax in one place but no tax in another, that will explain some of that movement,” he said.
Troy Schulte, acting city manager, defended the earnings tax on pragmatic grounds.
“It’s 45 percent of our operating budget and 16 percent of the overall budget,” he said. The bottom line, Schulte said, is that Kansas City can’t do without it right now.
“I don’t like seeing that biweekly deduction out of my paycheck,” he said. “But the cure may be worse than the disease. Our sales taxes would roughly have to triple (to make up the difference).”
If the city shifted that tax burden onto land tax, he said, most of it would fall on the shoulders of the urban poor. He also pointed out that earnings tax programs are very common on the east coast, and in some Midwest states like Indiana and Ohio.
Schulte said it’s important to remember that Kansas City has sprawl issues, with some 480,000 people spread across about 322 square miles.
“Fewer people spread over a larger area means higher costs for police officers, firefighters, and infrastructure,” he said. “Those costs don’t go away simply by getting rid of the earnings tax.”
Schulte said he doesn’t think the earnings tax issue is as important as Kemper and others make it out to be.
“When I talk to local business leaders, it’s just not on the top of their list,” he said. “They talk about TIF, poor schools, crime problems…I don’t hear earnings tax consistently mentioned as a high priority.”
Focusing on basic city services will help retain businesses and jobs, as well as attract new ones.
“This is a healthy debate, but it’s more important to focus on basic city services and look at a more long-term strategy,” Schulte said.
He said city officials were willing to have discussions about “tweaking” the tax, but “not wholesale revisions.”
Schulte and Kemper agreed on a few key issues, however – that it needs to be easier for businesses, particularly real estate developers, to get through the permitting process at city hall.
But at the end of the day, Schulte said, the money has to come from somewhere.
“We have issues in Kansas City,” he said. “It takes money to fix those issues. How are we going to replace 45 percent of the city’s operations budget?”