October 15, 2010



Show-Me hokum
by Bruce Rodgers

Remember the old adage “All politics is local.” Not true, if ever. In reality,
“All politics is about money.” Be it the chamber of commerce buying influence through candidates’ ads sponsored by nonprofit Republican front groups or one wealthy St. Louis businessman using Missouri’s initiative petition process to push a personal vision of how people should tax themselves.

Rex Sinquefield, president of the board of directors of the libertarian-leaning Show-Me Institute, is an economic predator like any good capitalist. His nearly $11 million brought the earnings tax issue before Missouri voters in the form of Proposition A on Nov. 2.

Sinquefield’s proposal lets voters renew Kansas City and St. Louis’ earning tax every five years and prevents other municipalities in Missouri from imposing their own earning tax. If Vegas were taking the bet, the odds would be a million to one (or more) that the voters would turn down Prop A.

(Imagine if Clay Chastain had $11 million to pass one of his initiative petition public transportation plans — Kansas Citians would be riding light rail to work by now.)

Kansas City civic leaders don’t appear to be in panic mode — at least they don’t show it publicly. Yet, they’ve got to be like a driver behind the wheel of car with bald tires sliding down an ice-covered hill — all control is gone and there’s going to be a crash at some point.

While the argument is sound that the one-percent earnings tax is necessary to fund city services, that doesn’t mean it’s a fair tax or one that can’t be replaced. The earnings tax is a flat tax — levied, at a fixed rate, against wages, salaries and other earnings of individuals and on the net profits of businesses plus a match on their employees’ earnings. Roughly 40 percent of Kansas City’s budget comes from the earnings tax revenues. Still, the working poor and middle class are screwed more by the tax than the more wealthy earner.

A family of four making $25,000 would pay $250 a year in earnings tax; a family of four making $100,000 would pay $1,000. One has to be pretty dense not to realize that 250 bucks means a lot more to 25-grand-a-year family than a thousand dollars to the 100-thousand-a-year one. Recent studies show that those making $100,000 or more a year control 80 percent of the nation’s wealth, so giving that thousand bucks to the city means less considering stock dividends and capital gains likely are in that family’s income picture.

Ironically, one would think the Show-Me Institute would be in favor of a flat tax. The concept remains a favorite with conservatives. Though there’s plenty of commentaries on taxes on the Show-Me web site (www.showmeinstitute.org) most have to do with the usual conservative lament about businesses being over-taxed, how government isn’t using tax money efficiently and how a sales tax can possibly be used to lower or replace other taxes. A few of the recent studies focus in on the Kansas City and St. Louis earnings tax, most written by Joseph Haslag, executive vice president of the Show-Me Institute and a professor of economics at the University of Missouri-Columbia.

Haslag makes repeated reference how the earnings tax has stymied economic growth in Kansas City and St. Louis as “people have ways of avoiding these taxes,” mainly through moving away from political jurisdictions that have an earnings tax. Yet Haslag fails to mention that the earnings tax in Kansas City reaches across the state line and city limits to individuals who work in the city. He also fails to acknowledge a given fact in Kansas City — over the 40-year life of the earnings tax, more people and business have moved out of KCMO urban center because of the dismal and disastrous Kansas City, MO School District than any other reason, a situation that continues. People stay and businesses grow where there is a good school district.

The earnings tax is blamed for a lost of Missouri jobs — without any recognition to other more relevant factors such as NAFTA, corporate downsizing, outsourcing overseas and other federal policies that cater to corporate interests. Haslag states that eliminating the earnings tax in Kansas City would make for “an increase of approximately 4,700 Missouri jobs” and represent “an annual gain of nearly $134.5 million in total state earnings,” putting “over $4 million in additional tax revenue into Missouri state and municipal governments.”

Again, Haslag only gives one side, failing to mention the loss of jobs and state tax revenue when Kansas City and St. Louis have to lay off hundreds of workers and eliminate many contracts with businesses because the city has to drastically cut its budget with the end of an earnings tax.

But contrary to what The Kansas City Star says that Sinquefield didn’t provide “plans to manage future city payrolls,” Haslag, in a January 25, 2007 “Policy Briefing,” offered “a tax on land” proposal to replace the earnings tax.

In it, Haslag makes some incredible statements: “A land tax has virtually no effect on the location decisions of residents and businesses.” He bases this premise on the fact that land supply is fixed. True. But not all land has a land tax, so why not move across state lines to another jurisdiction with its “fixed supply” of land.

He proposes a “two-tiered land tax” with one rate on land and another rate on structures built on that land. Citing a Pennsylvania study and Pittsburg specifically, Haslag states, “Cities with a two-tied land taxes had higher levels of construction.” Yet, he fails to mention other factors that might spur construction activity such as property tax abatements, a favorable investment and labor climate, an engaged electorate willing to pass bond issues and market demand.

Haslag says nothing about the effect of a land tax on absentee and out-of-state property owners. Would their vacant property remain so to avoid additional taxes? And what about the effect of a land tax on fixed-income senior homeowners? Haslag suggests that the land tax could be “phased over in several years.”

So what does Haslag suggest to replace the earnings tax? “A possible revenue source is the state government,” he writes. “It would make sense for the state government to help Kansas City phase out its earnings taxes, because the phase-out would bring new resources and taxpayers to the state.”

One has to wonder if Haslag also has a bridge to sell.

His suggestion that state government step in to help KC runs smack up against the Show-Me Institute’s “About” statement, which reads in part: “The institute’s scholars seek to move beyond the 20th century mindset that every problem has a government solution.”

Haslag seemingly remains in the 20th century and needs to retool his scholar’s credentials, and Sinquefield needs an IRS audit.

Bruce Rodgers can be contacted at publisher_editeKC@kcactive.com.