Payroll tax

Monday, June 25, 2007

An exchange of information with leaders in Paducah, Ky., has led Cape Girardeau officials to begin exploring whether a payroll tax would benefit the city. Paducah relies heavily on a 2 percent payroll tax for revenue. The tax accounts for 43 percent of that city's revenue. In Kentucky, the state imposes a 6 percent sales tax. Local communities in Kentucky have no sales taxes.

Cape Girardeau has no payroll tax, but its one-cent sales tax generates 44 percent of the city's revenue. That worries some city leaders, who fear an economic downturn could weaken Cape Girardeau's financial situation. We would suggest that an economic downturn almost certainly would affect revenue from a payroll tax as well.

Under Missouri law, levying a payroll tax is limited to cities with populations over 300,000. Only St. Louis and Kansas City have a payroll tax, so in order for Cape Girardeau to levy a payroll tax state law would have to be amended. Voters in the city also would have to approve.

The benefit of a payroll tax, say supporters, is that part of the money is paid by people who commute into Cape Girardeau for work but don't live in the city. The rationale is that they use city services as well.

Sales taxes, property taxes and payroll taxes are the only significant options for raising revenue. Cape Girardeau has maintained a relatively low property tax rate, and city leaders seem loathe to place more of a burden on property owners.

The Show-Me Institute, a not-for-profit organization that promotes free markets and individual liberty in the state's public policy, last year released a study by University of Missouri professor Joseph Haslag that maintains the St. Louis payroll tax has caused job creation within the city to stagnate. He claims the tax, also called an earnings tax, drives both businesses and workers into the county.

The Show-Me Institute recommends replacing St. Louis' earnings tax with a two-tiered property tax that would set one rate for land and another for structures on the land.

Talk of a payroll tax comes at a time when the Parks and Recreation Board is recommending the city place a half-cent sales tax on the November ballot to fund $36.9 million in storm-water and parks projects. Some in leadership positions in the city think this tax for these projects is going to be difficult to sell to voters without a sunset clause. The case for a payroll tax is even further from being made.

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