Prop A would 'close the door' on earnings tax

Tuesday, October 26, 2010

Proposition A doesn't just affect St. Louis and Kansas City, Mo.

If approved, it would prohibit any new earnings taxes across Missouri in addition to requiring a vote in Kansas City and St. Louis in April to determine if earnings taxes already in existence there should be continued.

Mayor Harry Rediger said Cape Girardeau doesn't have plans for a future earnings tax in the city but he said it will be hard for Kansas City and St. Louis to make up the revenue lost if their earnings taxes are voted out.

If Prop A passes and voters later reject an earnings tax in either city, it would be phased out over a 10-year period, according to the ballot language.

It could not be voted back in.

If Prop A passes and voters chose to continue an earnings tax, the issue will be resubmitted again every five years for renewal.

"The ballot measure rose from growing concerns that the earnings tax in St. Louis and Kansas City, what is really a third income tax, has been detrimental to those two cities and economic development across Missouri," said Marc Ellinger spokesman for the Let Voters Decide campaign to support Proposition A.

"We've seen a large number of businesses move, sometimes just across the street or across borders to get out of these cities and time after time they identify the earnings tax as the reason for leaving."

Those who support Prop A say earnings taxes hamper economic development and places an extra burden on working families and business owners who already pay state and federal income tax and local property taxes.

"With an earnings tax, individuals pay 1 percent right off the top of their salary. It takes people's first dollar and it's very regressive in nature," said Carl Bearden, executive director of United for Missouri who supports Proposition A.

Those opposed to Proposition A say that if earnings taxes are done away with, cash-strapped cities won't be able to replace the lost funds.

According to the ballot language, Kansas City budgeted earnings tax revenue of $199.2 million and St. Louis budgeted $141.2 million in anticipated earnings taxes.

In St. Louis, about a third of the city's general revenue fund is generated by earnings taxes originally enacted in the 1950s, said lawyer William Kuehling of Polsjnelli Shugart, P.C. in St. Louis, who is campaigning against Proposition A.

If Proposition A passes, it will hurt the cities' credit rating and create difficulty issuing municipal bonds for improvement projects, he said.

Kuehling also criticized supporters of Proposition A for not suggesting alternatives for cities to replace earnings tax revenue.

"Replacement is more of an issue for an April election," Ellinger said. "It's not part of the discussion on why people ought to just get a chance vote."

He said Proposition A doesn't do away with earning taxes. It does, however, put them to a vote of the people.

A combination of increased property and sales taxes would likely be needed in St. Louis to replace lost earnings tax funds if an earnings tax was voted out, Kuehling said.

"Proposition A has the potential of putting the two major cities in Missouri in financial distress to the point where they can't perform anymore," Kuehling said.

St. Louis businessman Rex Sinquefield of the Show-Me Institute, a not-for-profit economic policy research organization, is the driving force behind Proposition A. Sinquefield funded a petition drive that collected 200,000 signatures to put the earnings tax measure on the ballot earlier this year.

Out of 150 cities in the country, only 25 have earnings taxes and they are concentrated in Midwestern manufacturing states, Ellinger said.

While there isn't an earnings tax in Cape Girardeau now, Ellinger said approving Proposition A will "close the door" to that possibility in the future.

"A bill in the legislature a few years ago would have authorized it for every city of 12,000 people or more," Ellinger said. "In tough economic climate, cities are always looking for money."


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