ST. LOUIS — A committee of Missouri lawmakers tasked with evaluating the earnings tax in both Kansas City and St. Louis recommended the legislature look into ways they could gradually phase out the longstanding taxes. But not everyone on the committee supports it, including representatives from St. Louis and Kansas City.
In both Kansas City and St. Louis, a 1% earnings tax is deducted from workers' paychecks.
For St. Louis, the tax brings in nearly $220 million every year and is a major funding source.
“It's been working for decades. It works in many, many successful cities,” State Rep. Steve Butz (D-St. Louis) said.
But the majority of the Earnings Tax Committee, which recommended both cities start to phase out the earnings tax, said it was detrimental to the city’s growth.
“It's caused the city to lose population. It's caused the city to lose businesses and growth. So, we were looking for alternative ways of bringing income into the city so that that wouldn't be necessary,” Committee Chair Rep. Jim Murphy (R-St. Louis County) said.
When it comes to a lack of business growth, Butz said it’s not due to the tax.
“Their biggest issue, I think, is crime. And their employees don't feel safe downtown and in other areas. And the population shift has just moved west and south. So employers want their employees to be closer to their work and vice versa,” Butz said.
Butz said one thing most of the committee agreed on is getting rid of the earnings tax for low-income workers and those below the poverty line.
“It would give people maybe that need the tax break the most, who can least afford to pay the tax, it might lessen the burden on them,” Butz said.
State Rep. Tony Lovasco (R-O’Fallon) said the committee also wants to see those who work remotely exempted from the tax.
"They've decided to go after and collect this earnings tax from people who not only don't work in the city, but they don't even physically set foot in the city," Lovasco said. "They're going after people who are remote workers starting off during the pandemic and have even gone so far as to say that the people don't even have to live in Missouri. I think that's well beyond the size and scope of what the legislature had in mind when they authorized that tax for them."
Murphy said one of the solutions proposed would hopefully attract more businesses to St. Louis.
“We talked about bringing in enterprise zones where we'd attract new businesses into the city and exempt them from the earnings tax,” he said.
Lovasco said additional consumption taxes could also be the answer.
“I think if you want to get people to move to the city, do business, having a sales tax or something similar is a lot better way of going about it than taking a piece of people's income from their paychecks. I can choose to go to a ball game for example,” Lovasco said.
Butz said increasing sales tax and property tax would drive more people away.
“So without an alternative, I don't see what else we could do. It would bankrupt the city,” Butz said.
In a statement, a St. Louis City spokesperson said:
The St. Louis City earnings tax is a critical source of revenue that ensures the essential functions of local government can continue to operate. Any legislative proposals to scale back or eliminate the local earnings tax without proposals to replace this revenue are proposals to gut fire and police services, street maintenance and upgrades, parks, the courts, the Circuit Attorney's office, and much more.
There is no evidence indicating St. Louis’ 1% earnings tax presents a barrier to economic or population growth. Other cities throughout the country which implement earnings taxes at higher rates, such as Cleveland, OH (2.5%), and Philadelphia, PA (3.75%), Washington, D.C. (4% minimum) and more are all experiencing growth in jobs and population. Through the City of St. Louis’ Economic Justice Action Plan, the administration is making targeted investments to spur economic and population growth that will restore disinvested neighborhoods and boost tax revenue under the current structure. We are only interested in plans that will lead to growth and prosperity, not austerity.
The next step is for lawmakers to use these recommendations from the committee to craft legislation this session.
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