We have written several times about the earnings tax in recent weeks and its detrimental economic effects. On Tuesday, voters in both the City of St. Louis and Kansas City voted to retain the tax. Whatever your view of the tax, then candidate, now Mayor-elect, Tishaura Jones acknowledged in a recent St. Louis Business Journal Article:
[A]lternatives need to be examined because the tax totals a third of the city’s general revenue. “That is just unsustainable,” she said. “We need to see how we can diversify our sources of funds to make us not so dependent on the earnings tax should the voters ever decide that they don’t want to pay it anymore.”
She is absolutely right. The City of St. Louis needs to get serious about leaning less on the earnings tax, for a variety of reasons. The newest reason, resulting from the pandemic, is the increase in working from home. The city is, unfortunately, attempting to claim that people working from home in the suburbs still have to pay the tax. Through legislation or litigation, I hope that this new and intentionally improper implementation of the law is prohibited. Nevertheless, the long-term impacts from increased working from home on the earnings tax in St. Louis will likely be substantial.
And yes, voters may one day (Tuesday was clearly not that day) decide they want to phase it out, and the city should move in a direction to encourage that, not discourage it. The single most important thing the City of St. Louis can do is reduce the enormous tax subsidies it gives out each year. As stated in our recent op-ed in the St. Louis Business Journal, the city gives out about $70 million per year in subsidies. Expanding the tax base by letting those subsidies expire and not granting new ones is the single best way to phase out the earnings tax without large tax increases elsewhere.
Even if one thinks that the City of St. Louis (and Kansas City) should maintain the earnings tax, not depending on it so much would be a smart thing to do.
