Schaefer seeks to eliminate St. Louis and Kansas City's earnings tax | St. Louis Public Radio

Schaefer seeks to eliminate St. Louis and Kansas City's earnings tax

Dec 1, 2015

After St. Louis Mayor Francis Slay threw his support behind raising the minimum wage to $15 an hour, state Sen. Kurt Schaefer issued a stern warning.

The Columbia Republican penned a letter to his colleagues that if St. Louis (and Kansas City) enacted minimum wage hikes, lawmakers should eliminate the cities’ earnings taxes. That’s the 1 percent income tax on anybody who lives, works or owns a business in either city.

“Slay’s own argument on why he wants to double the minimum wage supposedly is to put more money in people’s pockets,” Schaefer said last June in a telephone interview. “Well if that’s the case, that’s the best argument ever for eliminating the earnings tax. You let people, not only employers but employees, keep that 1 percent that’s currently taken out of their checks.”

Ultimately, St. Louis enacted an $11 an hour minimum wage that’s now mired in a court battle. (Kansas City passed a minimum wage hike, but repealed it after lawmakers overrode the veto of a bill barring local minimum wage increases.)  And on Tuesday, Schaefer followed through on his threat and pre-filed legislation to eliminate the earnings tax in St. Louis and Kansas City.

In a press release, Schaefer not only cited the minimum wage decision, but also a U.S. Supreme Court case that he contends calls the legality of earnings taxes into question. 

“The earnings tax is outdated, dysfunctional, and certain provisions are clearly unconstitutional,” said Schaefer in a statement. “These cities are in direct violation of the Commerce Clause of the United States Constitution, and repealing this tax will increase wages for more than a million hardworking taxpayers in Missouri. This is a harsh double-tax on productivity that is severely restricting employment, investment and growth in our state’s two largest cities.”

For his part, House Speaker Todd Richardson said earlier this year that Schaefer’s foreboding words about the earnings tax “were indicative of a deep frustration with the sort of the approach of trying to make the city an island and not pursue a comprehensive statewide minimum wage policy.” 

Still, the bill is likely to face significant opposition from St. Louis and Kansas City lawmakers, especially since the earnings tax constitutes a major portion of both cities’ budgets. It’s highly possible that both cities would have to take some sort of action -- such as hiking property or sales taxes -- to make up for the loss of the earnings tax.

“The Kansas City earnings tax has been a constitutional financing method of Kansas City for half a century, and a recent Supreme Court ruling regarding a Maryland tax does not affect our earnings tax,” said Kansas City Mayor Sly James in a statement. “Civic and business leaders agree that the earnings tax is a sound and fundamental way for Kansas City to finance City services.”

In a joint statement, House Minority Leader Jake Hummel, D-St. Louis, and Gail McCann Beatty, D-Kansas City, accused Schaefer of continuing "a petulant pattern of vendetta-based governance by filing legislation to forcibly repeal the local earnings taxes in St. Louis and Kansas City in defiance of the will of local voters."

“The senator from Boone County apparently is very cross with St. Louis and Kansas City elected officials because they act in conformity to the wishes of local residents and not to the wishes of the senator from Boone County," the two lawmakers stated. "As a result he is resorting to his usual bullying tactics with his proposal to bankrupt Missouri’s two largest cities by eliminating the funding source that provides more than a third of their budgets."

As to how St. Louis or Kansas City would recoup its lost revenue if the earnings tax went away, Richardson replied: “The answer to that question is one the city would have to answer.”

Regardless of what happens in the Missouri General Assembly, voters in St. Louis and Kansas City will decide next year whether to keep the earnings tax. Periodic votes on whether to keep the earnings tax were part of a successful initiative petition largely funded by Rex Sinquefield, who has donated prodigiously to politicians such as Schaefer, Slay and Attorney General Chris Koster.