Does St. Louis' earnings tax affect business growth? It depends on who you ask
It’s hard to tell how much impact St. Louis’ 1 percent earnings tax has on attracting businesses to the city. Arguments over the effects of the tax are largely anecdotal.
That’s in part because not much research has been done on the subject over the last 20 years, according to Sarah Coffin, a professor of Urban Planning and Development at Saint Louis University.
"What’s fascinating is that you haven’t really seen much in academic literature. That suggests there hasn’t been a lot of positive or negative effect on it," Coffin said. "It’s just seen as a standard budgetary tool that large municipalities use."
St. Louis has had the tax on those who live or work in the city since 1959. It was a mechanism used by many cities to cope with an exodus to the suburbs, while still seeing large numbers commuting to work each day in the city. Coffin said more than 50 major cities have a similar tax today.
"It was designed and still is designed to account for large populations that otherwise don’t pay taxes in the city," she said.
But the question of whether the tax helps or hurts cities attract and retain businesses is gaining importance in St. Louis where the issue comes up for a vote every five years. On Tuesday, voters in the city will decide whether to keep the tax or phase it out over 10 years with Proposition E.
Coffin said she intends to launch a study this summer on the effects of the earnings tax, along with Tom Crawford, the Banpu Endowed Chair of Sustainability at SLU’s Center for Sustainability.
In the meantime, city voters are being inundated with campaign materials in support and opposition to the tax. Billionaire investor Rex Sinquefield is funding the campaign against the tax. He believes income taxes stifle job growth. Supporters of the tax, including Mayor Francis Slay, say the city would have to slash services if it goes away.
Right now the earnings tax makes up 33 percent of the city’s annual revenues.
What does the business community say?
The St. Louis Regional Chamber said it supports tax policies that promote growth and help make the region attractive to businesses. In the case of the earnings tax, the chamber is taking a somewhat nuanced stance. The business group said it supports allowing city resident to decide the issue, but also points out that the tax makes up a big chunk of the city’s general budget.
"At a time when our region is working to improve equity and provide greater opportunities for our residents, we cannot deliver a crippling blow to the revenue stream that funds vital services and programs," the chamber said in a statement.
Does the tax keep companies from committing to St. Louis? The answers vary.
In terms of attracting companies and adding jobs, the last year has been fairly positive for St. Louis. LockerDome announced in December it would add 300 positions and stay downtown; Square expanded into the innovation district Cortex with plans to add 200 jobs; and KPMG announced last fall it would add 175 employees.
KPMG, an audit, tax and advisory firm, which already had 270 employees at its office on 10 South Broadway, says the tax wasn’t an issue.
"The earnings tax was not a factor in KPMG’s decision to add jobs to its St. Louis office," said Brandon Hatler, a spokesman for the company.
Yet it was a consideration for the family-owned business Powers Insurance and Benefits. The company plans to move from its Clayton office to a new building in St. Louis next year. CEO Pierce Powers said his employees are happy about the move.
"We’ve got a lot of young people in the firm who are so excited," he said, "and I don’t think a 1 percent tax is going to give rise to them leaving our dynamic organization."
But Powers said the tax did factor into the decision. He'd rather there wasn't a tax, especially because the company also will have to pay 1 percent on net profits to the city.
"I’m not going to say its helps," Powers said.
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