This article first appeared in the St. Louis Beacon, Oct. 12, 2010 - This November, voters in Missouri will vote on Proposition A, which if successful, would prevent local governments from levying earnings taxes and require residents of St. Louis and Kansas City to vote every five years whether to continue the 1 percent earnings tax in their cities. If St. Louis and Kansas City voters turn down the earnings tax in the future, it will be phased out over 10 years.
The supporters of Proposition A are backed by big money. In fact, the campaign for Proposition A is financed largely by one man, Rex Sinquefeld, who has donated millions of his own money to the effort.
The opponents of the measure, United for Missouri's Priorities, consist mainly of public union groups and community organizations such as the Missouri chapter of the American Federation of State, County and Municipal Employees, the Service Employees International Union, the National Education Association, the Civic Association of Kansas City and Missouri Federation of Teachers. The memberships of these organizations will be the most adversely affected by spending cuts that would occur should Proposition A pass. United for Missouri's Priorities has spent only a fraction of Sinquefeld's millions in fighting the proposition.
The supporters argue that the earnings tax is a barrier to economic growth. They claim that the earnings tax stops people and businesses from moving to St. Louis and Kansas City or from staying there. Furthermore, they assert that eliminating the earnings tax will stimulate personal spending, resulting in higher revenues from the sales tax and the property tax (See tax analysis on the Let the Voters Decide website).
Opponents say that scrapping the earnings tax in St. Louis and Kansas City would make it more difficult to provide needed services at current levels in both cities. In St. Louis, the earnings tax accounts for nearly $141 million or 32 percent of the city's general budget. In Kansas City, the earnings tax accounts for nearly $199 million or 40 percent of the general budget.
It is not hard to imagine what havoc might result from taking a 32 or 40 percent chunk out of a municipal budget. Police protection, fire fighting, schools, street cleaning, trash pickup, parks and other public services could be hard hit by cuts. Even if we assume that public safety would be protected, that just means that other services would have to be slashed more. The Missouri Budget Project, which opposes Proposition A, says that Proposition A "would devastate the ability of St. Louis and Kansas City to provide services."
Furthermore, opponents argue that the earnings tax could be replaced with another revenue source, which, in effect, means that sales tax and property tax rates would have to soar. The irony is that Proposition A supporters claim that eliminating the earnings tax would spur economic growth, while they downplay the economy dampening effects of higher property tax and sales tax rates. Paying higher sales taxes would further hurt consumer demand in the state during this economic downturn and higher property taxes would hurt the already ailing real estate industry.
The organization set up to lead efforts to pass Proposition A is Let the Voters Decide. Letting voters decide is good, but the question is how well educated voters are regarding the earnings tax in Missouri. And given the lopsided nature of the contributions, only supporters of the measure have been able to consistently get their message to the public through expensive TV advertising. In fact, the general level of knowledge about this issue is appalling.
An administrator in a county municipality said he thought Prop A had "a very good chance of passing given today's anti-tax sentiment." He said voters in his area are likely to "vote in favor of this measure since it does not directly impact them."
The idea that poorly informed voters will make a decision about an issue that does not immediately affect them should strike even a casual observer as a bad way to make public policy.
Some who are informed are worried. Mark Frank, who works in the city and lives in the county, said, "The area is hurting from the recession. This will create financial chaos across the city at an extremely bad time."
Frank also said, "I'm disgusted that essentially one ultra-rich but tax-averse individual can bankroll a ballot initiative with the potential to jeopardize an entire city's financial well-being."
It is important for the voters to ignore the misleading advertising and bring themselves up to speed about the very real damage to the state's economy that could result from passage of Prop A.
Robert A. Cropf chairs the Department of Public Policy Studies at Saint Louis University.