Mayor Mark Funkhouser dropped something of a political and fiscal bombshell yesterday when he said that he’d be open to repealing KC’s notorious earnings tax, which levies a one percent tax against those who live and work in the friendly confines of the city. The tax has long been a source of consternation among our libertarian-minded brethren, who call it an unfair imposition on citizens who choose to live in a particular locale. There’s another pesky little matter: the tax brings in $200 million a year. And in case you hadn’t gazed upon the streets this morning, we’re not exactly swimming in cash around here.
When there’s a gap, however brief, in the provision of city services, people start to ask again exactly what we’re paying for with that collective one percent. This isn’t quite fair; snow removal is a tricky process that’s all too contingent upon temperature, and sometimes it’s just too cold to use salt. (The city’s predilection for ignoring each and every side road — at least here in Midtown — is another matter.) But it’s easy to caricature this kind of thing (e.g., “This city can’t do anything right!”) and turn the earnings tax into the fall guy for the occasional lapse in services. The larger issue, of course, is the very fairness of the tax; is it right that on top of federal, state, and property taxes people should pay an extra one percent to the city? Maybe. Maybe not. I suppose that’s for tax experts and con law experts to figure out.
What matters here is exactly what the city will do in the absence of an annual $200 million in the general fund. The threatening quotes are already emerging from downtown:
“It is not hyperbole to state that elimination of the earnings tax without replacement revenue could render the city of Kansas City unlivable,” City Hall officials said in a document submitted to the auditor’s office…
“Property taxes would need to be increased by about 500 percent,” officials wrote. “Utility taxes, which are passed through to customers, would have to more than triple. Court fines would have to increase by 1,100 percent.”
The ostensible purpose of the repeal idea would be to attract people to the idea of living in the city. One of the reasons KCMO has become an unsustainable operation is because residents of the entire metro area can take advantage of city-funded activities, at no cost to those who live, for example, in the Sunflower State. Repeal the earnings tax, the thinking goes, and people will flock to the city to live, work, create jobs, spend money in city restaurants, et cetera. A nice notion — but is that really what’s keeping people from living in the city? I’m skeptical. Ask some people in Kansas why they chose PV over KC and you’ll likely hear the same things: crime, services, streets, and schools. I’m willing to bet that no more than one in ten people would list the earnings tax as a reason.
Besides, what’s the use of attracting people to the city by eliminating the catalyst for things that make the city livable? If ten thousand new residents move in and generate economic growth, how long will they stay if the municipal service level fails to meet even the lowest expectations as a result of funding cuts? Imagine if a star football recruit was drawn to Oklahoma State by the Pickens-funded plethora of athletic resources: he’s told that if he comes to OSU, he’ll have access to the best and brightest of practice space, coaches, trainers, equipment, et al. Upon arrival, though, he’s told that the funding for those things is eliminated — but hey, welcome to State!
The underlying fairness of the tax is debatable. It’s deployment as a city living recruiting tool is pretty clear: illogical.
Kansas City has larger, more systemic problems when it comes to funding. Like many other post-industrial Midwestern cities, KC is groping for a path to the future and trying to determine how one pays for things like schools and services given the recession and an ever-shrinking tax base. How to fund Missouri-based attractions when Kansas residents use them? How to create good schools with no funding and a generation of mismanagement? How to justify continued taxpayer support of sports stadiums, especially when economic studies continue to indicate little benefit?
We’ve started some band-aid solutions: downtown redevelopment (another economically unsound idea), a new arena, and others. These are, like the welfare system, solutions that address the consequences instead of the problems. The consequence is that KC is broke; the problem is that entrenched city interests have for a few decades prevented most heterodox thinking about what this city’s future looks like.
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