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Commentary: Yes on Proposition A

This article first appeared in the St. Louis Beacon, Oct. 12, 2010 - For decades, the cities of St. Louis and Kansas City have imposed a 1 percent earnings tax on the wages of people who live and work in those cities. In addition, businesses in those cities pay a 1 percent tax on the profits of the goods and services they sell.

And for the same amount of time, voters in those cities have not had the opportunity to decide whether they want to keep paying the earnings tax. Under current state law, these taxes will go on indefinitely. And state law does not prohibit politicians from imposing a similar earnings tax on working people and businesses in other cities and towns throughout Missouri.

There is growing recognition that imposing a local earnings tax - on top of state and federal income taxes - is unfair to working people and hurts local economies by pushing businesses to locate in cities or towns that do not have a local earnings tax. Unfortunately, voters in Missouri today are at the mercy of local and state politicians who have shown little desire to change the earnings tax status quo, and no desire to let the public have a direct say about it.

If approved, Proposition A would do two things:

First, it would require sunset votes on the earnings taxes in St. Louis and Kansas City every five years, starting in 2011. Voters in both cities would be given the opportunity to decide if they want to continue the earnings tax, or phase it out over 10 years - at the rate of one-tenth of a percentage point each year.

Contrary to what the critics are saying, Proposition A does not eliminate the earnings taxes in St. Louis and Kansas City. That decision would be left up to local voters in each of those cities, IF Prop A passes.

Second, the initiative would bar, by state law, an earnings tax from being implemented in any city in Missouri.

Missourians should know that earnings taxes are relatively rare in this country. In Boston, Los Angeles, Seattle, Miami, Chicago, Dallas, Austin, Phoenix and more earnings taxes are unheard of. Only 25 of the nation's 150 largest cities impose earnings taxes.

Perhaps you've heard tales that the earnings tax is responsible for more than 40 percent of the budget in Kansas City and more than a third of the budget in St. Louis.

Earnings tax collections account for about 15 percent of the overall budget in each city. But politicians overstate the impact of the earnings tax by comparing it only to a portion of the budget, not the overall budget.

Many people ask what would be done to replace the earnings tax revenue in St. Louis and Kansas City. First, I want to reiterate, Prop A does not repeal any tax. Second, the 10-year phase-out provision means revenue from the earnings tax would decline slowly, incrementally, allowing local leaders plenty of time to find alternatives.

In addition, even Mayor Francis Slay acknowledges that the earnings tax hurts his city because it discourages businesses from moving there and pushes existing ones to the suburbs. Eliminating the tax will bring more businesses, jobs and residents to the city, and driving up other sources of tax revenue for the city. There may be little need to raise any other taxes.

The part of Prop A calling for a prohibition on earnings taxes anywhere outside of Kansas City and St. Louis also is critical. As long as it remains an option for any municipality, this third layer of income tax remains a tempting and potentially destructive option for Missouri cities. And make no mistake about it, cities are considering the e-tax. The Missouri Municipal League, the organization of top city officials from across the state, dislikes Prop A. But there's little wonder that self-interested bureaucrats and public employee unions would want to protect a taxation option.

There's a pretty basic reason for having all voters in the state handle this issue. Earnings taxes are authorized under state statute. Therefore, a change in state law is the only way to make sure a local earnings tax doesn't have a chance.

Marc Ellinger is an attorney and spokesman for the Let Voters Decide Initiative. For more information on the initiative, go to www.letvotersdecide.com