Tuesday, February 10, 2009

Looking at the Earnings Tax

I've been paying a lot of attention to the Kansas City Budget lately, and trying to see how we can pay for basic services, attract and retain good jobs, and become a better, safer city. I suspect that the budget for the coming year will focus mostly on the first goal I listed, but there simply isn't going to be a way to make significant strides on the other two without additional investment. In future years, we need to consider the revenue side of the equation.

What about graduating the Earnings Tax, coupled with a tax credit to negate the tax on our urban core and low-income workers? I've been told that 55% of the earnings tax is paid by nonresidents, that compliance is fairly high, and most is paid in through corporate withholding. (There are tweaks that need to be made to compliance and withholding which could have a good impact on revenue, but let's set that aside for the current discussion.)

Just to toss out some numbers, while acknowledging that I do not have the data to fine tune the proposal and come up with real numbers, let's say that we say that we will tax income under $40,000/year at the current 1% rate, and income over $40,000 at 1.5%. At the same time, we will establish a refundable tax credit of $400 for Kansas City residents. That would mean that if you earn $40,000, your tax bill would be $400, and your refund would be $400, so you would not pay any earnings tax. If you live outside Kansas City, you would continue to pay your $400, just like you do today.

If you earn $50,000, you would pay tax of $550 (1% on $40,000 and 1.5% on the amount over $40,000), so, if you live in Kansas City, you'd be getting a reduction of $350 when you count the tax credit, and if you live outside of Kansas City, you would only face a $50 tax increase.

Of course, all these numbers would need to be fine-tuned by someone who has access to the data on how much is paid by income levels. My gut feel is that these numbers would work out okay, but I really don't know that for certain. Perhaps the break-off point would need to be $30,000, with a $300 tax credit.

But tell me what you think of the concept. The advantages, as I see them, are that it would give employed workers a reason to choose Kansas City instead of suburbs. It would give the urban core a little more spending money, which could help generate some trickle up economics where it's needed most. On the other hand, it could cause some mobile businesses to relocate to the suburbs, to dodge the tax (to the extent that such businesses have not already left). It would also be somewhat harder to administer than it is currently, though I doubt that would be a huge hurdle.

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23 Comments:

Anonymous Kingsfield said...

I like your idea, but I think your numbers are off. I think if you backed the tax credit down to $250 and kept the graduation point at $40, you would accomplish the goals of helping the working poor and not increasing taxes on any but the fairly wealthy Kansas City residents, all while allowing the suburbanites the privilege of paying for their amenities.

2/10/2009 8:38 AM  
Anonymous Anonymous said...

This comment has been removed by a blog administrator.

2/10/2009 10:03 AM  
Blogger Dave said...

I think you're absolutely spot-on with the concept.

As you've mentioned, the details and cutoff points would probably require some heavy-duty statistical analysis to determine exactly where the optimum cutoff point is. Someone with knowledge and access to the data might even determine more optimal models: a three-tier system, for example.

As an aside: It would be interesting to learn how many people live in Kansas City (paying etax), and actually work outside the city while drawing $100k or more salary.

2/10/2009 10:42 AM  
Blogger m.v. said...

Of course it's prudent to continue raping captive non-resident employees,makes all the sense in the world. I hope that every potential business venture looking for a location in the metro will consider not to subject its employees to this rip-off. There are ways to make this tax a little more easier to swallow, i.e giving the earnings tax payers free parking, or whatever, so they don't hope that this city is hit by a small meteorite smashing everything between the river and 63rd st.
On the other hand, if you don't work in KCMO city limits 100% of the time and still have your 1% confiscated, make sure you file for a refund. It may be 20 bucks but it's your money.

2/10/2009 10:49 AM  
Anonymous Anonymous said...

MV - if you're suggesting that the e-tax be completely repealed, what revenue source do you recommend to replace it?

The way I see it, Dan's proposal doesn't harm most nonresidents at all, or very little. By my math, anyone earning under $120k living in KC would come out ahead.

It looks like this year's budget is going to focus on cutting spending, which is great. But, eventually, to enhance city services, it's going to take some money gotten from somewhere. I like the direction Dan is looking.

Even if Dan's numbers don't work out, thank God that someone in this city is at least thinking creatively!

2/10/2009 11:01 AM  
Anonymous Anonymous said...

As a non-resident, why should I pay a tax at all? Just because my employer is in KC, doesn't mean that I should be subject to the tax. I don't even work in the city half the time, and still have to pay it. If anything, let's give the non-residents a tax credit!

2/10/2009 11:39 AM  
Blogger craig said...

I am 100% against the earnings tax, IMHO it is the epitome of "taxation without representation". That being said, it has already been fought in court, so my only recourse is to complain, or go pour some Lipton instant tea in Brush Creek.
Now, to be realistic, there are already people in the Missouri legislature that are talking about passing a state law to make it illegal to collect an earnings tax from non-residents, KC should probably keep a low profile on this issue instead of bringing it to a head.

2/10/2009 8:58 PM  
Anonymous Anonymous said...

I like MV and Craig's view on the topic. I live in JoCo so that I don't have to see poor people, or colored people -- and there's nothing worse than seeing poor colored people. EXCEPT when my dollars goes to support them at the city or federal level, for that matter.

It's not that I wish them to fail per se; only that I don't want anything to do with it.. which is why the life in JoCo is for me.

2/10/2009 9:56 PM  
Blogger craig said...

Ummm......
Just for the record, I don't feel the same way as anon @ 956.

2/10/2009 9:59 PM  
Anonymous Anonymous said...

Great concept/idea but it probably needs to pass muster in jefferson city, which makes it a non-starter.
keep in mind that there are many, including the ceo of our property-tax supported KCMO library system, who want to eliminate the earnings tax.

2/10/2009 10:02 PM  
Blogger Muddy Mo said...

To all KC nonresidents who work in KC and constantly complain about the Earnings Tax:

Why don't you quit your bitching and just find a job wherever the hell it is you come from? You act like KC is stealing your money, but no one is making you work there.

Here's a suggestion: head on back to your little suburb and your city council and tell them they need to build railroads and airports and enough buildings to support employment for thousands of workers and do it all without any new taxes and then all the people who hate the KC earnings tax can go work there. Problem solved!

And while you're at it, have them build a football stadium and a baseball stadium and a convention center and an indoor arena.

I hereby declare this plan to be part of the public domain to be used freely with no need for attribution or reimbursement, though I am really surprised no one has thought of it before.

Dan, I like your idea.

2/10/2009 10:13 PM  
Blogger craig said...

Muddy Mo,
Are you a baby with the bathwater Republican?
Your answer is to "get another job".
That is about as ignorant as telling someone who lives in KC and complains about the failing schools to "move".
Oh, and another thing, the football and baseball stadiums are being paid for by a county wide tax, so you are doubly ignorant.

2/10/2009 10:17 PM  
Blogger m.v. said...

That's because there are taxes for the use of the airport, and people pay for using the stadium, and all the other so called amenities that your city provides. But you already knew that.On the other hand if by some magic all nonresidents stopped working in your city you would have to pick up 55% of the tax that you currently confiscate from them or be even more broke than you already are.

2/10/2009 10:19 PM  
Blogger Dan said...

The City chips in a couple million to the stadiums, so you're a little off base there, Craig.

Meesha - somebody earlier asked you how you would propose to replace the revenue if we took away the e-tax, and I think that's an excellent question.

2/10/2009 10:32 PM  
Blogger craig said...

Dan,
Your first point has a little bit of substance. But I oppose subsidizing a multi-million dollar company (NFL and MLB) with taxpayer money, county or city.
Your second point is very valid. I don't want to bankrupt KC, there is something to be said to having and anchor city in order to have a thriving metro area. Like I said, it has already been fought in the courts, and all I can do is bitch about it. What really ticks me off is that I pay an earnings tax, yet have no say as to how that tax money is spent, and because of the idiotic spending policies of KC's elected officials the city is in dire financial straights, even with the earnings tax.

2/10/2009 10:43 PM  
Blogger m.v. said...

Dan, according to the presentation I found on KCMO website only 25% of large urban cities have a local income tax, why don't you ask 75% of the cities who don't. My personal answer is I don't care. I live in Olathe and as far as I know it doesn't shake down innocent citizens of the metro. It's similar to when a person gets used to working overtime and then asks how is going to continue his lifestyle when overtime is taken away. Deal with it. On the other hand as I mentioned earlier, it would feel less like a rape if I could park for free. Trust me I don't do it often and it will probably cost the city whole $10/year but I would feel I got something for my money and maybe bitch a little less.Although I can't promise.

2/10/2009 10:43 PM  
Blogger Dave said...

Craig: There are a couple of simple solutions to your problem.

1) You could move closer to where you work. You'd save on miles on your car, save on state income tax (for middle-class folks, missouri has cheaper taxes than kansas), save on property tax (well... probably, it varies greatly across the metro area), save on gas (gas seems to be always cheaper in missouri than kansas) and as a bonus, you'd have a say in where your etax goes. As an added bonus, you can still complain along with everyone else about sales tax, since it seems to be a sort of local arms race between all small governments with taxing authority.

2) Lobby hard for a bi-state II tax. This way, you get to stay in your current domestic accommodation yet have a say in how your (newly added) taxes are spent. You'll love it.

MV: Check on statistics for large cities east of the Mississippi river. You'll find that cities of KCMO size and higher often have earnings tax. What's more, almost all cities with the tax have higher earnings tax than KCMO (check out Philadelphia!) with fewer exceptions and/or deductions.

Though, I suppose illustrating how common an earnings tax is wouldn't begin to calm your cranky nature on the topic. Please consider for a moment how much of your income is taken by federal and state income taxes AND property, car tag/title, sales, and liquor taxes compared to a city tax.

As for Johnson county "shaking down" citizens: a co-worker of mine mentioned once he paid a little more than $5,000 per year in property taxes. Extortion?

2/10/2009 11:20 PM  
Blogger craig said...

Dan,
First of all, I am not a snobby, Johnson County, elitist. I am a Eastern Jack, NASCAR, redneck.
Second, I don't mind paying my property taxes, because I can see how I get a good return for my investment; good schools, good public library, bus service (which I use), etc.
Third, another bi-state will never pass for several reasons, not in the least the fact that it is an additional tax when KC has proven that they are incompetent with the money they already have.
Fourth, I happen to like having elected officials that actually do their jobs and listen to their constituents (Garza-Ruiz, Grounds, Carson Ross).

2/11/2009 5:34 PM  
Blogger Dan said...

That was Dave you responded to, not me.

2/11/2009 5:42 PM  
Blogger craig said...

Sorry Dan,
I didn't think you were the type of person who's answer to the problem is "move".
My eyes must be going, and I'm not even that old (though not that young either).

2/11/2009 7:08 PM  
Anonymous Anonymous said...

I say Fuck Kansas City. I work there but I do not see how I should owe Funkhouser or his gangster city council a red (Communist that is) cent, and I'll be damned if i'm going to let that pointed eared goon (I mean seriously, he looks like he could be Mr Spock's uncle...) take food out of my child's mouth so he can go build a train or see that the royals win a stupid game.

Another thing. The "administrator" seems to only allow comments on here from folks who agree. Why did you delete the comment from 2\10\2009? did you not like what he had to say? Well fuck you. In case you haven't heard offensive speech is protected by the first amendment.

5/07/2009 3:52 PM  
Anonymous Anonymous said...

I moved to KC from out-of-state a couple of years ago and knew nothing of the earnings tax. (Hell, it would never have occurred to me it was called an earnings tax...) Because my employer is not in KC they are not required to collect the tax. I only learned about it by happenstance. Now, I'm potentially faced with several years of back taxes, interest, and penalties.

Frankly, if I'd known there was such thing as the earnings tax prior to purchasing a home, I would have purchased elsewhere. Two blocks away from here I would have been home free...

11/16/2009 9:37 PM  
Blogger RW said...

What I think we all have realized here is that in Kansas City, the earnings tax accounts for 42% of the city's general revenue. In St. Louis, that number is 39%. The State Auditor has put out a report saying that state the obvious. That if cities like St. Louis and Kansas City lose these respective percentages of revenue, deep cuts would have to be made.

The Auditor also states that, in order for the cities to aquire these funds from other revenue streams, property taxes would have to go up 500%, utility taxes would triple, and court fees would have to be increased by 1,100%.

I think we can agree that the cities should seek alternative revenue streams, but until these are found, we should keep the $199 million of St. Louis's money on the streets in the form of police and firemen. By the way, The earnings tax nets the city of St. Louis about $141 million annually —roughly equivalent to the entire budget of the police department.

I personally would like to see more police on the streets as opposed to none at all. I would also like to have a District Attorney to prosecute murders, and courts in which to prosecute them.

I think you have a good idea, but I also think we all agree that this is a bad idea. Don't sign the petition, and we can save ourselves a lot of trouble.

2/04/2010 3:37 PM  

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