JEFFERSON CITY, Mo. – In a packed room Thursday, Sen. Kurt Schaefer, R-Columbia, presented his bill to repeal the earnings tax of St. Louis and Kansas City to the Senate Ways and Means Committee. Dozens of people showed up to protest Schaefer’s bill, but the Senator and candidate for attorney general noted that the legislature had the prerogative to end the earnings tax.
“It’s entirely a creation of the Missouri General Assembly,” Schaefer said. “The cities would not have the ability to collect that tax if in 1948, we did not pass a statute in the Missouri General Assembly giving them that authority.”
Schaefer also argued that the tax did not just affect those living within the city limits of St. Louis or Kansas City, but everyone within the state of Missouri who may work in those cities.
The kicker, however, came from witness Sean Marotta, an attorney who argued on the Supreme Court case, which inspired Schaefer to write the legislation. In Maryland v. Wynne, the Supreme Court found that Maryland’s county tax structure, which Schaefer argues is identical to the two-tiered earnings tax and state tax that applies to residents and workers in St. Louis and Kansas City, double taxed a small business that lived in Maryland but worked outside of the state. That double taxation provided significant reason to find the scheme in violation of the dormant commerce clause of the Constitution, which finds that anything that disincentivizes interstate commerce is unlawful.
Marotta agreed with Schaefer’s analysis.
“Both earnings taxes are unconstitutional, and if they were challenged in court, they most would likely be struck down,” he said. “One of the ways that the dormant commerce clause protects free markets is it prevents double taxation… People shouldn’t pay more in taxes just because they choose to do business over state lines. If they were taxed more, that acts like a tariff. It’s like there’s a toll on the border between Missouri and other states.”
While Sen. Scott Sifton, D-St. Louis County, conceded that alterations to put the law in line with the commerce clause may be necessary, he dismissed the idea that the entire statute had a constitutional problem.
“While there is a dormant commerce clause question between Missouri, Illinois and St. Louis, theoretically, you could amend an ordinance addressing that while still allowing for instance county residents who work in the city to be taxed under the city ordinance,” he said.
After the lawyers finished their discourse on constitutional law, Woody Cozad testified in favor of the bill on behalf of Save Missouri Jobs. He said most American cities, over 40,000 of them, did not have any kind of municipal income tax, and that only 23 million people of 320 million or so Americans paid such a tax.
“The percentage of people that supposedly… can’t live without an earnings tax is, in fact, very small,” he said.
Cozad also argued that Kansas City had a far larger percentage of fire fighters and police officers than most other cities.
“Having that earnings tax encourages an excessive level of expenditure,” he said.
After that testimony, a long line of officials from St. Louis and Kansas City testified against the bill, including both Mayor Sly James of Kansas City and Mayor Francis Slay of St. Louis.
James noted that a removal of the earnings tax from Kansas City would plunge a booming city into financial ruin. He stated that to make up for that cost, the city would likely have to double its sales tax and triple its property tax. He also said that decreased state tax had made matters worse and that he was told by the state that if the city wanted to reconstruct a “crumbling” Broadway Bridge, that the costs would come out of the pockets of Kansas City residents as the Missouri Department of Transportation lacked the funding.
“It’s a bleak future in Kansas City without the earnings tax,” he said. “We are … producing the gross product of this state and we are asked to do it with fewer and fewer and fewer resources.”