Monday, April 14, 2008

Recommended Reading 11 - More on earnings taxes

From Show-Me Institute

Lest We Think 1 Percent Is Small

"Earnings taxes are not unique — about 25 percent of the nation’s largest cities collect them — but they have become increasingly rare in recent decades. One reason for their decline is that earnings taxes are particularly damaging to cities with significant suburban populations and small urban cores, such as Saint Louis and Kansas City, because they encourage businesses and residents to relocate out of town. Because suburban districts offer a similar range of cultural and employment opportunities as the city itself, households and businesses have little incentive to pay higher taxes solely for the benefit of a city street address...." (emphasis mine)

The article goes on to point out that if median income families saved the $350 a year by moving outside of a city that collects a 1% earnings tax, in 40 years they would have $80,000 more in household wealth than if they had lived in a 1% earnings tax city. Think of that, a potential $80,000 over the course of 40 years to go into your retirement if you simply chose to move to the suburbs rather than live in an earnings taxed city! Both St. Louis and Kansas City collect a 1% earnings tax. The median income of $35,000 per year would require $350 annually to pay the earnings tax.

This recommended article concludes:

"Taxes are a necessary part of urban living, but it’s important that cities adopt tax policies that encourage growth rather than driving it out of town. Earnings taxes can significantly impact a household’s lifetime earnings. In many cases, residents have chosen to “vote with their feet,” relocating to suburbs and lower tax rates. In fact, to help illustrate the incentives that varying tax rates provide, the Show-Me Institute recently released an estimator that helps Missourians compare their relative tax burdens across the state.

While Saint Louis’ and Kansas City’s metropolitan areas have continued to grow over the years, their urban cores have stagnated. Is the earnings tax really so insignificant?"

1 comment:

tom said...

Don't know who thought this up but they need to have their head examined. This type of thought depending on how it is implemented will either effect those that can least afford it, or will cost the city money as people move outside the city limits and then the tax base dwindles away.
In Springfield that is much easier to do(move outside the city limits) then say St Louis, KC, Chicago and the like.