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EDC Holds Fact-Finding Session on KC Earnings Tax

March 2021

Follow Up:

The EDC’s Board of Directors has voted to endorse the Kansas City Earnings Tax on the April 6 ballot. An e-mail voicing concerns was sent to Mayor Quinton Lucas after the meeting the week of March 8. In his response, the Mayor stated that he understands that Clay County “is an essential growth engine for Kansas City’s future” and that he “looks forward to working with you and our new City Manager as we continue to support investments in Clay County”. The EDC’s Board is excited to work with Mayor Lucas as they have on many projects, not just in Kansas City, but the entire county, that we are involved with.

The EDC held a wide-ranging discussion of the Kansas City Earnings Tax renewal facing that city’s voters April 6.

Held via Zoom videoconferencing on Feb. 25, the meeting featured Tammy Queen, director of the Kansas City Finance Department; Mark McHenry of the tax-supporting group Together KC; and David Stokes, director of policy for the Show-Me Institute, which opposes earnings taxes in both Kansas City and St. Louis. Also participating were EDC Chair Greg Canuteson, Executive Director David Slater and over a dozen members of the EDC. The meeting precedes a decision by the EDC Board of Directors on whether to endorse the April ballot issue.

Queen introduced herself as neither a proponent nor opponent of the issue and presented background on the earnings tax, a one percent tax on earnings of individuals and business net profits in Kansas City. Taxes are paid by resident individuals and businesses, as well as those who are employed in Kansas City. Payments such as retirement income, social security and unemployment are not included in the tax.

She said the earnings tax is the single largest funding source (23%) for Kansas City, and its elimination would cost the city $292.3 million. That would leave unfunded significant portions of the city’s fire, police, trash pickup, health care, dangerous building removal, debt, weed control, affordable housing, environmental services, street repair and other programs.

A key to the discussion involved how Kansas City could continue such important services without the earnings tax, along with options promoted by the tax’s opponents.

Together KC’s McHenry said that ending the tax would also jeopardize a number of programs, including regional amenities like the former Sprint Center, the Kansas City museum and others. “Kansas City has a diverse funding source, but this is one of the top three, and we would need to increase sales and property taxes to replace it,” he said. “The sales tax is now around 10 cents here, total, so it would likely need to be around 13 cents without it (the earnings tax).” He noted Clay and Platte County residents have supported E-tax renewal by 68 and 70 percent in the previous two elections.

Show-Me Institute’s Stokes cited studies that indicate earnings taxes harm economic growth by reducing employee and business income. He said that if Kansas City reduced “corporate welfare” and other development incentives, the city would be able to continue current service and program levels.

“It’s time for Kansas City to move away from the earnings tax,” he said. “It would be very beneficial in the long run to move away from this.” Stokes shared information indicating the city provided approximately $175 million in subsidies in 2018. He said other options could be privatizing operations, such as the water department.

EDC Chair Greg Canuteson noted that for cities like Liberty, such incentives are difficult to eliminate because of competition from other communities, especially those in Kansas. He said the Shoal Creek Tax Increment Financing (TIF) project was a good example of how such incentives bring development with more tax value than the time-limited incentives use.

“Tax abatements and incentives in the outlying cities are what in the past has driven growth,” Canuteson said. “If we end those deals, the businesses will just go to where they are available.”

Stokes countered that most businesses would not relocate to find lower taxes. “They will tend to stay here,” he responded. “There is room to, if not eliminate them entirely, be far more disciplined in how they give them out, especially in the wealthier areas.”

Executive Director Slater said the discussion was held in order to inform the board and membership of this important issue. “We wanted to make sure our membership heard from both sides,” he concluded. “We wanted to ensure our constituents had all the information possible.”

Additional information is available as follows:

These four links from the Show-Me Institute:

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