Show-Me Pocket Change

The St. Louis Post-Dispatch editorial board came out with an editorial criticizing the Show-Me Institute’s studies on the earnings tax. It was unfortunately quite a step outside logical argument, so it feels almost silly to refute each point, but ah well.

Point: They offer no specific examples, relying instead on “abstract models and theoretical economists’ logic.”

Counterpoint: Uh, really? They are an economic think tank, not an anecdotal think tank. Their research projects data and trends based on widely accepted economic rules. You know, I sucked pretty hard in economics class, too, guys. It is scary to be in an argument where the data is really hard to grasp. But please do TRY and read some of their studies, which are very well broken-down for the economic-illiterate of us. Coincidentally, the first comment offers a very good concrete example. I’ll get to that later.

Point: Missouri is a relatively low-tax state by many measures. The earnings tax revenue has shown a rise of 16% between 2005 and 2008.

Counterpoint: Missouri is also a relatively low-growth state because of the type of taxes we have in place. These studies aren’t suggesting we’re in the same boat as, say, California, but rather that we miss out on potential growth by not adopting a smarter, less harmful tax policy. SMI studies have shown that sure, large cities with earnings tax grow, but they grow much less compared their suburbs than cities without earnings taxes. It is easy to say, “we’re doing OK!” but it’s uncomfortable to confront potential lost growth.

Point: City residents aren’t concerned about the earnings tax.

Counterpoint: Obviously, or they would have moved. How many residents who moved their families or businesses to the county were concerned about the earnings tax? That’s the number you really need to focus on. That’s a hard thing to nail down numerically, but the trend does exist, and for good reason.

Point: If we got rid of the earnings tax, we couldn’t support our police department and people would be less safe.

Counterpoint: WTF? No one is suggesting getting rid of a revenue source entirely (if the editorial board had read any number of SMI studies about it, they’d know that they recommend a completely revenue-neutral replacement). This amounts to a scare tactic, nothing less.

Point: People choose to live in the city for cultural, convenience and social reasons “…but the city earnings tax is a small part of the equation. Those who say St. Louisans would sell their loyalty for a penny shouldn’t be taken seriously.”

Counterpoint: Certainly people live in the city for many reasons. I live in the city. The earnings tax was not a part of my decision to move here, because 1.) I wasn’t aware it existed as a 19-year old, 2.) it wouldn’t have been anyhow, as the towns I lived in previously all had earnings taxes, and 3.) I wasn’t choosing between several jobs or locations; I didn’t have another option I was weighing. That’s probably true for a lot of people. Less and less true, however, for high-earning professionals and businesses.

The loyalty question is bogus and misleading. The earnings tax is not “a penny” because it is 1% of your earnings. Unless you’re only making $1 a year. In which case you don’t have to file taxes;) The earnings tax is more like $500-$1000 dollars every year for a family. Much more of you’re a business, and much more if you’re, say, a surgeon or any sort of in-demand professional. It looks more like a month’s worth of groceries or a mortgage payment. And if all one has to do to avoid it is move down the road a ways, it’s likely that it DOES figure into the decisions of families and businesses who live in the county. That means no earnings tax revenue or revenue of any other kind for STL: property tax, sales tax, municipal taxes, nothing.

Whew, that wasn’t too hard. I did want to end with a concrete example of the choice that especially businesses have to make when considering moving to St. Louis, from commenter jjk:

“In 1986, I started my company in shared space in Clayton and after a few months rented space in Midtown. Three years later, I moved it back to the county and the earnings tax was a big part of my decision. Had I stayed in the City, it would have cost me well over $300,000 out of pocket over the next 15 years, which I might not have minded if I felt I got any value for it. When I was there, they didn’t plow the streets when it snowed. We had to pay to park. We had winos sleeping on our front stairs. We had to walk women to their cars after dark and I had problems getting people to even answer help wanted ads once they heard where we were (we were on a major street near SLU)… The City was also very unfriendly to our company. Every year, I was audited by the City Revenue Dept which would send someone who started the conversation by accusing us of not paying the earnings tax. I would show them we used ADP, a third party payroll system which automatically calculated taxes based on the employee’s and our address, but the attitude never changed… When we moved, our staffing problems disappeared. Employees were happier and everyone got a 1% raise plus free parking. I realize they’ve cleaned up Midtown a bit since then and you can spin it any way you want, but I think it is going to be a tough sell.”