Maybe it’s time to rethink Kansas City’s earnings tax

By Kathy Feist

Since 1963, Kansas City has collected a 1% earnings tax from wage earners and profitable businesses within the city limits. But as Kansas City faces a $55 million budget shortfall along with a loss of businesses and families, it’s time to take a look at the good and the bad sides of Kansas City’s earnings tax before heading to the voting booth on April 7. 

The Good

There is one very clear reason to vote in favor of the 1% earnings tax. It accounts for nearly 46% of Kansas City’s general fund. It is the primary source of funding for police and fire departments, emergency medical services, street repair, trash collection, snow removal, historic preservation and more. 

The tax applies not just to Kansas City residents but anyone who works in the city despite where they live, including visiting professional athletes. 

To outsiders that may seem unfair. But the reasoning centers around use of city services. If you work here, you are using city infrastructure and services such as roads, trash pick up, or safety efforts and you should help pay the cost.  

On another level, the e-tax is fair to those on a limited or small income.  Without it, they would be burdened with higher property and sales taxes. Of course at the other end of the spectrum, those living off of investments, such as the stock market, and have the funds to contribute to city revenue are not subject to the earnings tax.    

One Kansas City resident whose job is to protect fair wages for employees, is in favor of the earnings tax. Patrick “Duke” Dujakovich is president of the local AFL-CIO and believes the 1% tax taken from workers’ wages is worth the cost.  

“It’s best for all workers in the area if Kansas City continues to grow, expand, get bigger and better,” he says. “Also, it’s important that we take care of the first responders and emergency service providers. As we get older and more medical calls come in, we need to have the people and the equipment to respond to them. Those are the big things for the AFL-CIO, as far as the earnings tax goes.”

The Bad

If voters chose not to renew the earnings tax, the City would have 10 years to devise a new plan to fund the budget. The earnings tax, once removed, cannot be reinstated according to Missouri law. 

While this is disconcerting, it should be noted that there are only a handful of cities in the United States that impose an earnings tax on its workers. Kansas City is surrounded by municipalities that do not have an earnings tax, but are fiscally solvent (with the exception of Independence). Kansas City and St. Louis are the only cities in Missouri that have an earnings tax. Both are facing budget deficits.

 There are many reasons for Kansas City’s deficit and subsequently its earnings tax. One opponent to the tax explains why. 

“The problem in Kansas City is not its revenue. The problem in Kansas City is its spending,” says Patrick Tuohey who is co-founder of the Better Cities project and a fellow with the Show Me Institute. “Kansas City spends much more per resident than all the big municipalities around us.”

Tuohey points to Kansas City’s subsidies as the primary culprit. Subsidies include tax-increment financing incentives much like what was used to woo Cerner to south Kansas City. Property taxes are frozen for years, diverting money from schools and libraries, in favor of redevelopment.

Those subsidies take a toll, not just in the city’s pocketbook, but in neighborhoods. Between 2017 and 2023, the Kansas City Public School district alone lost an estimated $237.3 million in revenue due to tax abatements and development incentives. 

“We all know people who have left the city. They leave it because of education. They leave it because of public safety. And they leave it because of the earnings tax, because if you just move a few miles–in my case, a few blocks west–you give yourself a 1% pay increase,” says Tuohey, who lives in Waldo. 

Kansas City gained 8000 residents last year, a growth of 1.58%. While positive, it had the smallest increase of all the municipalities in the metropolitan area. 

“When you look at the vast majority of places around us, they’re growing faster than we are,” says Tuohey. “Regardless of your ideology, regardless of your politics, we all know something is broken.”

Tuohey acknowledges that the earnest tax is most likely going to be approved by voters in the upcoming election. But he hopes voters might send a message.

“What the citizens of Kansas City need to understand–left, right and center– is that Kansas City will not reform itself, or change its subsidy culture, unless the voters make it.”  

“We have been asking our city council and mayors for years to reform themselves, and they don’t. Frankly, even if the earnings tax is upheld, a close vote might put the fear of God into them.”