By Joseph Haslag and Alex Schulte

The Saint Louis and Kansas City earnings taxes, 1-percent income taxes imposed on those living or working within city limits, have consequences. People have ways of avoiding these taxes, and the single easiest way is through their mobility. Put another way, people choose where to work and what businesses to operate based on a variety of factors, including the taxes in competing political subdivisions. This location decision is particularly pertinent to both Kansas City and Saint Louis, because each one’s metropolitan area straddles a state line. In contrast to metro areas that lie in the center of the state, any tax avoidance in Missouri’s largest cities will have repercussions for the state coffers as well for Kansas’ and Illinois’ benefit. Thus, in addition to the losses in economic efficiency and total productivity that it brings, earnings taxes leave the state and municipal governments with a shrinking tax base and a commensurate decrease in tax revenue, affecting all Missourians.

It is undeniable that the Kansas side of the Kansas City metropolitan statistical area (MSA) and the Illinois side of the Saint Louis MSA are gaining on their Missouri counterparts. The former has made such substantial gains in the last several decades that Kansas City is approaching an even split between the two states in terms of population, retail sales, and total employment. During the last decade, Missouri’s share of total employment within the Kansas City MSA slipped down to 0.57 in 2006, from 0.59 in 1998. Put another way, Missouri would have had another 19,000 people working in our state if the employment ratio had stayed the same. While Missouri is still by far the dominant state in the Saint Louis MSA, Illinois also has gained relative to the Missouri side. The ratio of Missouri employment to total employment in the Saint Louis MSA has fallen during the last decade from 0.85 in 1998 to 0.84 in 2006, reducing Missouri’s employment by 9,500 workers. In both cities, evidence indicates that employment is seeping across state lines, taking with it opportunities for tax collection and revenue accumulation for the state of Missouri. Read more…

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