Kansas City-area officials are facing uncertainty as Missouri voters prepare to decide on the elimination of the state’s income tax in favor of expanding sales taxes. The proposal, set for the August 4 ballot, has left local governments with more questions than answers regarding its implications for city operations and revenue.
Potential Fiscal Impact
The income tax elimination bill, HJR 173, is a priority for Republican lawmakers and Governor Mike Kehoe. If approved, it would direct lawmakers to reduce the top income tax rate and eventually eliminate it, replacing the revenue with increased sales taxes. The Missouri Budget Project estimates that the state sales tax rate would need to rise from 4.225% to 10.7% to match current income tax revenue.
Kansas City Assistant City Manager Tammy Queen expressed concerns about the negative fiscal impact on the city, noting the lack of specifics in the bill regarding sales tax increases. The city’s 1% earnings tax, which voters recently approved to maintain until 2031, generates nearly 45% of the general fund revenue, complicating potential adjustments to local tax rates.
Challenges for Local Governments
Local governments, including fire districts, libraries, and schools, could make one-time adjustments to local tax rates if the state expands the sales tax base. However, any changes must not reduce funding for public schools, limiting options for property tax adjustments. Kansas City Public Schools rely heavily on property taxes, which account for 70% of their budget.
Stuart Haynes of the Missouri Municipal League highlighted the difficulty cities might face in adjusting sales taxes, especially if they reach around 10%. This could hinder future revenue generation for new projects, as many existing sales taxes are set to sunset.
Economic Concerns
Officials like Jackson County Legislator Manny Abarca worry that higher sales taxes could drive businesses and consumers across state lines to Kansas, where the sales tax rate is 6.5%. This could negatively impact the local economy, as Missouri’s lower gas tax currently attracts Kansas residents.
The income tax elimination bill aims to be revenue neutral, but critics warn of potential miscalculations leading to reduced state services. As federal and state governments cut welfare programs, local governments may face increased demand for services without sufficient funding.
Original reporting: The Beacon (Kansas City) — read the source article.
