Wednesday, January 24, 2007

Addressing the earnings tax

David Nicklaus’ column in today’s Post-Dispatch got me thinking about the city’s 1% earnings tax. The earnings tax is widely viewed as one of the largest impediments to downtown’s ability to attract and retain businesses. Unfortunately, revenue from the earnings tax also accounts for a substantial portion (one-third) of the city’s overall budget, making it too important to be phased out, in the absence of any viable alternative.

Here’s my idea…

What if the city were to incorporate a sliding scale approach, promising to reduce the earnings tax if enough businesses move to or expand within the city to offset it?

Make it clear to the business community how much new business activity would be required to provide a reduction in the earnings tax:

$X million in new business will result in a 0.5% reduction.
$Y million will result in a 0.75% reduction.
$Z million will result in a total elimination of the tax.

This approach would help make it clear to businesses the role that they can play in the revitalization of downtown St. Louis, that by relocating or expanding their operations within the city, they will be working towards reducing their own taxes as well as the taxes of other city businesses.

In such a campaign, communication with the business community would be critical; businesses should be constantly updated as to how close the city is to achieving its tax-reduction milestones. Imagine the goodwill generated by the company that decides to move to the city, resulting in the total elimination of the earnings tax!

Take the case of Anheuser-Busch, for instance. In addition to its city-based headquarters and brewing operations, it also leased approximately 100,000 square feet in the One City Centre building downtown. A-B recently vacated its space in One City Centre, consolidating its downtown offices with space it already leases in Sunset Hills. This move results in a loss of earnings tax for the city, incremental tax revenue generated by A-B employees who spent money at downtown businesses on their lunch breaks and after work, and has left One City Centre with a substantial vacancy.

However, A-B might have kept its downtown offices and perhaps would have even relocated its Sunset Hills operations downtown if it knew that doing so would help reduce its overall tax burden.

I realize that this proposal is incredibly simplistic, but it’s clear that something needs to be done about the city earning tax. In order to thrive, downtown needs to remove its roadblocks and become the region’s most attractive site for business.

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