Our economy works better when the tax system is simple, fair, and lets workers keep more of the money they earn. Show-Me Institute scholars study the impact of tax and spending policies, and develop reforms that will give us more for our tax dollars and spur faster economic growth.
Although the economic growth benefits of tax credits are easy to see, it’s harder to see their drawbacks. Looking more carefully at the evidence and applying basic economics shows that lowering tax rates across the board is much more efficient at encouraging growth than singling out a few credit recipients at the expense of everybody else.
Tax credits may seem like a great idea to encourage growth by enticing firms to relocate to Missouri, but the reasoning used to support this type of development is almost certainly wrong. The higher marginal tax rates created by targeted credits actually eliminate more jobs than are created by the tax credit beneficiaries.
Counties in Missouri have for decades had the power to levy annual license fees on any public establishment that hosts a pool table. A holdover from earlier times when pool halls were seen as social ills, the tax remains in many areas today. This amounts to an endorsement of some types of recreational activities, and a punishment of others.
Officials who use tax credits as a plan to spur economic development tend to rely on discredited economic models. SB 1234 is one such bill, designed to attract “mega-projects” and spur related job creation. Such tax credits will cost taxpayers millions of dollars, without any reliable way of predicting relevant economic growth.
Earnings taxes may seem small, but 1 percent can add up to a significant amount over time. This is one reason suburbs have flourished near large urban centers in Missouri. Nearby towns may offer a similar range of living and employment opportunities, but with a much lower long-term aggregate tax burden.
Local taxes tend to vary significantly throughout Missouri, but most people don’t have the resources to compare tax rates for cities and counties throughout the state. The Show-Me Institute has created a new tax estimator that provides users with the ability to make more informed decisions about where to work and live.
The Show-Me Institute created "Show-Me: The Taxes" — a Missouri state and local tax estimator. We collected local tax rates from across the state in order to help Missourians better understand the taxes they pay. The estimator can be downloaded from www.ShowMeLiving.org.
Every other year, Missouri reassesses all the property in the state. In larger and faster-growing counties, there are always a large number of complaints about the process. What should Missouri do, if anything, about its assessment system?
This study considers the effects of eliminating Missouri's income tax, which would alter the state's tax structure in a way that encourages a wide variety of individuals and firms to relocate here. Evidence shows that this would not be detrimental to the growth of employment and income. Moreover, it may be possible to eliminate the income tax without sacrificing current levels of state services. Other states make up for lost income tax revenue in a number of ways, such as through higher property tax or sales tax rates. This study concludes that altering or even eliminating Missouri's individual income tax could well improve the state's economic condition.
A new policy study from the Show-Me Institute asks, "Should Missouri Eliminate the Individual Income Tax?" The study compares Missouri's relatively stagnant economy with states that do not levy individual income taxes, and concludes that altering or eliminating Missouri's individual income tax could well improve the state's economic condition.
Despite a resounding defeat in circuit court, many Missouri school districts are appealing the “adequacy” school funding lawsuit that uses taxpayer dollars to sue taxpayers for $1 billion. But such a drastic increase in public school funding would come at the expense of the rest of the state budget.
Attempts by the state to pick and choose which industries deserve to prosper in the Missouri economy will choke off the real sources of economic development and impose costs on taxpayers by increasing marginal tax rates. Growth stems from wide-ranging market activity, not state command-and-control.
What does every city with a recent eminent domain controversy in Saint Louis County have in common? They are all “point-of-sale” cities, which keep the majority of sales taxes they collect under the County’s complicated sales tax distribution formula. Legislation has been introduced in Jefferson City that would exacerbate the problem. It would change the way sales taxes are distributed in Saint Louis County and revert back to the system that existed prior to 1994, which would have even greater potential for eminent-domain abuse. Abandoning the so-called “Westfall Plan” would be a mistake with serious repercussions for economic development.
Two of Saint Louis County’s most recognizable municipalities are engaged in discussions of a merger. Clayton, the county seat and region’s second downtown, and Richmond Heights, the area’s shopping and transportation nexus, have been considering a merger since November 2004. A Joint Study Committee was established consisting of equal representation from both cities, and that committee is closing in on issuing its final recommendations. If the JSC recommends moving forward, both cities’ elected bodies would have to agree to put the measure on the ballot, and then voters of both cities would have to approve the merger. A merger would benefit the residents of both communities and improve local government services for the residents and businesses.
If we can eliminate the distortions created by the earnings tax, jobs will be created and residents will flow into the city. My model takes into account the dynamic effects that the elimination of the earnings tax would have on migration and job creation. I find that at the end of the phase-out period, the revenue-neutral land-value tax rate would be 6.7 percent. The model predicts that Kansas City could eliminate the earnings tax in a revenue-neutral fashion over 10 years, replacing it with a 6.7 percent tax on the assessed value of land. The number of people working in Kansas City would increase by 50 percent in the long run. Replacing the earnings tax with higher sales taxes is not a viable option. Like the earnings tax, the sales tax is distortionary. Higher sales taxes will simply cause consumers to shop outside of the city. Although a land-value tax would be more costly to administer than the earnings tax, the economic gains of eliminating the earnings tax would be substantial.
If we can eliminate the distortions created by the earnings tax, jobs will be created and residents will flow into the city. My model takes into account the dynamic effects that the elimination of the earnings tax would have on migration and job creation. I find that at the end of the phase-out period, the revenue-neutral land-value tax rate would be 10.04 percent. The model predicts that in the long run, the number of people working in Saint Louis would double. Replacing the earnings tax with higher sales taxes is not a viable option. Like the earnings tax, the sales tax is distortionary. Higher sales taxes will simply cause consumers to shop outside of the city. Although a land-value tax would be more costly to administer than the earnings tax, the economic gains of eliminating the earnings tax would be substantial.
Although Missouri is a relatively low-tax state, its tax advantage has been declining in recent years. Today its tax burden is roughly on par with those of its neighbors. It’s not surprising that the state has had little success attracting new jobs and businesses. We believe that Missouri can do better. The nine U.S. states with no income tax offer a particularly appealing model. They have enjoyed enviable success in attracting jobs, investment, and new residents. If Missouri phased out its own income tax, it could “break away from the pack” of Midwestern states. It would then offer a compelling alternative for prospective businesses and families interested in moving to the region and would increase wealth and opportunity for all of its residents.
This November, Missouri voters will vote on Proposition B, which would raise the state’s minimum wage to $6.50 per hour. Proponents of the ballot initiative claim that the wage hike is necessary to ensure that poor Missourians can make ends meet. What they don’t mention is that most minimum wage workers are not poor, and that most poor workers don’t make the minimum wage. Missouri consumers would pay for the wage hike through higher prices, and many of the benefits would go to middle-class teenagers. It would be far better to focus on targeted policies like expanding the Earned Income Tax Credit, which puts more money in the pockets of low-income workers at a far lower cost to Missouri consumers.
The typical minimum wage worker is young, still in school, living with a relative and living in a family that has a total family income of over $57,000. The typical poor worker is older, out of school, earning a wage substantially above $6.50 an hour, and the sole earner in a family with children. Most poor workers are poor because they work relatively few hours, not because they are paid low wages. The fact that minimum wage workers tend to look very different from poor workers suggests that increases in the minimum wage would have a limited impact on poverty. We estimate that an increase in the minimum wage would result in over 18,000 Missourians losing their jobs and would raise total labor costs for Missouri firms by $340 million. Increasing the minimum wage would reduce the overall poverty rate by less than 0.5 percentage points.
The evidence from a large body of existing research suggests that minimum wage increases do more harm than good. Minimum wages reduce employment of young and less-skilled workers. Minimum wages deliver no net benefits to poor or low-income families, and if anything make them worse off, increasing poverty. Finally, there is some evidence that minimum wages have longer-run adverse effects, lowering the acquisition of skills and therefore lowering wages and earnings even beyond the age when individuals are most directly affected by a higher minimum.
Supporters of a subsidy of the Truman Sports Center say that the proposal will spur economic growth. In fact, a tax would hurt Kansas City by taking money away from other local businesses. It would mainly benefit the owners of the Chiefs and the Royals. The proposed subsidy is unfair to taxpayers and loyal fans.
For thirty years, the city of St. Louis has lagged behind its suburbs in economic growth. The city’s earnings tax drives businesses and residents out of St. Louis and penalizes workers who remain in the city. Repealing the earnings tax will attract economic development and generate greater revenue for the city.
By adopting an earnings tax, a city gives businesses and residents an incentive to locate production outside the city. People go where they will obtain the highest after-tax return on their labor or investments. In order to raise the return, people locate more productive capacity outside the city limits in order to avoid the tax burden. This incentive effect can account for why the city share of per capita income is smaller in cities with earnings taxes than without. The bottom line is that city earnings taxes do matter. Cities that wish to increase their rate of economic growth should consider reducing or eliminating their earnings taxes.
The passage of Referendum C last month in Colorado has editorial boards swooning. Colorado voters had "good reason" to suspend their state’s revenue limit, cheered the St. Louis Post-Dispatch while the New York Times proclaimed that "Colorado Got Its Government Back." In their eyes, the victory of Referendum C proves that Colorado’s Taxpayer’s Bill of Rights (TABOR) was a failure and cripples efforts to enact similar proposals in other states. However, these editorial boards greatly overstate their case. An honest appraisal of the past 13 years shows that TABOR was a success in Colorado and that similar limits have a bright future in Missouri and across the country.
We teach our kids that however much we may hate losing, that doesn't make it ok to lash out at the other team or at officials. Rep. Jeffrey Roorda (D-Barnhart), it seems, never learned that lesson. He blames the Cardinals' loss on bad decisions by the umpires, and he's decided to express his frustration through legislation. He wants to extend the state's athletes and entertainers tax--some call it the "jock tax"--which levies taxes on out-of-state athletes who play away games in Missouri, to include the umpires as well. His proposal isn't just bad sportsmanship, it's bad public policy too.
A group calling itself the Coalition for a Healthy Future wants to more than quintuple Missouri's cigarette excise tax, to 97 cents a pack, and use the proceeds to help finance Medicaid, the government health care program for the poor. The proposal, which the group hopes to put on the November 2006 ballot, is bad policy. It's regressive, and it's unfair to smokers. Voters should reject it, just as they rejected a similar tax hike in 2002.
