This year’s Tax Freedom Day is two weeks earlier than 2007’s date, but the Tax Foundation cautions that we shouldn’t get too excited: Tax Freedom Day does not include the deficit. If Americans were required to pay for all government spending this year, they would be working until May 17 to pay all of their taxes. Unfortunately, someone will have to pay those taxes someday.

In the meantime, though, celebrate the fact that you are done working for Uncle Sam for the year.

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But, as anyone who has lived in the St. Louis area for a long time knows, tax increment financing is not always so successful.  The St. Louis Business Journal article reminds us of the year 1991, when the city of St. Louis backed the bonds for Midland Group’s $53 million St. Louis Marketplace. When the retail center didn’t meet revenue projections, the city was on the hook for $3 million. Also instructive is a January 2009 report by the East-West Gateway Council of Governments, which found that 80 percent of TIF money during the previous 15 years was devoted to retail projects, and that instead of creating growth, the process has simply moved temporary growth around.

Even when TIFs are successful, such as in the case of Brentwood Promenade, there are numerous other concerns with using this financing method. Although TIFs are intended to be used to develop “blighted” areas, they are often utilized in areas where development would have happened anyway, which deprives municipalities of revenues in the short term that are instead being used to pay for the project. Even worse, the designation of “blight” can allow the government to condemn property through the use of eminent domain.

But perhaps the most insidious trait of tax increment financing is that it gives government the power to decide exactly which developments will take place, and where, rather than allowing development to happen as it naturally would under market conditions. The economic advantages afforded to those who receive the TIF open the door for political favoritism, which should have no place in development. Equally important, it is not the government’s responsibility to oversee retail development — which, as the East-West Gateway report shows, characterizes the overwhelming majority of these projects in the St. Louis area. So, even when these retail projects are successful and the city benefits, do the ends justify the means?

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So, let’s recap: The United States Congress passed a bill that makes tax changes. Those tax changes will by design affect corporations’ balance sheets and generate more revenue for the government. When corporations inform the public of these effects, members of Congress request verification of the accuracy of these effects, merely because they contradict what the legislators expected and said would happen.

In the letter, the congressmen state that the bill is “designed to expand coverage and bring down costs,” which makes AT&T’s claims “troubling.” The key word here is “designed.” The legislation may indeed have been designed with the intention of reducing costs, but that doesn’t mean it will actually have that effect when implemented. The letter also cites reports from the Congressional Budget Office and the Business Roundtable projecting that premiums could decrease during the next six to 10 years as a result of the reforms. The report by the Business Roundtable says that “if enacted properly, the right legislative reforms could potentially reduce [premiums] by more than $3,000 per employee” (emphasis added). So, this depends on the right reforms being enacted in the proper way (which we know almost never happens), and then premiums could potentially be reduced. The congressmen neglect to mention in their letter that this report also has a section titled “Risks Could Jeopardize Cost Reductions,” which points out that revenue raisers such as a “high-cost” tax could make health insurance costs worse for affected plans and employees.

The worst thing about this is that the government is asking a private company to explain its accounting, something they have no authority to demand. Beyond filing their taxes accurately, AT&T has no obligation to the government to explain itself, only an obligation to its shareholders. The shareholders are perfectly capable of “verifying” the company’s financial information on their own. The congressmen’s request that AT&T justify the increase in expenses reflects the apparent unwillingness of many legislators to acknowledge the unintended consequences of their legislation.

The post This Just In: Health Care Legislation Passed by Congress Has Unintended Consequences appeared first on Show-Me Institute.

In 2004, the Congressional Budget Office conducted a review of nine studies that looked at the effects of tort reform. The review notes that studying tort reform is difficult because of the many types of reform and the issue of controlling for differences between states, but it does present some evidence in favor of imposing caps on non-economic damages. Of the three studies that examined this specific type of reform, two found that premiums declined significantly for at least some insurance lines (the other one found no significant effect). These three studies also found that insurers’ profitability increased after the imposition of caps. Contrary to what some politicians may have you believe, this is a good thing. Health insurance profit margins are typically about 6 percent, give or take a few points, which is very low compared to other forms of insurance. Increased profitability for health insurance companies allows for more firms to survive and compete for business, which will drive down costs and make insurance more affordable.

Opponents of caps on non-economic damages would probably point to this same CBO study, which also points out that malpractice costs account for less than 2 percent of health care spending. But this does not take into account the amount of defensive medicine that is practiced by physicians on a daily basis. According to this Gallup poll of 462 randomly selected U.S. physicians, one in four health care dollars is spent on defensive medicine. The study defined defensive medicine as “the practice of diagnostic or therapeutic measures conducted primarily not to ensure the health of the patient, but as a safeguard against possible malpractice liability. This may include tests, prescriptions, hospitalizations and referrals that may not be medically necessary, but are viewed as providing protection from a potential lawsuit.”

As demonstrated by this survey, this is a very real phenomenon. For example, a young female who complains of frequent headaches might get a brain MRI to rule out a tumor, even though she is young and has minimal risk factors. The only way to legally and definitively say that there is no tumor is by using an MRI, even though clinical suspicion is low and does not warrant the scan. So in a case like this (a real example provided to me by a medical student), legal implication trumps clinical judgment, and the unnecessary tests that result then drive up the cost of health care. Caps on non-economic damages mean that doctors can reduce the amount of defensive medicine they practice, because they know they’re not subject to the arbitrary determinations of juries about how much a plaintiff may deserve in compensation. They can instead focus on using their clinical training to make the proper diagnoses and do their jobs as doctors.

Another tangible benefit of imposing caps on non-economic damages is the increased physician supply that occurs as a result. A study published in 2005 looked at the impact of caps on non-economic damages from 1985 to 2000, and concluded that caps increased the per-capita supply of physicians by 2.2 percent relative to states without caps (another study put this number at 2.4 percent; these studies were summarized by the American Medical Association in this report). Missourians will therefore have greater access to care as a result of the court’s decision in this case.

Unfortunately, because the court did not specifically invalidate the plaintiff’s other complaints about the 2005 tort reform bill’s supposed unconstitutionality, the door is open for more challenges in the future. Let us hope that any such challenges are rejected.

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This program caught my eye because the mayor was featured on Fitness magazine’s “Champions of Health & Fitness 2010” list. As of January, 40,436 residents have lost a collective 519,460 pounds (the mayor himself lost 38 pounds). Restaurants have responded by creating low-cal offerings that they list as “the mayor’s special” on menus (no government mandates required). The best part is that the interactive website was entirely funded by contributors from the private sector. No taxes or bans on unhealthy foods were imposed, and no taxpayer money was spent. As I noted in my last post, the low level of government spending on public health in Missouri doesn’t necessarily have to result in hampering efforts to encourage our citizens to be healthier. Creative, fully voluntary ideas like this one should be encouraged and copied.

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What the article doesn’t mention is that the study it cites also concluded that an investment of $10 per person per year in “proven community-based programs” would give us the aforementioned rate of return. Furthermore, according to this study, “evidence shows that implementing these programs in communities reduces rates of type 2 diabetes and high blood pressure by 5 percent within 2 years; reduces heart disease, kidney disease, and stroke by 5 percent within 5 years; and reduces some forms of cancer, arthritis, and chronic obstructive pulmonary disease by 2.5 percent within 10 to 20 years.” Missouri spends almost $10 per person per year, the figure observed in the study, but still has poor health outcomes. This tells me that we are probably not spending our money in the most effective way.

There is further evidence of that in a comparison of four measures of public health in Missouri and Nevada, the one state that spends even less than we do in this area:

* Information on high blood pressure from CDC; all other information from statehealthfacts.org

So, even though we spend more than Nevada on public health, we still have higher numbers in all four of these categories. This is admittedly an overly simplistic analysis, but the point is that amount of state public health spending is obviously not the only factor that matters for health outcomes in Missouri. The programs themselves should be evaluated for effectiveness, to determine whether investment of additional resources in them is worthwhile.

The larger point here is that using state taxpayer funds to address public health problems might not be the best strategy, given the frequent ineffectiveness of state-run programs. Instead, we should end the tax benefit for employer-provided health insurance, which would allow individuals to have control over their health insurance. People would then have a direct financial incentive to become more sensitive to the effect that their lifestyle choices have on their premiums. As a result, a greater number of people would make healthier choices, in addition to the obvious incentive of health in and of itself.

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Some argue that this shift is the type of “stimulus” that the economy needs; after all, the money for this program was allocated from last year’s stimulus package. But will the effect of this program be worth the $300 million in taxpayer money that is being spent to finance it? I know “million” doesn’t sound like a big number anymore, with all of the billions and trillions being thrown around lately, but $300 million is still a lot of money — other people’s money. Using tax dollars to help people buy more energy-efficient machines is likely an inefficient use of funds, because purchases of these machines will become much more common within the next few years anyway, as older machines start to die. The fact that people can save money on energy costs by upgrading their appliances is already a significant incentive.

Each state has its own program, and Missouri has allotted $5.6 million in federal funding. The program will start on April 19 to coincide with the annual Show-Me Green sales tax holiday. If the funding only lasts for one day, which is likely given that Iowa’s $2.7 million ran out by 3 p.m. on the first day, no sales tax revenue would be generated. So, what genuine benefit will this expenditure have for our state? It will not add to the net state wealth, but is instead a mere transfer. Any benefit to appliance retailers will likely be very short-lived, and any arguable benefit to the state economy will be small at best. And, all the while, taxpayers will be able to watch their hard-earned money disappear down the drain into another ill-advised government program.

The post Déjà Vu appeared first on Show-Me Institute.

In the chart to the right, the y axis represents the price of parochial education, and the x axis represents its quantity (P and Q represent the status quo price and quantity). The line labeled S1 shows one likely effect if the state income tax were replaced with a sales tax: An increased cost for parochial education would lead to a shift in the supply curve, wherein quantity demanded and supply provided would settle at a lower equilibrium. But the line labeled D1 shows another effect of the replacement of the income tax with a sales tax: Because families would have more money to spend that would have previously gone toward paying taxes, the demand curve for parochial education would shift, as well, leading to a higher equilibrium point for both supply and demand. We can’t predict which one of these effects will dominate, but the point is that replacing the income tax with a sales tax would not necessarily lead to a reduction in the amount of parochial school enrollment demanded by education consumers.

Another concern raised by the MCC is that because poor families already do not pay income tax, they would only be harmed by the implementation of a sales tax and would not benefit from greater income levels. However, as this blog post by Abhi Sivasailam notes, lower corporate and personal income taxes help fuel growth by attracting people and investment funds to the state. This results in higher employment levels and higher incomes, which benefit everyone. Furthermore, the bill as proposed in the Missouri Senate also includes a sales tax rebate for low-income families that may otherwise struggle to pay the sales tax.

The concerns brought forth by the Missouri Catholic Conference are not unfounded, but as my colleague Abhi Sivasailam reminds us, tax changes do not happen in a vacuum. The switch to a sales tax has the potential to greatly benefit Catholic schools in Missouri.

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An individual mandate would be similarly counterproductive. The Wall Street Journal reports on an analysis by the Heritage Foundation showing that “roughly 93 percent of uninsured households under age 35 who face a penalty for remaining uninsured would rather pay the penalty than buy health insurance.” As the article points out, paying this penalty would require money that would have otherwise been spent or saved, causing an unnecessary drain on both the economy and the individuals who are forced to pay this fine.

This is a perfect example of the unintended consequences that so often occur as a result of well-intentioned legislation. It seems like legislators are usually more focused on how their proposals sound, rather than on the actual results of those policies. Unfortunately, this never ends well; we all know the saying about the road that’s paved with good intentions.

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One category of spending that showed a huge increase was “professional services,” which jumped from $8,000 to $428,000. The main component of this increase is “attorney services,” which cost the office of the governor $401,281. I did a quick Google News search to see if there was any media coverage explaining this increase, but no luck. Attorney services are probably necessary in some capacity, so the question is: What specifically is responsible for this steep escalation in spending?

Another large portion of this budget increase is funding for travel, which grew from $53,000 to $281,000, the largest amount spent on travel since 2000:

According to an article in the Columbia Missourian from last June, state flight records show that Gov. Jay Nixon flew on about 50 days during his first four and half months in office. As the article notes, this adds up to about one flight every three days. I have to wonder whether this amount of travel is really necessary. What’s more, the article in the Columbia Missourian also notes that Nixon has frequently charged the cost of his airplane travel to other government agencies. The governor’s explanation, when asked about this back in June, is that during these particular trips, he spent time highlighting the issues that are handled by those various other departments. Maybe this is justified in certain circumstances, but on one particular occasion, 11 different state offices, including the Departments of Agriculture and Revenue, split a $1,295 bill so that the governor and the first lady could fly to the Missouri-Kansas basketball game on March 1 (their host was Kansas Gov. Kathleen Sebelius). Even if this is deemed to be a necessary expense, which seems unlikely given the current economic climate, why wouldn’t it fall under the governor’s office travel budget?

The almost sevenfold increase in the total budget for the governor’s office is inconsistent with his claims of fiscal responsibility in the State of the State address. And the current governor isn’t the only one who has overseen questionable budget increases; there was a dramatic spike in the 2006 travel budget of former Gov. Matt Blunt, as well. The lesson here is that Missourians should keep a watchful eye on government finances, and that it is important for all Missouri officials to examine their budgets carefully in order to eliminate unnecessary expenses.

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We must keep the jobs we have, and create thousands more.

We must build a granite foundation for Missouri’s future growth.

And we must balance the budget without raising taxes.

These are goals that Missourians can agree on, regardless of partisanship. The first goal is of particular interest to people in a state where the unemployment rate stands at 9.2 percent. No wonder it was first on the list.

In his speech, Nixon said he wants Missouri to be first in job creation. But, as of now, the state is 16th in a Tax Foundation ranking of the best environments for business. The state corporate income tax stands at 6.25 percent, the 16th-lowest in the nation. Although these numbers are good, they could be better. As the governor said, he wants to be number one.

Nixon points to the elimination of the franchise tax for 16,000 small businesses as contributing to job creation and business expansion. He is thereby acknowledging that reducing the tax burden on businesses has a positive impact on job creation. So, why not cut the corporate income tax rate? This would allow Missouri companies to reinvest more money into their businesses and generate more jobs. It would also make Missouri an even more attractive environment for other businesses to move into.

Opponents of such tax cuts often argue that they would result in a decrease in the revenue needed to support important state programs that assist needy families. However, the revenue generated from the state corporate income tax is a small fraction of all state revenue. More importantly, many of these programs are bloated and don’t serve their intended purposes effectively. A cut in the corporate tax rate, on the other hand, would help provide necessary jobs for people who are in need of a source of revenue to support their families. It would do this both by allowing current Missouri companies to expand hiring, and by drawing other companies to the state. Those already employed would also benefit, because workers bear slightly more than 70 percent of the burden of corporate taxes in the form of reduced wages, according to the Congressional Budget Office. A cut in the corporate tax rate also increases the value of companies, which would benefit anyone with a 401(k). Opponents of tax cuts for corporations argue that these tax cuts only benefit the companies themselves. But the burden of corporate taxes ultimately falls on people, whether it’s the customers, the workers, or the shareholders.

I commend Gov. Nixon for resisting the impulse to raise taxes, but even more impressive would be an effort to cut them.

The post Show Me a Tax Cut appeared first on Show-Me Institute.

The Affton School Board has approved a policy that could fine parents who habitually pick up their children late from the district’s after-school program. […]

Parents who arrive late will now be given one warning. Thereafter, parents will be subject to a $10 fine for arriving up to 15 minutes late, $15 for up to 30 minutes late, and $20 for any pickup after 6:30 p.m.

In the book, Levitt and Dubner discuss a study in which an incentive scheme like that was found to increase the number of kids left at school late (actually, in the case of the study, I think it was a daycare center). That’s because in the absence of fines, parents assume that leaving their kids late is a large burden on the staff. They’ll try hard to get there on time. When you institute modest fines, parents think, "Hey, the school doesn’t really care whether I’m on time or not. It’s just a little bit of an inconvenience for them, but I don’t need to feel bad about that because I’ll pay the $15." Now, if they charged $150, that would bring down the number of late parents.

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