Corrections to West End Word Article on Rex and SMI

Tim Woodcock of the West End Word (link via Missouri Political News Service) wrote a very thorough and detailed article about Rex Sinquefield and the Show-Me Institute (which are two separate things, although I know some of you refuse to believe that) in this week’s edition. I recommend the article highly, but I do wish to address some of the comments made by others, as quoted by Mr. Woodcock. 

The essential problem is that Tim uses political scientists to offer comments on issues and studies that are essentially economic in nature, and — as might be expected — they have little idea of what they are talking about. The first absurd statement in the article comes from Dr. Ken Warren of SLU (emphasis added):

More worrying is the fact that some of the facts Sinquefield used at the time to support his arguments were plain wrong. For example, Sinquefield insisted that Missouri’s state income tax is among the highest in the country. Warren said after the meeting he went away to check what Sinquefield was saying and, although the rankings can vary from year to year, Missouri’s position was always among the bottom 10.

Really, Dr. Warren? Because nine states don’t even have an income tax, so that pretty much fills out your bottom 10 right there. As this story is relayed, Rex made a comment to Dr. Warren about the state income tax, and Dr. Warren says our facts are wrong and then refutes it with statistics about general state taxation. It is true that Missouri has very low sin taxes and gas taxes, much of Missouri has low property taxes (elected assesors — that’s another issue), and sales taxes are about average for the nation. A report by the Tax Foundation ranks Missouri as #34 in total state and local tax burden, and I have seen other reports with very similar rankings.

But Rex didn’t tell Dr. Warren we had a high overall tax rate, just a high income tax rate, which is true. And if income (and earnings) taxes are more distortionary than other kinds of taxes, as they are, then this is a problem — and perhaps the income tax should be lowered, or eliminated, as SMI has proposed, and taxes that are less distortionary should be raised as substitute revenue sources, as SMI has also proposed.

Twenty states have a higher top rate for their state income taxes than Missouri, and three others have the same top rate. Here is the list from the Federation of Tax Administrators. However, Missouri’s top rate kicks in at a much lower level than almost all other states. Only three states with equal or higher state income taxes have a lower income threshold for the top bracket. Furthermore, only six states with equal or higher income taxes have a lower personal exemption for individuals (among those that offer deductibles rather than credits), and only three have a lower exemption for children. This combination of a higher-than-average state tax rate (we have not even included in this equation the local earnings taxes that many Missourians pay), very low income levels to qualify for the top bracket (only $9,000), and low deductions for individuals and children, results in a high state income tax burden for Missourians. 

To illustrate this, if one lives in Missouri and earns a taxable income of $20,000 (after standard deductions), they pay $975. If that same person lived in Ohio, a state with a higher top tax bracket, and earned the same income, they would pay just $409. People vote with their feet, as is often said, and particularly in a state whose two largest cities border other states. If Dr. Warren can’t understand all this, that is not our fault.

The second off-kilter statement is from Dave Drebes of the Arch City Chronicle, who I know and like and have tempered my comments here accordingly. Dave lives and breathes politics, so it is no surprise he would downplay economic factors in general. Here is his comment about our studies on local earnings taxes (emphasis added):

[…] Drebes said many of the Show-Me Institute’s studies are simplistic, often applying pat theoretical models from the world of economics to fiendishly complex real-world problems. A study on the earnings tax shows a statistical correlation between the post-war decline of Kansas City and St. Louis, and noted that both cities introduced earnings taxes in the 1950s. But it is fallacious to believe that the tax caused or even contributed to the decline because there are so many other factors, Drebes said.

If the study is simplistic (it isn’t), then it should not be hard to refute it with more substance than simply calling it "simplistic" and saying there were other factors at work. Dr. Haslag, who wrote the earnings tax studies, has never stated the earnings tax was the only factor involved in the decline of the central cities. Of course many factors were at work. But for Drebes to deny that an earnings tax "even contributed" to the decline of the cities is crazy. So St. Louis could have a local earnings tax of 80 percent and it would make no difference? That is pretty much Drebes’ logic. Dr. Haslag released a very thorough study on the harm local earnings taxes do to cities, and people who disagree with it need to do a lot more than merely insult it to prove it wrong.

All in all, though, it’s a very good article and I hope you check it out, as well as checking out everything we have to offer at our main website.