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Episode Transcript

Susan Pendergrass (00:00):
So great to be joined today by Professor Joe Haslag of Auburn University, formerly of the University of Missouri. You’re an expert on all things economic in Missouri, and you have a new paper for the Show-Me Institute about the Missouri economy. A lot of people when they think of the economy only think of the national economy and not the fact that states have economies too, with GDPs and all kinds of things that influence them, and not all state economies are the same. One of the things I was struck by initially in the paper is that Missouri is ranked 44th for GDP growth. What do you think is going on with that? Why has Missouri fallen so far?

Joe Haslag (00:52):
We couldn’t answer that question in half an hour, Susan. That’s a big one.

Susan Pendergrass (00:55):
Yeah, well let’s just give it a shot. Why have other states’ economies grown faster than ours?

Joe Haslag (01:03):
Well, Missouri has not been a center of innovation, and those things are hard to pin down. There are states that have grown really fast. Since air conditioning has become more accommodating and cheaper, we’ve seen some growth in the South, and there are states like Florida and Texas that have opted for faster growth and attracted a lot of people. So there’s always this question of are you talking about just the total economy and how it grows, or are you talking about the economy per person? Both matter and both are relevant measures depending on the story you’re trying to tell. At the heart of it, though, where growth comes from is not just from adding a bunch of people. If that were the case, we would have grown during the Middle Ages just from population growth. It’s not just about adding people and workers, it’s about the productivity of those workers, how much each one can produce. We’ve seen innovations: the tractor was an innovation compared to the horse and plow, and computers were an innovation compared to adding machines. And when you say 44th, that’s one of the critical things. Missouri is also 44th in the average rate of productivity growth per worker. We just haven’t been a source of super

Susan Pendergrass (02:26):
Sure.

Joe Haslag (02:54):
strength in that area. And I still say “we” because I was born in Missouri and spent a major chunk of my professional career at the university there. Until we change, and it’s hard, what you’d like to say is is there an easy path? Can we just do X, Y, and Z and guarantee it? No. There is no one thing that fits all. But what we do see is that people respond to incentives. What you’d like to set up is a business environment, a tax environment, and other kinds of settings that just make people take some chances. Some are going to pay off and some are going to fail, and you recognize that, but over time you see faster growth in those places.

Susan Pendergrass (03:41):
Yeah. You talk specifically about states in terms of labor productivity. States that invest in certain sectors of the economy, particularly construction, where productivity may be growing faster than other sectors. Is that something Missouri should do? Should we be placing bets on labor sectors?

Joe Haslag (03:57):
That’s a great question. The evidence in this paper is that industrial policy is not something that works very well. Trying to pick winners and losers is exactly the kind of thing we saw in the failed experiments of the USSR and some other places. We all talk about China’s explosive growth for a couple of decades. That wasn’t part of the planned economy. That was coming from the part where they just let loose their entrepreneurs and gave them the right environment, that word again, where they could take chances and succeed. So yeah, picking an industrial policy, there’s just no evidence that growth in one sector’s labor is going to give rise to faster productivity growth.

Susan Pendergrass (05:10):
Okay, so let’s look at a different lever that we’re talking about a lot in Missouri right now, which is reducing or getting rid of the income tax. It feels like a lot of states are trying to do it. And what if all the states around Missouri did the same thing? Would that have an impact on how much our GDP benefits from it?

Joe Haslag (05:29):
Sure. I mean, if we, first of all you said something interesting at the beginning. We think about the national economy, but you can draw borders around any area you want, a state, a city, a metropolitan area like St. Louis, and ask how they’re doing. One of the things that is remarkable is the biggest metropolitan area in Missouri has been stagnant for four or five decades. The population in the St. Louis MSA has been about two and a half million people for at least thirty or forty years. Where they live on the Missouri side or the Illinois side may fluctuate, but the total hasn’t changed. And the city of St. Louis proper has this weird status. Missouri has a unique thing where the city of St. Louis is its own county entity. And the city of St. Louis is

Susan Pendergrass (06:05):
Yeah. Right.

Joe Haslag (06:25):
almost becoming a ghost town. It went from a million people in 1900 to somewhere around 300,000 right now.

Susan Pendergrass (06:32):
Yeah. And they of course have the earnings tax. I can definitely see the counterfactual to this argument. I know people who live in states where they keep raising the income tax and piling on other taxes, Oregon comes to mind, and people are leaving. And we know that Texas and Florida, like you said, people are moving there and they don’t have income tax.

Joe Haslag (06:50):
I think it’s more to it than just the income tax rate, but the income tax rate is part of this package of incentives. Alone, the income tax is a pretty powerful thing, because it changes the returns to every kind of business activity, every kind of trade where we’re exchanging work or productivity or investment for something. Getting rid of the income tax, and there’s a piece in the paper where there’s actually an estimate, a projection of how much, based on the evidence across the country, getting rid of Missouri’s income tax would add to the growth rate.

Susan Pendergrass (07:32):
And how much would it add to people’s pockets?

Joe Haslag (07:33):
Well, the growth rate is about between a

Susan Pendergrass (07:35):
I mean, this is a number that people have been talking about in Missouri the last year. We get rid of the income tax, everyone will have $2,800 or $2,900 more. And your estimate is $2,900?

Joe Haslag (07:39):
Right around $2,900. And it takes a few years to get there, but the point is you get an immediate pop and then faster growth for the rest of the time.

Susan Pendergrass (07:57):
And you have a similar estimate if we improve our labor productivity. How do we go about doing that?

Joe Haslag (08:02):
You create incentives. Productivity still comes from what human beings do, what men and women in the labor force do. My incentive to innovate in a state where the income tax rate is eight or nine percent is a lot lower than it is in a state where it’s one or two percent,

Susan Pendergrass (08:06):
Yeah. Right. Yeah.

Joe Haslag (08:29):
simply because I get to keep more of what the risk produces. We often talk about business as us versus them. But at the heart of the matter, there are people out there saying, I want a better standard of living for myself and my family, and I’m willing to take some risk. I may start in my basement, or in an office with just two or three people. But if my idea is a winning idea, those people who started with me, the people I employ as I expand my business, sure, do I benefit? Yeah, I do. But I also took a lot of risk to do that. I could have fallen flat on my face and come away with nothing.

Susan Pendergrass (09:05):
Yeah. I think you make that point quite well where you talk about dividing up the pie versus growing the pie. You could grow the size of the pie and everyone could theoretically get a bigger slice of it. And I think that’s where people assume everything is fixed. In fact, in the data you were analyzing, we have both the Great Recession and COVID bookending it, and that has to have some impact on Missouri’s long-term growth trajectory, right?

Joe Haslag (09:26):
Yeah, it’s harder to discern. The financial crisis cleared out a bunch of stuff where people had taken risk, some of those were financial risks, and it spread to a bigger group of people. The Great Recession

Susan Pendergrass (09:48):
Did it muddy things up at all?

Joe Haslag (10:09):
It goes back to the idea of creative destruction. Sometimes you have a big destruction and it creates an opportunity for lots of creation. Did the financial crisis of 2008 give rise to the AI expansion? It might have sped it up.

Susan Pendergrass (10:12):
Yeah. Yeah.

Joe Haslag (10:26):
I don’t know for sure, but I think COVID probably had some impacts on that as well. Since we couldn’t be with one another and couldn’t get those spillovers from working together, we relied on computer hardware and software to do those things for us.

Susan Pendergrass (10:36):
Yeah. It was an engine of change in education because people started tutoring and teaching online, realizing you could get a tutor from across the country. It really opened up a lot of interesting new things that I’m not sure have completely sifted out, and I assume that’s true throughout the economy. In a lot of ways, necessity being the mother of invention, it increased productivity.

Joe Haslag (11:16):
No doubt. But I also think that what we’re seeing is the call by so many corporations across the country that, sure, you’ve worked five days a week remote for a couple of years, but we really want you to come back. We think it’s in our best interest as a corporation, for our shareholders, for those folks to be back in the office. Maybe four days a week instead of five, but there’s something about being together that creates possibilities for innovations as well. I’ll tell you a quick story. The semester after the University of Missouri got off of any sort of

Susan Pendergrass (11:38):
Mm-hmm. Yeah. Yeah.

Joe Haslag (11:55):
remote or semi-remote teaching, I was teaching an undergraduate class. That class is typically between 60 and 80 kids, an advanced course, mostly juniors and seniors. You can tell with senioritis, somewhere about 12 weeks into a 16-week semester, you’re down to somewhere between 60 and 70 percent attendance.

Susan Pendergrass (12:11):
Yeah. Yeah.

Joe Haslag (12:19):
That first semester back, it stayed close to 90 percent the entire semester, simply because they were dying to just be in the same room with each other. They recognized that there were spillovers from being in the classroom.

Susan Pendergrass (12:27):
Right. That’s interesting. So if you were given a magic wand and you wanted Missouri’s GDP growth to not be 44th, to be maybe top 25, what would you do with the Missouri economy to really kick-start it?

Joe Haslag (12:52):
I think two things. The easiest one is on the policy front: we just let the returns go back to the people. The tax rate in Missouri, I wouldn’t say it’s an abomination, but I just don’t think it’s been very helpful. But on top of that, our K-12 education, and this is going to appeal to you, has been an issue. We don’t have much competition. But I’m also going to put in a plug: I think Missouri has almost turned its back on higher ed.

Susan Pendergrass (13:20):
Yeah. You say this in the paper. Our educational attainment is tanking, right?

Joe Haslag (13:36):
Yeah. We just don’t have a commitment to it. The question I think would be most interesting is what would the St. Louis economy look like if Wash U wasn’t there? Wash U is an engine of innovation. There’s a lot of great things going on at the med school and the engineering school, and I think it’s just teaching people to learn how to think. Now those people end up going all over the world, but if there was a commitment to, I mean, the University of Missouri has lagged behind some of our Midwestern counterparts. Illinois, Michigan, Wisconsin are all suffering from the same straitjacket, which is that the amount of state funding they receive is down. But I’d also say Missouri is sort of doubly hurt because the state gives the university system whatever money they’re going to give, but then the university system is also controlled by the state in terms of how much they can raise tuition. So there’s no freedom to test what the market forces would look like. And at higher ed, maybe more so than K-12, spending per student at K-12 is not always the recipe for predicting success. However, at higher ed, because there are market forces that tend to work at a different level,

Susan Pendergrass (15:08):
It is not. Yeah.

Joe Haslag (15:19):
money and innovation tend to go hand in hand. Higher ed seems to be going through some sort of shift right now, and I’m not sure I understand exactly what’s going on with it. But if you were to tell me what the two big policies would be, I’m not saying the state of Missouri should spend more on higher ed, but they should loosen the purse strings and let those institutions compete with the market and see what they could do.

Susan Pendergrass (15:31):
Yeah. I think it’s one of the easier parts of the budget to cut. And as our revenue is going down, there seems to be a larger group of stakeholders in K-12: there are 520 superintendents and school boards. That’s a tougher one to cut than higher ed, and I feel like they’ve taken budget cuts.

Joe Haslag (15:55):
And maybe it’s not that the state should be paying the university systems more, but they should let them go. Let them set tuition rates at whatever they think is right. And if it doesn’t work and they fail, then you end up looking more like the University of Idaho than the University of Michigan in terms of how you’re contributing to the state economy. But

Susan Pendergrass (16:22):
Yeah.

Joe Haslag (16:37):
I think there are opportunities to exploit there and we just can’t seem to. There also seems to be this weird critical mass that’s important in higher ed. You have to have a bunch of people together who are all pulling the wagon in the same direction.

Susan Pendergrass (16:42):
Yeah. Well, we also have declining enrollment. Fewer kids coming up. I think we had our largest graduating high school class last year or the year before, so that’s going to make it tough. So just to clarify,

Joe Haslag (16:59):
Yeah.

Susan Pendergrass (17:03):
if Missouri were able to move its income tax rate down close to zero, you, based on your research, feel confident that Missourians would have more money in their pocket?

Joe Haslag (17:12):
More than confident. I think it’s unambiguous. The math is pretty straightforward. If you have a hundred-dollar paycheck and your taxes go from five percent to two percent,

Susan Pendergrass (17:15):
Okay. You heard it here.

Joe Haslag (17:35):
it was my pleasure. Susan, it’s always good to see you and cross paths. I wish I could be there on the ground and have all those conversations I had fifteen years ago when we were talking about this. Thanks for your service.

Susan Pendergrass (17:44):
We’ll welcome you back. Thank you so much. Appreciate it.

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Interview Transcript

Patrick Tuohey (00:00)
Good morning, Kansas City. This is Patrick Tuohey, Kansas City’s second favorite Patrick, sitting in on the Pete Mundo Show for the whole morning. If you have read anything in the Kansas City papers about either the Royals Stadium or the Chiefs Stadium, the chances are that you are familiar with my next guest. J.C. Bradbury, a professor of economics at Kennesaw State University, has been studying the economic impacts of building stadiums, tearing down stadiums, getting teams, and losing teams. He’s got a book coming out at the end of next month called This One Will Be Different. I’ll get to the book in a second, JC, but my first question is: why do you hate baseball?

J.C. Bradbury (00:43)
Hi Patrick, thanks for having me on. I get that question a lot because I bring a lot of bad news, or uncomfortable truths, let’s say, about baseball. But I study these things because I love baseball. I’m a huge fan. I grew up an Atlanta Braves fan, but I follow baseball generally and all sorts of sports. I was an Atlanta United season ticket holder for many years. That’s why I do this — because I enjoy it.

Patrick Tuohey (01:09)
It’s funny — years ago somebody recommended Moneyball. It’s a fantastic book. The movie is just as good. I rewatched it the other day, and if you haven’t seen it or haven’t seen it in years, it really holds up. I think of that because baseball claims to be so statistics driven that you’d think fans would be more amenable to the kind of economic analysis you’re doing. But maybe it’s just love of the game and fandom that clouds their reason.

J.C. Bradbury (01:44)
There’s some of that. There are many people who are baseball fans, sports fans, who understand what I’m arguing — and I’d argue it’s more than you’d realize. But most of the people vocally speaking out about stadium issues and public finance are largely blinded by their own fandom. I deal with people on social media all the time who respond to things I say about stadiums and tell me I don’t understand the public finance — and they’re just totally incorrect. They don’t even bother to check it. It’s religion to some people. I say most people would give up their religion before they’d give up their subsidies to their sports teams.

Patrick Tuohey (02:27)
If you don’t already follow J.C. Bradbury on Twitter, I recommend it — JC underscore Bradbury. If you’re a fan of baseball, economics, or The Simpsons, you’ll love his account. So JC, tell me about your book, This One Will Be Different, which comes out at the end of July.

J.C. Bradbury (02:44)
I’ve been studying stadium subsidies and publicly funded stadiums for a very long time. I fell into it accidentally because the Atlanta Braves Stadium opened in Cobb County, a few miles from where I live — just outside Atlanta, where my family has been for generations. I had a lot of interest in how the stadium was built and funded, with three hundred million dollars in subsidies. I was familiar with a lot of the economics behind stadiums, and when I tried to share this research with other people, I was heavily rebuffed. So I began to study the issue more, and before I knew it, I had a very long book about the economics of stadiums. My idea was to explain public finance issues in stadiums using simpler methods. I use sound research methods, but I try to explain it through the narrative story of the Braves coming to Cobb County — here’s what happened, here’s what people argued, here’s what actually happened, let’s look at some of the financial numbers, and let’s understand the general intuition of why stadiums get built even though economists say they’re a bad deal. I look at the politics of it too. And one of the things I find is that these stadiums are mostly built by insider coalitions — chamber of commerce types, folks who are going to sit in the owner’s box and enjoy cocktails, or people with season tickets. They’re the large beneficiaries of the subsidy. They push these advocacy campaigns and try to get them passed as quickly as possible without going to voters if they can. That’s why we get these deals.

Patrick Tuohey (04:35)
One of the things that frustrates me about this whole issue — and I’d be curious if you agree, though I hate when TV and radio hosts make a statement and then ask the guest if they agree, and here I am — is that when St. Louis was considering funding a Major League Soccer stadium, or here in Kansas City with the Royals or the Chiefs, what I wish they would do is just say, “Hey everybody, we are a sports town. We think it’s important to have a sports team here, so we’re going to spend hundreds of millions of dollars to build something.” And just leave it at that. It would be a defensible argument. You could argue whether it’s worth the expenditure, but at least everybody would be honest. But they don’t do that. They go the extra step and say, “And we’re going to make money doing it.” That’s where they mess everything up. That’s where they get the numbers wrong. Is it as simple as that, or am I missing something?

J.C. Bradbury (05:31)
Absolutely. I wish there was some honesty in these debates. The reality is that a lot of people who argue these things don’t actually believe the phony economic impact studies they put out. They do it for a couple of reasons. Number one, politically, it’s a winning issue — if you tell someone it’s good for them economically, they’re more likely to support it. But also, if you just argue it’s good for the community and we’re a sports town — okay, how much does it cost? A billion dollars. How much does that increase taxes? Three hundred dollars. Well, hold on, we’re not that much of a sports town. Think about how you make your own decisions. What kind of car do you want to drive? I want a Ferrari. Great. But to drive a Ferrari, you’d need to move into a two-bedroom apartment, never travel again, and eat ramen noodles. You know what — I’ll get the base model sedan. People make those kinds of decisions, and that’s one of the reasons they use false economic benefits — because once you start talking about social benefits, people look at the costs more closely, and it makes a lot less sense.

Patrick Tuohey (06:40)
I had your colleague Victor Matheson on a few weeks ago and we talked about this, specifically with the World Cup. I’ve also asked Neil Damas this question. In your experience, how good are journalists at reaching out to you and your colleagues to vet the numbers they’re being told by chambers of commerce or the city? Where are we now, and are we getting better?

J.C. Bradbury (07:14)
I think the situation is getting worse, and a lot of it is accidental. Newsrooms have gotten smaller and younger, so there’s less institutional knowledge. People don’t remember the last stadium being built, and they’re told to go cover this stadium story. They call a few local sources — who of course are members of the local chamber — and those people say it’s great. At best, they call a local economist who says it’s bad, and it ends up being a tie. But often they don’t even call the economist. That’s part of the nature of the news business, which is one of the reasons I think it’s so important to use social media and other mediums to get the word out. Even journalists trying to do their best often fall short. And journalists deserve some blame here — when I reach out to try to help them, they often get very defensive, and I think that needs to stop. I’m not just angry at journalists. Both my parents were journalists, and my first job was in a newsroom. I understand what’s going on.

Patrick Tuohey (08:19)
The previous segment, I talked about World Cup reporting. Local people put out outrageous economic development claims a year and a half ago, nobody questioned them, and journalists just repeated them — even though past experience hadn’t lived up to those claims. So what can we do to encourage journalists to reach out, or maybe just give them a primer on what economic impact studies look like and where the flaws are? Whether I’m looking in St. Louis, Kansas City, or around the country, they are all flawed in the same way.

J.C. Bradbury (08:56)
It’s important to always speak up. It’s easy to get tired and think you can’t keep doing it. When someone asks me to look through one of these studies, I tell them it’s not a real study — it’s a fake study. I try to spread that message. Part of the problem is that the big number is the story, and that’s what they want out there. The fact that it’s wrong later doesn’t matter. And sometimes people get mad at me because I’ll call out bad reporting. I do it not because I dislike journalists, but every time I’ve tried to be nice about it, I get told I don’t know what I’m talking about or that they don’t want to tell their boss they need a correction. I think it’s important for journalists to know that if they get it wrong, they’re going to get called on it — not to be mean, but to set the standard.

Patrick Tuohey (09:54)
And do a better job because policymakers and business owners are making decisions based on the numbers you’re putting out there. We see this with the World Cup — people were expecting much bigger crowds than they got. It’s not just a matter of being right. It’s a matter of being right so that people make decisions based on real information, not just projections. JC, I’m grateful for your time this morning. Thank you so much. We’ve been talking to J.C. Bradbury of Kennesaw State University. His book, This One Will Be Different, comes out at the end of July. We’ll be right back.

The post Why Stadium Deals Don’t Add Up with J.C. Bradbury appeared first on Show-Me Institute.

Jackson County has begun attempting to correct its poorly conducted reassessments in 2023 and 2025. It will do this by retroactively rolling back property assessments for some property owners, sending refunds to other taxpayers, and withholding future tax funds from other taxing entities, such as fire districts, to make up for the overpayments by taxpayers in 2023 and 2025. The county has to withhold future payments because counties collect all the property taxes within the county, but then distribute almost all of that money to other taxing districts. Jackson County does not have a large pot of its own money it can make amends from. Not surprisingly, some of those taxing entities are suing over the withholding of their future tax payments.

The problem is, those school districts and other taxing entities were not the ones who caused the problems in 2023 and 2025. They followed the rules, set their tax rates, received their tax money, and spent it. Now they are being told they have to give some of it back.

So, I understand the objections by the taxing districts, but I have much more sympathy for the taxpayers who were victimized by a poor process over the past few reassessments. The Jackson County assessor’s office, among other problems, failed to provide taxpayers with the rights of appeal and relief they were entitled to during the process. So, yes, some taxpayers were overcharged because they did not have their full opportunity to appeal their taxes.

In short, the new Jackson County leadership team deserves credit for changing course and finally trying to correct the problems and refund money to some taxpayers.  I think the taxpayers deserve these refunds—and the entire process needs wholesale changes.

I have no idea how the courts will rule in this lawsuit. I’ll be following it closely. Hopefully this controversy and similar, recent issues in Platte County can lead to massive changes in how we conduct property reassessments in Missouri.

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Susan Pendergrass speaks with Andrew G. Biggs, senior fellow at the American Enterprise Institute, about the Social Security trustees’ latest report and what it means for the program’s future. They discuss the projected 2032 insolvency of the retirement trust fund, why the trustees’ birth rate assumptions may be too optimistic, the proposed Moreno-Warren plan to eliminate the payroll tax ceiling, the Cassidy-Kaine plan, and why pension experts oppose it, what would actually happen if the trust fund ran out, and more.

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Episode Transcript

Susan Pendergrass (00:00):
I feel fortunate to have grabbed some of your time. Andrew Biggs from the American Enterprise Institute, I appreciate you coming on to talk to us. Social security has been nothing but in the news recently, and you know more than anyone else. So thank you for taking the time.

Andrew Biggs (00:14):
That’s why I’m so cheerful. The more you know about Social Security, the happier you are. But thanks for having me, Susan. It has been busy. I’m really happy to be with you today.

Susan Pendergrass (00:16):
I’m in my sixties. I see something about Social Security running out of money and I pay attention. So just to bring us all up to speed: in the last week, there was a news flash that Social Security is going to run out of money sooner. What does it really mean?

Andrew Biggs (00:39):
Every year the Social Security trustees, which is mostly members of the cabinet, the Secretary of the Treasury, the Social Security Commissioner, and so on, come out with a report projecting the program’s financial health, both in the short term and the long term. That happens every year, and it’s been getting worse every year. In this year’s report, they projected that the retirement trust fund will go insolvent, or run out of money, in 2032. They also projected a significantly larger long-term funding gap in the years thereafter, and this is worth explaining.

When the trust fund runs out, it doesn’t mean there’s zero money to pay benefits. As long as we’re paying a trillion dollars a year in payroll taxes, there will be money to pay benefits. But when the trust fund runs out, it means benefits will be cut, and their projection is somewhere around 22%. The size of that long-term funding gap dictates how big the cuts are going to be in the years thereafter. The trustees lowered their projections for birth rates, and they found that the One Big Beautiful Bill has worsened Social Security’s finances. A variety of things made this long-term funding gap worse. It’s really hard to paint a happy picture. The trust fund can be running out in about six years, and the funding gap and the benefit cuts in years thereafter are going to be larger. It’s a sobering picture.

Susan Pendergrass (02:16):
I’m not trying to pile on, but I think I saw that they extended the time when they expect birth rates to bounce back. Is that true? Because I have not seen anything anywhere, and I’ve spoken to some demographers, to suggest birth rates are ever going to bounce back.

Andrew Biggs (02:35):
Here’s the interesting thing. If you look at the Congressional Budget Office or the US Census Bureau, right now the fertility rate is about 1.6 children per woman on average, and both the CBO and the Census project that’s going to remain pretty much steady, declining a little bit over coming decades. Social Security had a very different picture. As of last year, they thought the birth rate, which is 1.6 now, was going to immediately start rising and go back up to 1.9 children per woman in the next several decades. That makes Social Security’s finances better. More kids being born means more people paying into the system. What they did in this year’s report is moderate a bit on fertility. They said, okay, it’s not going to rise back to 1.9, it’ll rise back to 1.75. So they are still over-optimistic. I’ve talked to some demographers and economists who’ve really focused on the birth rate, and they described the trustees’ assumptions as, quote, fanciful, meaning they just weren’t plausible. Now they’re somewhat more plausible, but they still tend

Susan Pendergrass (03:32):
Okay.

Andrew Biggs (03:48):
to be more optimistic than other agencies. And to me, frankly, this is a concern. You really want the people who are the scorekeepers, the umpires, to be playing it as straight as they possibly can. We know that these guesses are going to be wrong because this stuff is impossible to predict with certainty, but most demographers think the best guess is we’ll stay around 1.6 going forward. You’ve seen a decline, and a good predictor of birth rates is religiosity, the level of religious belief in a country. The US has typically been much more religious than Western Europe, and that’s played into fertility. There has been a big decline in religious belief, particularly among younger Americans, along with all the other pessimism you see among younger people. When people are pessimistic, they tend not to have a lot of kids. So the best guess is we’re going to stay about where we are.

I wrote something the other day saying the bad news in this trustees report is even worse than last year’s, but it could have been even worse. They project a long-term funding gap above 4.4 percent of payroll. What that means is if you took the 12.4% payroll tax today and raised it immediately and permanently by 4.4 percentage points, from 12.4 to 16.8, that would in theory keep the trust fund solvent for 75 years. But a better guess would be a funding gap of around 4.8 to 5 percent. This is real money. For years, people on the left have said, well, okay, we know Social Security has a solvency problem, but it’s a manageable issue. They were saying that when the funding gap was 2% of payroll. Now you’re looking at four to five percent. That’s a lot of money, at a time when a lot of other things are making claims on the budget. We have some difficult choices to make and we really have to start thinking hard about this.

Susan Pendergrass (06:09):
Okay, so what about this idea that’s been floated in the last week of getting rid of the payroll cap? First of all, explain the payroll cap, and then this idea of getting rid of it.

Andrew Biggs (06:17):
Sure. Social Security has a 12.4% payroll tax, half paid by you and half paid by your employer. That applies only to wages up to $184,500. That’s called the payroll tax ceiling, or the tax max. That dollar figure goes up every year, but this year it’s $184,000. You only pay taxes on those wages, and you also earn benefits only on those wages. People say, well, Bill Gates doesn’t pay more taxes than that. But he doesn’t earn any benefits either. So you’re capping both the taxes and the benefits.

To fast forward a little bit: there’s an op-ed in the Washington Post this week from Senator Bernie Moreno, a Republican from Ohio, and Elizabeth Warren, a Democrat from Massachusetts. They say it’s just common sense to eliminate that cap and tax all earnings for Social Security. The interesting thing is how uncommon that would actually be. Our payroll tax ceiling is $184,000. Almost every other country has a ceiling on their payroll taxes for their pension system, and in almost every other country that ceiling is lower. In Canada, you only pay taxes and earn benefits up to around $60,000 in earnings. In the UK it’s about $70,000. In Germany it’s about $70,000. We are already an outlier for how high up the income ladder we tax people. To eliminate the cap entirely is a big deal. It’s effectively a 12 percentage point increase in the top marginal tax rate. I pulled an example of somebody living in New York City. A high-income person already pays 37% in federal income taxes, plus regular Medicare taxes, the additional Medicare tax, state taxes, and city taxes. If you add another 12 percentage points on top of that, their marginal tax rate would be in the mid-60s. And that’s before we’ve fixed Medicare or done anything else. The federal budget is still broke, and you’ve taxed these people as high as you possibly can. So these things that look like common sense, why don’t we just tax everybody,

Susan Pendergrass (08:37):
Right, right.

Andrew Biggs (08:46):
look, there are reasons for that.

Susan Pendergrass (08:49):
And were they suggesting that if I make $300,000 and I pay my 6.2 percent, totaling 12.4 with my employer, on my entire salary, that my Social Security benefit one day would be higher? Are they talking about capping the benefit or just getting rid of the cap on contributions?

Andrew Biggs (09:06):
They haven’t been very specific. They say Social Security would continue to be an earned benefit, which kind of implies you would continue to earn benefits on the additional taxes you would pay. Let’s say if we uncap the payroll tax and base your taxes on your total earnings, you’d also base your benefits on your total earnings. What you get then is, okay, you’re getting all this money from people in the short term, but you have to pay them higher benefits in the long term. That offsets some of the savings. And this morning I was running some numbers looking back to the 1970s. We had a huge run-up in benefit levels from Social Security in the 1970s. The benefit formula we have today is not the one FDR invented. It really happened in the 1970s, where they jacked up benefits in a really foolish way, and then to help pay for it, they increased the payroll tax ceiling. Right now you pay taxes on earnings up to $180,000. If we had just kept the tax max from 1970 and indexed it to wages, it would have been only $95,000. So they essentially doubled the wages on which you pay Social Security taxes. But what happens is they also doubled the wages on which people earn benefits. I’ve highlighted the point that if you have a high-income

Susan Pendergrass (10:38):
Mm-hmm.

Andrew Biggs (10:43):
couple retiring today, they could get almost $100,000 in total benefits, which is absurd. There’s no reason a government program should be paying anybody that amount. If you want that kind of income in retirement, you save more in your 401k. It’s better for you, better for the economy. But it was a result of this short-term step they took in the 70s. They said, hey, we raised benefits too high, let’s jack up the tax max. And they didn’t worry about the fact that in the future you’d have to pay benefits on that. Well, the future is today.

Susan Pendergrass (11:05):
Okay.

Andrew Biggs (11:13):
Now we’re broke again, we need extra money again, and these guys say, well let’s just jack up the tax max. But then you’ll pay extra benefits in the future. It becomes this chasing-your-tail kind of thing.

Susan Pendergrass (11:16):
Yeah. Yeah.

Andrew Biggs (11:25):
And the problem when you do it is there’s no country on earth paying $100,000 a year from a social insurance program, except for us. And the reason we do is these stupid historical decisions. If you’ve got this high-income couple in the US retiring today, they can get almost $100,000 from Social Security. If they lived in Canada, they’d get like $35,000. And that’s perfectly fine. Nobody’s starving to death in Canada in retirement. They just save more on their own.

Susan Pendergrass (11:35):
I’ll say.

Andrew Biggs (11:55):
The irony is that we think of ourselves as a free-market, small-government country, and our Social Security program is enormous, primarily because we’re paying benefits to people that other countries say, yeah, we don’t need to pay benefits to these guys.

Susan Pendergrass (12:11):
And yet people say, I put my money in, I get my money out.

Andrew Biggs (12:14):
Yeah, and I understand it. When I say we shouldn’t be paying $100,000 a year to a high-income couple, you get the email saying, well, I paid in. And if you paid in, you feel you have this moral claim on benefits. The problem is Social Security is still broke. We still need higher taxes or lower benefits. The idea that you’re just going to get your full benefits with the taxes you paid doesn’t work because the system can’t afford to do it. So you have to make the choice: do I want to pay higher taxes or get lower benefits? I’ve got to pick my poison. Most high-income people would prefer to get lower benefits. They care more about their taxes than their benefits. But people are still living in this dream world where this system, which is $30 trillion in the hole, is somehow going to pay them everything they’ve been promised and just screw somebody else. Everybody thinks they’re the guy who’s going to get everything and somebody else is going to get screwed.

Susan Pendergrass (13:14):
Yeah. I definitely hear people saying today, maybe I should go ahead and take it early and then I’ll get grandfathered in and my benefits won’t get lowered.

Andrew Biggs (13:26):
It probably won’t make a difference. In general, the Social Security benefit formula works based on your birth cohort, the year in which you’re born, not really the year in which you claim benefits. And people who are going to do Social Security reform understand the incentives. They don’t want to make it easy for people to game the system. So Social Security reform will probably work itself out in such a way that

Susan Pendergrass (13:42):
Right.

Andrew Biggs (14:03):
you can’t get some big advantage by claiming early. I could think of some conceivable possibilities, but I still would not encourage people to claim early.

Susan Pendergrass (14:14):
Okay, I want to talk about two more things I read in the last week. One was a letter from Tim Kaine about his idea with Senator Cassidy. What’s that idea for fixing it?

Andrew Biggs (14:24):
The interesting thing is people say Social Security reform has to be bipartisan. So we have two bipartisan ideas. We have Moreno and Elizabeth Warren, a Republican and a Democrat. They’ve got one idea, eliminating the payroll tax ceiling.

Susan Pendergrass (14:39):
Third rail.

Andrew Biggs (14:49):
Cassidy, a Republican from Louisiana, and Tim Kaine, a Democrat from Virginia, they’ve got a bipartisan plan. And guess what? Their plan is also terrible. If there’s any lesson from this, it’s that bipartisan doesn’t mean good.

Susan Pendergrass (15:00):
Bipartisanly terrible.

Andrew Biggs (15:04):
Yeah. Look, ultimately Social Security reform is going to have to be bipartisan, given the way the political system works. On the other hand, there is some lesson that if both Republicans and Democrats can agree on something, it might be a terrible idea. With Cassidy and Kaine, they are explicitly, and Cassidy said this, solving a political problem. The political problem is that neither Republicans nor Democrats want to vote for either tax increases or benefit cuts. You’d think Democrats want to raise your taxes and Republicans want to cut your benefits. The reality is they don’t want to do either of those things because they realize both are politically unpopular, which is why we’ve gone 40 years literally doing nothing. So their solution is that we don’t have to make these difficult votes. Instead, the federal government will borrow about $2 trillion, invest that money

Susan Pendergrass (16:02):
Tough.

Andrew Biggs (16:04):
in stocks and private equity, high-risk, high-return stuff. Then they claim they’re going to hold this fund for 75 years so it can build up value. In the meantime, when Social Security’s trust fund runs out in 2032, the federal government will borrow against the assumed gains on this investment fund.

Susan Pendergrass (16:06):
Right. Mm-hmm.

Andrew Biggs (16:29):
They say the borrowing will be at a lower rate because it’s the federal government. And they say after 75 years, all the gains in this investment fund will pay back all the borrowing and we’re all good. And let me count the ways there are problems with that. If you work at the state level,

Susan Pendergrass (16:45):
It’s just kicking the can.

Andrew Biggs (16:52):
state-based think tanks almost know more about this than federal people. A lot of underfunded state pension systems do things called pension obligation bonds. Their pension system is underfunded, they don’t want to raise contributions or cut benefits, so they borrow and invest in the stock market and hope it works. The pension obligation bond is the hallmark of a poorly funded, poorly run pension system. Think New Jersey, Illinois, things like that.

Susan Pendergrass (17:21):
Yeah.

Andrew Biggs (17:23):
There’s a national group of state budget officers that has come out and basically said as an institution, don’t do this. Borrowing for your pension is a bad idea. So it really is fitting for the times that the Cassidy-Kaine plan says, let’s take this worst idea from state and local government

Susan Pendergrass (17:45):
Yeah.

Andrew Biggs (17:47):
employee pensions, which has been condemned as bad practice, and put it on steroids and do that for Social Security. And what it really gets to is they just don’t understand the finances of it. And to be frank, they won’t listen. They have talked to every pension expert I know, and this Social Security world is pretty small. We all know each other on both sides. We may not agree on everything. Literally every pension expert I know says this is a terrible idea.

Susan Pendergrass (17:54):
Yeah.

Andrew Biggs (18:17):
But their political considerations are more important than policy, and that’s the problem with all of them.

Susan Pendergrass (18:24):
I mean, it feels free. They’re basically saying it’s like a timeshare. It just feels free right now. We just borrow the money. Okay, so

Andrew Biggs (18:31):
It’s been pointed out to them that if you can fund Social Security this way, you could fund the entire federal government this way and never collect any taxes. At one point Senator Cassidy was quoted in a newspaper article saying, well, yeah, sure, in theory you could. And I’m like, if something implies there’s a free money machine, maybe you need to question your assumptions.

Susan Pendergrass (18:38):
Sure. Okay.

Andrew Biggs (18:54):
I could give you a whole variety of reasons why this doesn’t work, but one macro point that’s come to me: I’ve been doing Social Security for a long time. I worked in the Bush administration in 2005 when they tried and failed to do Social Security reform. One of the problems we face today is that your elected officials understand Social Security policy much less well than they did 20 years ago. They just don’t understand how the system works. Going back to the Moreno-Warren idea of applying the payroll tax to all earnings,

Susan Pendergrass (19:22):
Yeah.

Andrew Biggs (19:37):
okay, you’re adding 12 percentage points to your top tax rate. There’s a reason Sweden and France and others don’t do this anymore. They used to have incredibly high tax rates. They don’t now. We would end up in many cases with a higher tax rate than most European countries. We have some philosophical dedication to small government and things like that. They don’t. And so if they’re not doing it,

Susan Pendergrass (19:43):
Yes. Yeah, yeah.

Andrew Biggs (20:02):
it’s because there’s a practical reason this isn’t a good idea. The same applies to wealth taxes. That’s been tried in Europe. They’re like, yeah, we’re not doing that anymore because it doesn’t work. But your average senator now

Susan Pendergrass (20:14):
It is happening around the country, the billionaire tax. What happens in 2032 if no one is either brave enough or smart enough to take this on in the next six years?

Andrew Biggs (20:17):
They’re just not aware of these policy issues, and that’s a real problem. It’s like having a guy fix your car who doesn’t know how to fix cars. 2032 is the date. If you have a recession, it might be 2031. It’s not certain, but it is certain it’s happening soon.

Susan Pendergrass (20:47):
Yeah. Okay.

Andrew Biggs (20:53):
There’s a literal reading of the law, which is that Social Security can’t pay out benefits it doesn’t have dedicated resources for. Once the trust fund runs out, the only dedicated resources are mostly the payroll tax, plus a little bit of money from income taxes levied on retirement benefits. And those were cut as part of the One Big Beautiful Bill. So if the trust fund runs out, they’d have to rely on the money they have on hand, which implies around a 22% benefit cut.

A lot of times people assume that benefit cut has to be across the board. If you did it that way, you’d throw a lot of people into poverty. I did some work a year or so ago with a lawyer in DC named Kristen Shapiro, and what we found is that the legal precedent shows the executive branch, meaning the president working through the Social Security Commissioner, would have some discretion. What we found is you could maintain full benefits for about 50% of people, the poorest 50% of seniors, and then cap benefits above that. If you cap the maximum benefit at about $24,000 per year for a single person or $48,000 for a couple, that is enough to make Social Security solid without raising taxes. So the point is simply you have some discretion.

The reality is Congress isn’t going to allow big benefit cuts, for political reasons. On the other hand, are they willing to have the size of tax increases needed, all in one go, to keep Social Security paying full benefits? I don’t think they want that either. So the reality is probably they’re going to borrow a lot of the money. And that’s where you get to the issue of how much more borrowing the financial markets will swallow. We effectively borrow from the public to repay the Social Security Trust Fund, but there’s an end to that. You say, okay, 2032, we have to do something. We have to raise taxes or cut benefits. If in 2032 the stated policy of the federal government is, well, we’re just going to keep borrowing to pay Social Security even though we have no prospect of paying it back, you wouldn’t blame some big market players for saying, yeah, I’m out, because you don’t want to lend money at low interest rates to someone who says they can’t pay it back. Then you start getting a couple of things. One is more federal borrowing squeezes out capital in the rest of the economy, and so interest rates naturally rise.

Susan Pendergrass (23:18):
Right.

Andrew Biggs (23:31):
But then there’s a second element: if you’re afraid the federal government can’t pay you back, over and above that natural increase in the interest rate, you’d apply a risk premium to treasury debt. You’d say, look, Treasury is not this rock-solid investment anymore. It’s more like a junk bond, or like borrowing from Illinois, and you make them pay a premium. That’s going to drive up

Susan Pendergrass (23:43):
US government borrowing. Yeah, yeah, yeah.

Andrew Biggs (24:01):
interest rates, and that makes it tougher not just for the federal government but for everybody. If you want to buy a car or a house, all your interest rates rise. There’s also going to be real temptation to inflate away the debt. The federal government doesn’t want to default on its debt, but

Susan Pendergrass (24:24):
Yeah, yeah.

Andrew Biggs (24:25):
historically the way you deal with this is inflation. Think about all the debt we took on during COVID, shoveling money out the door to everybody, and then we had massive inflation after it. A lot of those people who bought treasury debt didn’t get a good deal, because if you get 20% inflation on

Susan Pendergrass (24:34):
Absolutely. Yeah.

Andrew Biggs (24:47):
a treasury bond with a nominal fixed interest rate, that’s a real problem. So inflation becomes increasingly tempting. You look at this scenario and you’re like, can’t anybody here play this game? Every other country is not going bankrupt. We just have to do what they do.

Susan Pendergrass (24:51):
Yeah, yeah. So could we, if we really got our heads around it and started today or next year, incrementally raise the 12.4%, or incrementally get people used to lower benefits after a certain income or wealth level?

Andrew Biggs (25:18):
Sure. Yes. The way I think about it, there are two ways people think about it: the wrong way and my way. The wrong way is, let’s just pick from this menu of options to make Social Security solvent. We can raise the payroll tax a bit, raise the retirement age a bit, cut cost-of-living adjustments a bit, raise the tax cap a bit, and do these things until the system is solvent.

Susan Pendergrass (25:34):
Yes. Yeah.

Andrew Biggs (25:54):
That’ll get you a solvent program, but it won’t be a program that particularly works very well or is good for the economy. A more effective way is to ask, what do we want this system to do? If you talk about Social Security reform, what you hear is that it’s a social insurance program, a safety net, an anti-poverty program. Okay, it has to do that. And that part is really very cheap, because we don’t literally have that many poor seniors, their benefits aren’t very high, and it’s not a problem to maintain benefits for low-income seniors. When you ask what Social Security should do, nobody is saying we need to be paying high-income seniors $100,000 a year. There’s no public purpose for it. Nobody thought it out in advance. It was simply an unintended consequence. So if you’ve got things that are really costing a lot of money and have no public purpose, and those people can save for retirement on their own, you start scaling that back. The distinction I’m making is between policy changes simply for the purposes of keeping Social Security solvent, and policy changes for the purpose of making Social Security do what it needs to do, the real public purpose, and not doing things that serve no public purpose. My point is the things I’m talking about are things you should do whether Social Security is insolvent or not.

I’ll give you an example: Australia’s retirement system. Australia is a lot like us, not particularly more conservative or liberal, just sort of normal. Their Social Security program essentially is targeted at eliminating poverty in old age. It’s actually a better safety net than Social Security provides, but the benefits decline down to zero once you get above the poverty level. And to help people above that level save for retirement, everybody is enrolled in a 401k-type account. What that says is, if everybody’s participating in retirement plans as they should, the government’s job becomes easier. Their Social Security system costs about two percent of GDP. Ours costs about six percent. It’s a third as costly, provides a better safety net, and it comes because they’re actually thinking about what they’re doing.

Susan Pendergrass (28:18):
Mm-hmm.

Andrew Biggs (28:26):
We’re literally not thinking about what we’re doing. There’s a saying in business: the worst reason to do something is because we’re already doing it. That is literally how Social Security policymaking works. Nobody knows why our benefit formula is what it is or why the tax max is what it is. It’s all just stuff we inherited from the 1970s from people who were not in any way thinking clearly about what they were doing. It was people in the 70s trying to win elections, and we end up with the bag.

Susan Pendergrass (28:52):
Speaking of 2005, there was an attempt to offload a small portion of people’s contributions into the market, right? That failed.

Andrew Biggs (29:09):
That was the Bush proposal. I was in the White House then, kind of in a number-cruncher role, so I knew that stuff pretty well. I did a lot of events with President Bush around the country. When we came up on the 20th anniversary of Bush’s proposal in 2025, I started thinking to myself, what if his plan had passed? What would have happened? So I built a model. Back then they were saying, okay, you’re going to have some reductions in traditional Social Security benefits for middle and high-income people, and then you’re going to have a personal account where you can invest part of your existing payroll tax in stocks and bonds. The total benefit you get at retirement is a combination of those two. People were speculating. Well, we don’t know what the stock market’s going to do. But 20 years later, we’ve got some data, so let’s just see what happened. The results were that for people

Susan Pendergrass (30:01):
Now we do.

Andrew Biggs (30:07):
retiring today, low and middle-income people would have had higher total benefits by a little bit. The very highest-income people, their benefits would be down by a couple percent because the cuts to their traditional benefits would be larger than the gains from their personal account. But even they would be fine; it’s not a big deal. Going forward, it looked like people would do a little bit better with the Bush plan than with the traditional system. But here’s the important thing: the traditional system is broke. We just talked about how it goes broke in 2032, with huge deficits. The Bush proposal wouldn’t have made Social Security totally solvent, but it would have addressed half or two-thirds of the long-term funding gap. So you’d get a system that would have paid you benefits around the same as, or maybe a little bit better than, Social Security, but would be in much more solid financial shape. Today the times are different, and I don’t think personal accounts are really viable. But the point is, if they had done something back then, everything could be easier today. But members of

Congress were just too afraid. Republicans were afraid of taking the political hit. For Democrats, it was too tempting to give the political hit. They knew they had to do something, but they couldn’t swallow hard and say, look, let’s just go in on this thing together. They didn’t want to give Bush the win because by that point Iraq was going badly and they really didn’t like him. So they beat him up. But the problem is Bush served his term and is happily retired in Texas. The people who really got screwed were the ones who depend on Social Security, because we didn’t fix it. And you just hope that’s not what we do again.

Susan Pendergrass (31:42):
Yeah. Somebody not us in 2045 could be having the same conversation, right? Like, if only in 2025 or 2026 we’d gotten serious. And I do think people mix up the trust fund with the whole program. A lot of people think all of Social Security is going to be bankrupt in six years, versus the reality that we’re still taking in a trillion dollars, we just need about 22% more than what we’re taking in.

Andrew Biggs (32:14):
Yeah. If you go back 20 or 25 years, there were all these arguments about whether the trust fund is real or fair or whatever. The trust fund is essentially IOUs written from one side of the government to the other. I thought at the time the trust fund is not real in an economic sense. It doesn’t make it easier for the government to pay Social Security benefits. It is a pledge that we will pay them, but it doesn’t make it easier to pay them. But here’s the interesting thing:

Susan Pendergrass (32:25):
Right. Al Gore. The lock box.

Andrew Biggs (32:50):
if having a trust fund doesn’t make it easier to pay benefits, then not having a trust fund doesn’t make it harder. The trust fund runs out, we still have taxes coming in, we can still pay 80% of what is owed. If we retarget that, you can maintain the safety net. It’s not like you’re totally insolvent or broke. All those long debates over whether the trust fund is real get resolved because the trust fund itself is gone in six years. So that doesn’t matter very much anymore. But I do hope that, as you said, we’re not in 2045 looking back on a solution of just borrowing $500 billion a year or whatever it’s going to be. People in 2045, when the federal government is bankrupt, the dollar is dropping, and all these financial crisis things we think only happen to other countries are happening to us, they would look back and say, I wish those people were more responsible. The Social Security problem, in a sense, if we went back 25 or 30 years ago, was a manageable problem. The real issue is not the demographics or the benefit growth or whatever. The real issue is just poor stewardship of this program by Congress and respective presidents. It is absolutely a governance problem. It is not a problem of economic or demographic fundamentals. All of that can be handled.

Susan Pendergrass (34:19):
Everyone wants to be Santa Claus, right? No one wants to be the Grinch.

Andrew Biggs (34:22):
It’s very true, but leadership is about giving people bad news. Good news kind of tells itself. Bad news has to be told and people have to be convinced that this is going to hurt, but we’ve got to do it. And we just didn’t have the willingness. President Clinton in the late nineties tried to do some stuff, but he didn’t deliver much bad news because we had surpluses. President Bush was willing to tell people, okay, look, you’re not going to get every penny you’ve been promised. Beyond that, the level of leadership has been very poor.

Susan Pendergrass (35:01):
Hasn’t been good. All right, well, next year when the trustees report comes out, come back and give us more bad news.

Andrew Biggs (35:09):
Yeah, until then, things are looking up. But no, it’s something people want to be aware of, and I think that’s the key thing.

Susan Pendergrass (35:13):
Well, I think one of the more important things you said is that no one understands it. People are upset and arguing over something they don’t understand the mechanics of. I do know people who think they have an account with their name on it that their Social Security taxes went into, and they’re just going to start taking the money out.

Andrew Biggs (35:23):
I have some bad news for that. Your taxes go into Social Security and go straight out the door to pay for your grandmother’s benefits. If you want to know where your taxes are, they’re in your grandmother’s bank account. So go ask her.

Susan Pendergrass (35:45):
That’s right. That’s right. All right, thank you so much. I really appreciate the time.

Andrew Biggs (35:51):
Thank you, Susan. It’s a pleasure to be with you.

Produced by Show-Me Opportunity

The post The Social Security Crisis Is Worse Than You Think with Andrew G. Biggs appeared first on Show-Me Institute.

There is a lot of ongoing discussion about eliminating personal property taxes. There have been bills introduced to eliminate them. It’s a major topic of debate around the state, particularly in St. Charles County.

Personal property taxes are the taxes levied on your car, boat, livestock, business equipment, farm equipment, and more. (Thanks to data centers, the business equipment part has become much more important in the past year or so.) Missouri indeed taxes personal property more than most other states. I am perfectly fine with eliminating the tax. But people should understand that if personal property taxes were eliminated, the Hancock Amendment would allow local governments to then raise real property taxes by the amount lost in personal property taxes.

So, if the state eliminated all personal property taxes statewide, it would likely end up as a revenue-neutral switch where we taxed land and buildings slightly more and taxed mobile assets not at all while removing a tax that most people find particularly annoying. I think that would be a modestly beneficial switch; I just don’t want to sell it as a tax cut.

But could counties on their own eliminate personal property taxes? Yes, every county and taxing district in the state could eliminate personal property taxes if they wanted to. They just don’t want to and I understand why.

Currently, St. Louis County is the only county that is required to set different tax rates for different classes of property. RSMo §137.073 requires every local government within St. Louis County (including cities, school districts, streetlight districts, etc.) to set a property tax rate for each subclass of property. This means that there are different tax rates for residential, commercial, agricultural, manufacturing, and personal property. The requirement to break down the tax rate by subclass was originally intended for the entire state, but eventually the rest of the state was given the opportunity to opt out if their county commission chose to, which every county in the state did. As a result, the rule currently only applies within St. Louis County and (for an unknown reason) the city of Gladstone in Clay County.

In the rest of Missouri, every government with property tax authority sets one tax rate, which is then applied to all subclasses of real and personal property. There are a few exceptions to this (primarily cities that have never taxed personal property, such as Independence), but almost all governments outside of St. Louis County set the same rate for all real and personal property. But here is the key: Any county in Missouri can adopt different tax rates for different property classifications whenever it wants to.

County officials could require all the taxing entities within their county to set different rates, and then county officials could set the county rate for personal property at zero. But county officials could not tell other taxing districts within the county to apply those new, variable rates. Would any of them choose to set the personal property tax rate at zero? Well, let’s just say that since this switch was made in St. Louis County, I know of no taxing entity that has voluntarily set the personal property tax rate at zero (other than some municipalities that don’t have property taxes at all, such as Chesterfield, or had never set a personal property tax, such as Westwood).

What would happen if a county set its personal property tax rate at zero and no other governments followed? In St. Louis County, the county portion of the tax bill is about five percent. It is a largely similar percentage around Missouri (varying slightly, of course). If St. Louis County government set its personal property tax rate to zero tomorrow, the average car and boat owner would see a five percent reduction in their annual car or boat tax bill. That assumes no other local taxing districts got approval from voters to raise their rates at the same time, which would more than offset it.

The fact is that unless school districts agree to also lower personal property tax rates, any attempt by counties to end personal property taxes will produce underwhelming results. I still think it would be a good thing. We should tax fixed assets like land and buildings instead of mobile ones like cars. It would be a general improvement in tax policy and remove a minor annoyance for most people (i.e., their annual car tax payment).

Let’s just not pretend it would be a large tax cut.

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Susan Pendergrass speaks with Tim Carney, senior fellow at the American Enterprise Institute, about why American culture may be making it harder to have and raise children. They discuss the long-term consequences of the declining U.S. birth rate, how intensive parenting culture may be driving childhood anxiety, the “travel team trap” and the arms race of youth sports, what cities and communities can do to become more family-friendly, and more.

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Episode Transcript

Susan Pendergrass (00:00): I’m really looking forward to this conversation with Tim Carney. Thank you for joining us. You’re a senior fellow at AEI? I listened to a podcast the other day with a demographer from the University of Pennsylvania, and it was really good. I think they have a pretty strong department. He said that the United States reached peak child in 2012 or 2013, and basically

Tim Carney (00:06): That’s about right.

Susan Pendergrass (00:24): numbers have been going down on babies ever since. We definitely see that in Missouri. That was our biggest kindergarten cohort, and numbers are going down. I have five grandchildren under the age of five, and it seems to me this is going to be the policy conundrum of their generation. What do you think?

Tim Carney (00:44): It is certainly the biggest story of the next thirty years, policy, cultural, economic, everything. Another way of putting it: the number of births in the US peaked in 2007. Those kids born in 2007 either graduated last year or are graduating this week. Colleges know this very well. They’re all bracing for it. What about ten years from now when the workforce starts significantly shrinking?

Susan Pendergrass (01:03): Yeah.

Tim Carney (01:11): What about the towns that are built around a public school, elementary school, middle school, high school, and those start shrinking? Particularly in rural places, they’re seeing consolidation, two different public schools or two different Catholic schools consolidating. Can schools adjust to being small? How much is this a self-reinforcing spiral? When there are fewer kids, people aren’t used to seeing kids around. Yes, absolutely. It’s the biggest story of the next thirty years.

Susan Pendergrass (01:37): In your new book, Family Unfriendly, I think it’s interesting to juxtapose these two things. At the same time, we’re making it so much harder to raise kids in our culture, and we’ve raised the expectations for each and every one of them so high that people who are considering having kids find it daunting. It used to be, when I was young, people had six or seven kids and just hoped for the best. Everyone did okay. But now every child has these insane expectations, and I sympathize. If your child doesn’t roll over by six months old, they need occupational therapy now. That did not used to be the case. Doesn’t that work against it?

Tim Carney (02:12): Yes. A lot of economists have been praising quality over quantity parenting for years. Isabel Sawhill is an economist I’ve worked with for years, but I think she’s dead wrong when she says this is good, that people are choosing fewer kids so they can invest more in each one. That sounds right, but then you realize

Susan Pendergrass (02:33): Okay.

Tim Carney (02:53): the American Pediatrics journal says the number one cause of the epidemic of childhood anxiety we’re facing right now is lack of unsupervised play. So parents who are giving their kids the best of everything, making sure they’re not just wandering around the neighborhood, making sure they’re safe and busy with violin lessons and enrichment activities and a special private pitching coach for softball, that’s supposedly high-quality parenting. But it comes with low-quality results, which is very anxious kids, as well as stressed-out parents. People ask how my wife and I do it with six kids. I like giving answers about the special cool systems I have, but the real answer is a lot of times we just don’t.

Susan Pendergrass (03:41): Yeah. I feel like I’m probably going to say a lot of unpopular opinions on this. I never liked elite sports or travel sports, but I see travel sports going nationwide now. People from Texas are going to Florida, going to California for travel sports, which I always thought was kind of insane because it didn’t work for my family. We would normally have tournaments at Fourth of July and Thanksgiving. I also see kids being absorbed into the adult world more. Craft breweries have children trying to find something to do there, which is not a very normal environment for them. High-end restaurants have little kids in them, and I just feel like that takes away from the time when they’re supposed to just be kids.

Tim Carney (04:28): I actually think mixed-age mingling is something we need more of. Sometimes when I need to get work done, I’ll go to the local craft brewery to get away from my kids, and then somebody else has all their kids there. But those kids aren’t asking me any favors, so I’m fine with it. I think it’s good that we’re building places for parents to bring kids. The way I put it, though, and again

Susan Pendergrass (04:35): Okay. Yeah. That’s right.

Tim Carney (04:58): my local brewpub allows for this, but we need places where parents can bring kids and ignore them. I brought my kids to the brewery on a cold winter day when they couldn’t be outside because it was ten degrees and forty-mile-an-hour winds. I start the book with a story, in contrast to

Susan Pendergrass (05:05): Yeah. Yeah.

Tim Carney (05:27): high-intensity travel sports, of a program that we saw and then emulated in the Catholic parishes when we lived in Maryland, which was called Friday Night on the Field. There was T-ball and coach-pitch baseball, so this was kindergarten, first grade, second graders. Maybe 10 percent of the dads were coaching. The rest of them, if they were there, were hanging out with other dads. And the kids who were older

Susan Pendergrass (05:53): Yeah.

Tim Carney (05:56): were running around or playing wall ball. The kids who were younger were on a playground. When my wife found out what was going on there, she said, you are bringing all six of the kids to this while I stay home and rest. So I brought the kids there. I maybe had a baby in my carrier, ignoring the other four while one of them played T-ball. And that was exactly what suburban parents needed. Not this high-intensity mom and

Susan Pendergrass (06:08): Yeah, sure.

Tim Carney (06:22): child attached at the hip, but the whole family is there, it’s mixed age, and the children have freedom. This is a really important part of it in so many ways. One, that childhood is expansive and not just intensive. Two, that raising kids isn’t this hyper-intensive, constant thing. There was a commercial I cite in the book about Mother’s Day and how we need to honor mothers more. But it goes way overboard. It says they pretend they’re hiring for a job, and the requirements include you’re never allowed to sit down and you don’t get to eat meals until all of your colleagues are out for the evening. Being a mom is exhausting, and there are days where you don’t sit down, but come on. This is just not true.

Susan Pendergrass (07:00): The hardest job in the world. Yeah. I have three kids that are pretty close together. It was rocky there for a while, but I wouldn’t trade it for anything. As a practical matter, how do you change culture? If the prescription is to back off on intensive parenting, it feels more like an arms race where people say, maybe I don’t even agree with it, but if every other kid is going to Kumon Math, my kid has to go to Kumon Math. What do you do?

Tim Carney (07:36): It’s a tragedy of the commons sort of thing. I discuss it particularly in sports. In chapter one I call it the travel team trap. The reason it’s a trap is you get stuck without wanting to. I know lots of people whose kid just wants to play JV baseball, but the coach says they have to play fall baseball too. But I’m a football player. If you’re saying I’ll miss some reps and the other guys might get ahead of me, well

Susan Pendergrass (07:57): Yeah.

Tim Carney (08:05): that’s one thing. But then the coach says you’re shirking if you’re not playing year round. We have sought out schools and programs that explicitly do not do that, but we had to seek them out. It’s harder to be a backup point guard on a varsity basketball team if you’re going to play three sports, so you might get cut from the team. To some extent the parent is just saying, I really just want them to make the team, and that’s why I’m doing this.

With the academics, there’s a similar dynamic. We put our daughter, who was struggling in math, in a remedial program, something like Kumon. When we showed up, we realized, this was in Northern Virginia, specifically McLean, which is a wealthy area. Nobody else there was remedial. Everyone else there was an A student whose parents wanted their third grader

Susan Pendergrass (08:52): I see. Okay.

Tim Carney (09:03): to be at the sixth-grade level so they could get into Thomas Jefferson, the special super-magnet high school.

Susan Pendergrass (09:08): Yeah. If kindergarten is the new second grade and preschool is the new kindergarten, where does it end? I just feel like we’re overwhelming parents. You said it’s raising anxiety in kids. It’s definitely raising anxiety in parents too. It’s making people not want to be parents. It feels very stressful right now. There are books and apps, and there’s even a book on how to be a more free-range parent, which is strange to me. Does somebody need to be told how to do this? You just let them go outside.

Tim Carney (09:46): No, it does take work. And another thing is, to quote what a wise woman once said, it takes a village to raise a child. Being free-range is easier when other people are doing it. We used to back up to a big playground, and nine times out of ten my kids were the only ones there unsupervised. I actually got an email from a neighboring parent. It wasn’t criticism. It was saying your kids are great and it’s great that you let them run free, and asking if I could talk to them about letting their own kids run free. If you’re in a neighborhood where there are kids but they don’t come out, you might have to build organized activities. We didn’t do that growing up. We just played stickball. My mom wouldn’t organize it. We did it on our own. But now parents might have to be more involved. It’s a little bit of labor, but you connect the families, connect the kids, build the trust.

Susan Pendergrass (10:19): Yeah. Yeah.

Tim Carney (10:44): The community, and we talked about policy. I’m in DC. Everybody wants it to be a federal bill, this or that. The fact is it’s a cultural thing, as I said, and the community is going to have to have these organic, or sometimes deliberate and intentional, structures to help parents raise kids. The more parents who are walking around the neighborhood, the safer the neighborhood is. The more parents making it clear that their kids are going out and should come home when the streetlights turn on, the more that’s known, the safer it is. Remember when you and I were young, other people’s parents would correct us when we were wrong? Now, I have close friends I know I can do that with, but a lot of parents say they’re terrified of correcting someone else’s kid because they’ve been screamed at by the other parents. Your kid was

Susan Pendergrass (11:25): Mad at us. Yes.

Tim Carney (11:41): about to shove gravel down the throat of her two-year-old sister at the playground. And that’s my job too, if I’m right there. That social trust and community takes work. There are people who say it takes a village, and they can’t find their village. You have to build your village. I’m one of those conservatives who really believes that.

Susan Pendergrass (11:54): Are we willing to do the work? Do you see people doing it?

Tim Carney (12:09): We’re too individualistic, and that’s part of all of this. But I’m also one who believes the burden is really on you. You can’t wait for somebody else to do it. You build the community, and then you can sit back and bear the fruits of your labor as a neighbor yells at your kid so you don’t have to.

Susan Pendergrass (12:25): You’ve also talked about building family-friendly communities. There’s a conundrum we face in Missouri: no one wants to live in downtown St. Louis. A lot of cities face that, and St. Louis is probably at the forefront. We’re in the top five for cities in decline, and St. Louis and Pittsburgh are going to serve as examples, because

Tim Carney (12:28): Yes. Mm-hmm.

Susan Pendergrass (12:53): we hit that death spiral with more deaths than births a while ago, and all of our demographic trends are going to be out ahead of everyone else. People are going to look to us. But parents don’t want to raise their kids in the city of St. Louis. And if you don’t have children, you just keep getting older. Tell me a little bit about what has happened to make cities unfriendly to families and what they could do to change it.

Tim Carney (13:19): I’m a believer that we need all of the above. I’m very pro-suburbs. That’s where I raised my kids, that’s where I went to high school. But before high school I grew up in Manhattan, and I’m very pro raising kids in cities if you can do it. The number one thing is crime, or crime and disorder. You saw this a lot during the 2020s when people would say, who cares if people are hopping over the turnstile, so what if people are smoking pot, that homeless guy sleeping on the corner isn’t going to do anything. All those little things that adults can, maybe they shouldn’t but can, turn a blind eye to are disturbing to kids and disturbing to parents. Crime and disorder needs to be put in its proper place.

But then also, this is something where liberals tend to be better than conservatives: walkability and public amenities. I don’t mean my ability to walk to work or to my favorite cocktail bar. What I really mean is my ability to walk my baby in a stroller somewhere nice, and my eight-year-old and ten-year-old’s ability to walk together to a cool park, and more importantly to walk together to their friend’s house. Cities can actually do that better than suburbs to some extent, because they can put in those amenities, which are playgrounds, parks, and other things. That means traffic. Cars have to slow down. This is something I’m really studying now at AEI. The federal government has a walkability index, and it’s laughably bad. It’s published by the EPA, so it doesn’t actually show you

Susan Pendergrass (14:45): It’s about car exhaust.

Tim Carney (15:10): whether your kids can walk somewhere without getting run over by a car. We’re trying to see if there’s a way to improve this. That’s part of the built environment. That’s explicitly a government duty. Are the roads too wide? Are the cars too fast? Are there crosswalks? Are there trails? Because once you can let your kids walk around without getting run over by cars and without running into meth heads, their childhood is so much better. And your family life is so much simpler.

Susan Pendergrass (15:41): What about safety? I think it was you mentioning something like setting up safety zones within which families could have some reasonable degree of comfort that police respond and that crime is being attended to.

Tim Carney (15:58): A big part of raising kids, in my view, is you want to give them a sort of walled garden and let them be free in that garden. Every year that garden gets bigger, and at some point you realize the walls are gone and they’re out in the world. For me, this was a back campus at St. Bernadette’s and St. Andrew’s, the parishes where we had these programs. The kids were running free, but unless there was a kid who was going to run into traffic, and there are those kids, and probably some of your viewers and listeners have one who they know is a flight risk, in general they were going to be safe. When I would leave my kids alone in a museum, I tell the story of my son Sean, who three times I’ve totally lost him, but it was always in a botanical garden or a museum or someplace similar,

Susan Pendergrass (16:33): Yeah.

Tim Carney (16:55): where someone would say, hey, who are you with, four-year-old? And then slowly expanding that realm of freedom. You can walk around the neighborhood but can’t cross over Route 50, and then slowly it gets bigger and bigger. Community norms are really what make that possible. That two-year-old shouldn’t be walking down the street alone. That six-year-old is fine.

Susan Pendergrass (16:57): Yeah. Who are you with? But haven’t we kind of ruined that with the twenty-four-hour news cycle where everybody believes their children are at risk of being abducted by a stranger at every moment?

Tim Carney (17:35): Yes, and this is part of the problem I run into. When I say we need to let kids be free to run around like we Gen Xers were, people say it’s so much more dangerous now. It’s not. Statistically, almost the whole country has gotten over the violent crime wave that came with the George Floyd unrest and COVID lockdowns. That caused a spike in all the cities, and every place in the country right now is much, much safer than it was in 1984 when I was six. By a long shot. Every parent’s worst nightmare is their child getting abducted by a stranger. These cases happen, they end up in the news, and so we all think they’re happening all the time and all around us. Evolutionarily, we don’t have a brain that can understand a country of 340 million people.

Susan Pendergrass (18:08): Yeah. Yeah.

Tim Carney (18:32): So if there are three major cases a year and people talk about it for a few weeks, it seems like there’s some kid who got kidnapped half the year. It happens fewer than a hundred times a year. If you see numbers saying children are abducted ten thousand or a hundred thousand times, those are bad situations, but they’re not stranger abductions. In almost every case, the boyfriend goes off with the kid without the mom’s permission, or the grandparents have custody and then the mom comes and takes the kid. These are not good situations, but they’re not a kid who was left alone at a playground and then shoved in the back of a white van.

Susan Pendergrass (19:20): To the extent that we could bring any of that back, and this is where I’m a little pessimistic, I think kids learn decision-making in a way that isn’t being taught now, so that we end up working with people who never made an independent decision in their life. I certainly was out and got hurt and had to figure out: am I hurt enough to go home? Am I hurt enough to keep going?

Tim Carney (19:37): Ask a boss who has hired somebody right out of college recently. Yes.

Susan Pendergrass (19:45): Got a flat tire or whatever, we had to make decisions on the fly. I just don’t think we’re building that type of independence and resilience into our kids, and it’s a loss at the global level.

Tim Carney (19:58): Absolutely. Employers should all really be getting behind what you and I are saying right now, because if they want to hire a kid out of high school or college who can make a decision. I always remember the time I used to mow lawns in high school. Once I showed up at a lawn across town, used his mower, and it just didn’t start.

Susan Pendergrass (20:05): Yes.

Tim Carney (20:21): He was not home. He had a number on the fridge. I called and said, Mr. Zellinger, your mower’s not starting. And he said, good news is I don’t come home until Monday. So you have between now and then to get the lawn mowed, and I’m confident you’ll figure out a way to do it. It wasn’t an assignment. It was a responsibility. The best way to give your kids a responsibility that’s not an assignment they can just beg out of is to let them be free. And all of a sudden they’re like, wait a second.

Susan Pendergrass (20:40): Yes. Right.

Tim Carney (20:51): I need to be there in twenty minutes. How do I make that happen? Or I’m lost, how do I get unlost? And again, the children suffer. It’s not just that they go through life happy and dumb. They end up more anxious because life will inevitably bring them these problems. There is an epidemic of childhood and adolescent anxiety, according to

Susan Pendergrass (20:56): Yeah.

Tim Carney (21:19): HHS, and it’s caused by the fact that kids don’t have enough freedom in childhood.

Susan Pendergrass (21:29): I want to circle back to actionable items. What can we do about it, realistically?

Tim Carney (21:33): On the parental freedom side, there’s not that much the government can do except build better sidewalks, crosswalks, and pathways. Housing reform is interesting here. I’m a big believer in suburbs, but that doesn’t mean they can’t be more dense. One thing that’s really freeing is when you can buy a house in the neighborhood you want to live in,

Susan Pendergrass (22:01): Yeah.

Tim Carney (22:01): because your mom lives there and you have grandma to babysit. That’s a huge predictor. So many people in Washington think everybody needs universal daycare paid for by the government. Most people want mom to work a little less and grandma and grandpa to chip in, with neighbors to fill the gaps. More housing is what enables that to happen. But for the most part, we need more robust community institutions and more robust community connections. And every parent out there has to think: maybe I’m going to be the one who does this. There’s a field across the street from your house. Start a soccer league, bring food, run a grill. This is exactly what we did with T-ball. Throw in some money to pay for it. Buy the burgers at Sam’s Club or Costco and feed everyone. Bring your six-year-old to play soccer. This is not his or her path to a college scholarship. It’s a fun thing for the families to do. But you have to start it. We started it because we saw somebody else had started it. A lot of this is going to be on an individual level. On the policy side of supporting families, there’s a lot of debate about a child tax credit, a baby bonus, universal child care, and requiring employers to give parents parental leave.

Susan Pendergrass (22:58): Yeah. A lot. Leave.

Tim Carney (23:22): I write about that a lot at AEI. AEI scholars disagree about it. In the book, what I argue is we need a child tax credit, and it needs to be a little bigger. A family of eight making a hundred thousand dollars should not be paying the same taxes as a family of two or three making a hundred thousand dollars. That should be reflected in the tax code, because this isn’t just some consumer thing. It’s not like saying, I bought a Tesla, I deserve a tax credit. It’s saying, we’re eight people, we need to eat eight people’s worth of food, and the tax code should reflect that. But on the other programs, forcing employers to offer certain benefits or creating government-run childcare, I don’t think any of that works.

Susan Pendergrass (24:02): I mean, the Nordic countries do all of it and they have population decline.

Tim Carney (24:05): They have worse population decline than we did. There was a slight uptick, and one of the arguments I make is that subsidized childcare is not really a family subsidy, it’s a work subsidy. Notice who’s lobbying for it as these things bubble up. It’s going to be the Chamber of Commerce. I’m fundamentally a family guy. I think we need work. Part of fulfilling our human dignity is doing work. But that doesn’t always have to be paid work. In the book I defend stay-at-home moms and dads. I really think our society should be oriented around families. Now that’s a little heretical these days because, well, what if you choose not to have a family? Fine. There have always been people who chose not to have families. But that doesn’t mean families can’t be the central organizing principle of our culture.

Susan Pendergrass (25:04): More people now are choosing not to have families. And a lot of cities are pursuing those people, the childless professionals with Top Golfs and loft apartments.

Tim Carney (25:10): I quote a local official in Family Unfriendly saying families are a cost and businesses are an asset. Families come in, they pay income taxes and property taxes, but then they require sewage, they require schools, they complain that the playgrounds and the sidewalks are in bad shape. Businesses are mostly revenue. Washington, DC has explicitly said they don’t just want anyone to move in. They want the college-educated 22-to-28-year-old, meaning a person who gets to spend every dime of disposable income in the restaurants and bars and shops in DC. And if you look at the housing being built in Falls Church, right near me, it’s all studio and one bedroom, because that’s what the local government wants: more singletons who go out and spend their money. Sometimes we do things that are really bad for the economy. My wife makes homemade dinner. We almost never go out. A lot of our activity doesn’t involve paying anyone. The kids are just playing wiffle ball. All of that is horrible for the economy.

Susan Pendergrass (26:19): Yeah. Falls Church used to be such a big attraction for young families because of the schools. I’ve seen the shiny buildings going up recently, and I’m shocked by it. That’s interesting to me.

Tim Carney (26:44): I think it’s good to build more housing. But if it helps boomers sell their single-family homes to move into apartments, then it frees up family housing. This is a really complicated thing. We need more housing, but so many of the YIMBYs just want massive apartment buildings with as many apartments as possible, and that’s family unfriendly. What we really need, in my opinion, is slightly more dense suburbs,

Susan Pendergrass (26:54): Yeah. Yeah. Yeah.

Tim Carney (27:14): a starter home that somebody can buy. That’s basically impossible to build, especially in a high-cost area like this, or in the nicer suburbs around St. Louis and Kansas City. You’re not going to build them because of the regulatory overhead. If I build a single-family house and sell it for two hundred thousand dollars, that’s not worth it. I’m either going to build a McMansion or an apartment building.

Susan Pendergrass (27:26): They’re not building them. No. They’re doing the six hundreds. Yeah.

Tim Carney (27:41): Getting rid of a lot of the regulations that make it impossible to build a starter home is one of the best things that states and counties can do.

Susan Pendergrass (27:49): I really appreciate you coming on to talk about it. It’s a thorny issue. Countries that have really tried their best to encourage people to have more children haven’t been successful. This is going to be one of the biggest policy conundrums of the next few decades. The earlier we start talking about it, the better. I’ve been talking about it for at least five years in Missouri. We just had our smallest high school graduating class two years ago. People ask, where did the people go? They didn’t go anywhere. The babies haven’t been born, and we need to get used to it so that we can start thinking about how to solve it. I love a lot of your ideas. We have to think about solutions to this because if it feels overwhelming to have children, then people won’t have them.

Tim Carney (28:41): That’s exactly right.

Susan Pendergrass (28:42): Family Unfriendly. And your other book was Alienated America.

Tim Carney (28:44): Family Unfriendly. And Alienated America, which is about the collapse of community, which is upstream from this problem.

Susan Pendergrass (28:53): Lack of social capital and all of that. I think these are going to be some of the most important issues we can think about going forward. I really appreciate you coming on to talk about it.

Tim Carney (29:00): Thank you, my pleasure.

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While guest-hosting Mundo in the Morning on KCMO Talk Radio, Patrick Tuohey is joined by Elias Tsapelas to discuss the Missouri legislature’s effort to begin eliminating the income tax. They break down why Missouri’s tax climate is holding back economic and population growth, how a gradual phase-out could work, and why concerns about sales tax rates may be overblown.

The post Missouri’s Path to Eliminating the Income Tax with Elias Tsapelas appeared first on Show-Me Institute.

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On June 5, Patrick Tuohey, senior fellow at the Show-Me Institute, guest-hosted Mundo in the Morning on KCMO Talk Radio, where Terrence Wise of the Missouri Workers Center announced the organization had collected over 4,500 signatures, more than double the roughly 2,000 required, to force a public vote on any taxpayer subsidy of the proposed downtown Royals ballpark. The city clerk has 10 days to validate the signatures, after which the city council has 60 days to act, with a public vote expected in November.

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The post Kansas City Voters May Get a Say on the Royals Downtown Stadium appeared first on Show-Me Institute.

FORWARD MOVEMENT

INCOME TAX REFORM: HJRs 173 AND 174

Lawmakers approved a constitutional amendment for voter consideration that would authorize the eventual elimination of Missouri’s individual income tax. The measure represents the most significant advancement of income-tax reform in Missouri in years and ensures that the future of the state’s tax system will ultimately be decided by voters.

• Asks Missouri voters to decide whether the state should pursue eventual elimination of the individual income tax
• Allows lawmakers to modernize Missouri’s sales tax system as part of future income tax reductions
• Requires local governments receiving additional sales tax revenue to reduce other local taxes

OCCUPATIONAL LICENSING: SB 1233

Expanded opportunities for experienced professionals moving to Missouri by creating a pathway to temporary licensure for individuals with at least three years of work experience in a profession from a state that does not require a license for that occupation.

HEALTH CARE: HB 2372, HB 2974, SB 878, AND SB 1233

• Removed outdated barriers, allowing more patients to establish provider relationships remotely
• Eased restrictions on prescribing medications through telehealth
• Expanded access by allowing providers licensed through reciprocity to serve Missouri patients statewide
• Expanded pharmacist authority to test and treat for common illnesses and prescribe certain medical devices

MORE WORK TO BE DONE

Despite extensive discussion, several major policy proposals were left unresolved at the close of the 2026 legislative session.

EDUCATION REFORM

Legislation intended to address Missouri’s reading crisis passed in the House but died in the Senate. Meanwhile, 42 percent of the state’s fourth graders can barely read—the worst results in 20 years.

• Literacy reform
• A–F school accountability grades

TAX AND BUDGET REFORM

• Property tax reform
• Spending restraint

The debate over Missouri’s future did not end with the adjournment of the legislative session. Voters will soon weigh in on income tax reform, and lawmakers will return next year facing unresolved questions about education, taxation, and government spending. The most difficult reforms still lie ahead.

Download a copy of the report here.

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Susan Pendergrass speaks with Judge Glock, director of research and senior fellow at the Manhattan Institute and contributing editor at City Journal, about the growing debate over data centers in Missouri and across the country. They discuss why some communities are banning data centers while others are welcoming them, how Loudoun County, Virginia became the global epicenter of data center development and what it has meant for local tax revenue, whether concerns about noise, aesthetics, and energy use are valid, and more.

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Episode Transcript

Susan Pendergrass (00:00): Thank you for coming on the podcast again, Judge Glock. We’re going to talk about something that is certainly in the news and certainly good and bad for Missouri in the past week. We’ve had stories about both new data centers being announced and more communities banning them. What’s your take on that? You live in Virginia. In Missouri, we are certainly at odds with each other between one area that is going to have both a massive Amazon and a massive Google data center and then very close to that a large county that just banned them. Where do you think this is going?

Judge Glock (00:36): In some sense, it’s going the way of a lot of American projects in that there’s going to be a diversity of local responses to them, which I think is actually quite OK. One of the things I gather when I talk to some of my friends across the pond in the UK or in Europe is that they basically have to have this grand national debate about data centers, whether to allow them and where to allow them. That’s obviously an important and worthwhile debate, but in America what we’re going to have, and what we’ve already had, is a near infinitude of local debates about data centers. I think that’s the right path. When you nationalize or centralize these issues, you create more veto points for people who want to refuse any sort of growth. You also force certain kinds of growth on people in areas that aren’t necessarily favorable to them or most likely to benefit from them. The American system of fairly decentralized governance, combined with a fiscal horse-trading side where the main benefit of local data centers is the fiscal bump local communities can get, I think is going to lead to a more positive outcome than a more centralized system that tries to create a single answer for a whole country or state.

Susan Pendergrass (02:07): But we have at least one county in Missouri that within the last few days said, regardless of the money, we’re a community and these things ruin towns and communities. I wonder if it isn’t going to be like driving across some states like West Virginia where the biggest, ugliest, most pollution-spewing plants are there. I wonder if it’s because Virginia was willing to have them. Now you have these communities in Missouri that are like, we’ve got acres and acres of land and we don’t care what it looks like, versus these other communities that are saying we don’t want big white buildings everywhere. That to me is a very interesting dynamic, because I feel like they’re going to end up in places where nobody wants to build anything else.

Judge Glock (03:02): Yeah, and that might not be the worst outcome. Can I give a quick segue into the history of something called environmental racism? This was a movement started to some extent in the South in the 1970s and 1980s to meld general anti-industrial, pro-environmental sentiment with the burgeoning civil rights movement. The argument at that time was that evil polluters were forcing their factories into places that were poor and largely Black or minority-majority areas, and that this was a travesty because it was burdening people with increased environmental harm, pollution, and factory soot. The problem with that analysis, which has been carried out by the federal government for decades, is that a lot of times poor and minority communities really, really wanted these factories. They were willing to accept the trade-offs of the environmental harms for the fiscal and monetary benefits in a way that wealthier communities were not. Precisely because they were poor, they usually put a lower value on the environmental concerns that exercised a lot of high-income people and put a much higher value on getting good jobs and all the rest. There’s a famous case from the 1990s where I believe the Clinton administration sued a Louisiana parish and a company that was trying to place a factory in a majority-minority district, claiming it was an example of environmental racism. It actually turned out that the largely Black politicians in the local area were saying this was insane, that they were being sued by the federal government for being racist against themselves when they wanted the factory. That’s a long segue into environmental racism, but I think it’s the sort of analysis we should apply to data centers. There are going to be some areas that put a higher value on the fiscal benefits of data centers than others. On the whole, I imagine those will be poorer areas that care a bit more about reducing property taxes and perhaps the fairly small but not insignificant job benefits of data centers. Estimates suggest a finished data center will create around 50 or so permanent jobs, though certainly hundreds during construction. Some of those communities will be more likely to accept them than maybe wealthy suburbs or other areas that don’t want them for various reasons. Now there are exceptions to that general framework, and I’ve written a bit about Loudoun County, which is a very strange case study.

Susan Pendergrass (06:02): Tell me about that, because I’m surprised that it’s the data center capital of the world given what I’ve seen in Loudoun County.

Judge Glock (06:08): I happen to live in Fairfax, Virginia, in part of the suburbs, and grew up in the general area. So it surprised me to learn not too long ago that Loudoun County, just a little further west from Fairfax, a county generally considered ex-urban and rural, and by one measure, median income, the richest county in America, with a median household income of around $170,000 a year. And yet despite this reputation as a wealthy Northern Virginia ex-urban community, what Loudoun has actually become is the global epicenter of data centers. By some measure, the amount of gigawatts used by data centers, the only place close is Beijing, and they’re not even close, at about half the level of what Loudoun and Northern Virginia have. As I showed in an article I wrote for City Journal that got some attention, that came from a particular confluence of events, a history of Defense Department buildup that left a lot of what’s called dark fiber in the area, which created what’s known as low latency, meaning data centers there could communicate with each other very quickly. That made it a good place to locate internet and communication-focused data centers, and today data centers focused on inference for AI, that is the answering of AI queries. That history made it a particular location. But the other side of the Loudoun story is that for decades, and especially in the last decade, the county just recognized the fiscal benefits. Right now data centers are paying for 45% of all taxes in the county, which is pretty remarkable.

Susan Pendergrass (08:12): How much are they taking in from data centers in person?

Judge Glock (08:15): For the next fiscal year, the estimate is that data centers will bring in $1.3 billion in county revenue. That’s about 45% of all local tax revenue. But maybe an even more startling way to frame it is that all local government uses and projects outside of schools are a little less than what Loudoun raises from data centers alone. So the local residents of Loudoun County effectively get free police, free firefighters, free animal control, free roads, and so on.

Susan Pendergrass (09:00): Have they lowered their property taxes?

Judge Glock (09:02): Yes. Thanks to this absolute boom in data center revenue, Loudoun not only has very well-appointed and well-funded schools, roads, and police departments, but they’ve also lowered their property tax rate pretty continuously for over a decade. It’s about 40% lower than it was in the early 2010s. Now that’s offset to some extent by increases in assessments and other rates, but it is much lower than what I pay over here in Fairfax, about a third lower. So data centers for Loudoun, which can kind of be seen as the first area to really embrace them, and home to one of the first significant data centers in America built by a now large firm called Equinox in the late 1990s, has worked really, really well for that county. I don’t think it’s necessarily going to work as well for every possible county that doesn’t have the same advantages Loudoun does, but it does show that for those that embrace them, there can be real benefits. It clearly hasn’t hampered the ability to attract high-income, well-funded residents with good jobs and a nice community. On the whole it seems to have been beneficial, even if you’ve seen growing opposition there as you’ve seen elsewhere.

Susan Pendergrass (10:46): Virginia horse country. But now it feels like the word is out and people are hearing that there could be health risks, that the buildings buzz, that they use all the water. I’ve seen some recently that have like some blue stripes and stuff on them, but the originals were pretty plain. The latest vote in Missouri was in St. Charles, and people cheered and wrote all these emails saying we don’t want them in our backyard because of health risks and noise. How valid are those concerns?

Judge Glock (11:22): Before I was celebrating the local diversity of responses to data centers relative to the alternative, but I don’t want to slight the classic concerns with local NIMBYism, the not-in-my-backyard movement, or the idea that local governments often try very hard to restrict new development of housing or other projects in their area, which can be a substantial burden for people looking for housing or hoping for jobs and fiscal revenue. On the whole, I think the competitiveness of local governments will help wash that out. If St. Charles or another county refuses to build a data center, it’s often not too difficult to find another county willing to accept one. But I do think a lot of this anti-data center hysteria is driven by people with not just local concerns, which can be legitimate though to my mind often vastly overblown, but with a general anger at technological civilization and AI writ large. A lot of that has been strangely channeled into specific local opposition to data centers. That old leftist slogan of think globally and act locally presents a problem here: a lot of local issues don’t really map well to global concerns about climate change or AI. If someone has an issue with AI and they ban a local data center, that is in no way going to stop AI. Stopping a data center nearby is not going to stop the revolution. It will barely even slow it down. There is a lot of generalized opposition to modernity and technology that gets channeled into opposition to local data center construction, which is totally irrelevant to that debate. As for the actual local concerns, when I was reporting on the story for Loudoun, I spent some time driving around and checking out these data centers. For those who have not seen one, or frankly a park of them, it’s a pretty amazing sight. These things can be huge, nearly approaching a hundred feet tall, very solid concrete boxes, not often the most beautiful structures you’ve ever seen. The trend now is placing blind windows in them randomly to make them look better, though depending on your preference that may or may not help. I think a lot could be done to address the aesthetic concerns. Those are real. If you look at some parts of Loudoun and elsewhere, there are data centers built right next to housing subdivisions, and it can feel uncomfortable to have a looming concrete block right next door. The other local concern I think is somewhat legitimate but again overblown is the noise. Data centers, mainly because of their cooling systems, emit a fairly regular hum. It’s a low frequency, low decibel hum, but at a low frequency it can go through walls and subtly shake things. It can be irritating. I personally would not like a low frequency hum right next door. But the solution, as with the visual impact, is simply to push them back a bit. This is not like a local school that needs to be right next to a subdivision. If you’re talking a few hundred yards down the road, you’ve pretty much solved most of the hum and visual impact issues, especially if you surround it with some trees or berms or other methods to both hide the structure and limit the noise. Those two issues, the noise and the visual impact, are real. I understand why people are concerned, but they can be and have been easily addressed. In most of the debates you see, that’s not really the issue. It’s these generalized concerns about AI or false concerns about water.

Susan Pendergrass (16:03): What about the use of energy?

Judge Glock (16:19): Again, to some extent this is another local versus global problem where the local energy use of a data center is not really going to change the price people pay on their local residential energy bill. Most energy here in Virginia and elsewhere is part of a big interconnection, which is a market where different energy producers and power plants share electricity across large transmission lines. The price for electricity, besides state-level mandates, laws, or environmental regulations, is usually determined in that general market. Yes, a data center will drive up electricity costs somewhat in that general market, but it’s not necessarily a substantial driver of that. One new data center will have a very minimal impact on anybody’s bills across the whole region and will have no real effective impact on somebody’s local energy bills. To some extent, data center builders have also been doing a lot more work to construct what’s called off-the-grid or behind-the-grid energy production attached to the data centers. That can be problematic because of increased noise, even in Loudoun and elsewhere where a lot of places just have backup diesel generators that can produce a loud crack when the backup energy turns on, since data centers want to be running constantly. But in general, as before, you have very localized concerns about noise that you want to address with very localized attempts to limit those impacts, either through distancing the data center or finding ways to cover it and limit the noise it emits. The electricity issue is real in the sense that demand for electricity is going up because of data centers, and as economists like to say, supply is inelastic, meaning supply of energy is not going to ramp up as quickly as demand. That means prices are going to go up a little bit nationally because of that. But as long as the value of these data centers is there and people are going to build them, they’re not really going to have a meaningful impact on local electricity prices, and the data center builders are going to find other ways to get electricity and make sure that generation capacity comes online.

Susan Pendergrass (19:28): Missouri is building these two massive data centers not far from our one nuclear plant, and I know that’s something that has been discussed. When I hear that Loudoun County was the first to do this in such a massive way that they could bring in half of their income from data centers, it feels to me like when Colorado legalized cannabis and was the only state to do so. They took in so much money that residents got money back on their income taxes, and every other state said they were going to be just like Colorado. But Colorado was the one that did it first. Maybe Loudoun is the one that did it first with data centers. So now when a community brings in a data center, it’s not going to have the same impact it had in that first wild test case that was Loudoun County, right?

Judge Glock (20:18): I think that’s correct. I would note though that for some smaller communities, especially small rural communities with relatively small populations, such as some of these Texas counties, a single data center can become a third or more of the city’s or county’s budget overnight. So they can have a huge impact on smaller and poorer areas. But do most data centers as they’re built today have the huge fiscal impact that Loudoun got? Absolutely not. The other side of the fiscal story, though, and one that will apply more universally, is that data centers require very little in the way of services. When a city allows a new subdivision or apartment building, it gets more property taxes but also has to pay for schooling for the kids, roads, fire departments, and all the rest. When a city allows a new office park, there are similar property tax benefits but fewer service costs than residential development. According to one estimate I saw, for every dollar a typical office building or commercial retail project generates, a city spends about 25 cents on actual services to it. For data centers, because there’s basically no one in them, that number drops to about four or five cents. They basically need nothing. As I talked to some of the local officials in Loudoun, they said these things don’t send kids to school, they don’t even put cars on the road. There’s basically no impact on anything else. Once it’s built, it just sits there and throws off property tax revenues. No trash pickup, no breaking up fights at a local bar. It’s just money that keeps flowing in. So even if the property taxes aren’t as massive as they are in Loudoun, local communities still aren’t going to have to worry much about services, and they’re still likely going to see a big net benefit. Some people point out that data centers don’t offer many jobs over the long run, and a lot of industrial projects get approved because of job creation. But the flip side is that very few jobs also means low services and low impact. A big concern with local communities approving projects is traffic, and data centers just don’t create much of it for their size. So yes, other counties are not going to get the kind of deal Loudoun got and still is getting, because it remains the epicenter and data center builders want to build next to other data centers. But they are going to get a project that really doesn’t cost much of anything, still throws off at least some money, and doesn’t really burden local communities as long as it’s placed ever so slightly out of the way.

Susan Pendergrass (24:16): That brings me to another point. I’ve read that there are a lot of very smart engineers working on the problem of AI inference and how much energy and space it requires, and how to make it more productive. Eventually I think they’re going to solve this. We used to have server rooms that every business kept cool, and then everyone ended up with a laptop or even a phone. Eventually I think people are going to address this problem of requiring so much physical space to do what we need to do. I wonder if in a decade we’re just going to have empty white blocks sitting around because it’ll be too expensive to demo. What do you think?

Judge Glock (25:08): It could happen. You mean the data centers will be depopulated of their servers because they’ll be so miniaturized. That’s true, and it could be. To some extent, counties like Loudoun that have benefited massively from these data centers can and have set up rainy day funds, similar to counties that get a sudden oil influx, to say that if this ever starts to peter out, they’ll still have a long-term benefit they can continue placing into their budget and at the service of their residents. Right now I think we’re so far away from a potential data center bust that it really shouldn’t be a concern. As I’ve also pointed out, right now about one and a half percent of our whole economy is spent building data centers. This is just from basically zero just a few years back. This is a wild building boom, absolutely wild. We’re talking hundreds of billions of dollars a year. We need, if anything, to make sure that people can build out those data centers to do the other things that the AI revolution is going to require and demand, no matter what local opposition one county or another expresses. When you talk to people in the industry, the consensus is that we just can’t even build them fast enough. If very smart companies and very smart people are willing to invest hundreds of billions of dollars a year in data centers, and when I say data centers I mean mainly the servers and computers in them, I think they know it’s going to be a good return.

Susan Pendergrass (27:09): Well, it’s going to be interesting to see it play out in Missouri, because there’s definitely been backlash coming through the local town councils and the voters have been pretty loud in some areas. Have any Virginia counties banned them that you know of?

Judge Glock (27:29): Virginia has not only been the epicenter of the growth of data centers, it has been the epicenter of the opposition to data center movement as well. There is a group, something like Data Center Reform Watch, that has been monitoring local opposition. You’ve seen a bunch of counties take pretty strong steps against new data center construction. I forget if they’ve gone all the way to a formal and complete ban, but you definitely have votes in major counties either to block individual sites or to ban them from large swaths of the county. My take is that some other county is going to want and find ways to get those data centers, and when some of these counties realize they may have gone a little too far, they’re going to look at ways to pare it back and focus more on where to place the data centers rather than banning them outright and everywhere. I really struggle to find the logic in a local community banning a data center that’s going to be two and a half miles from anybody else. Frankly, as weird and big as they are, are they that different from, say, a local warehouse? A warehouse has trucks coming in and out all day, spewing pollution. One of these fulfillment centers is a big concrete box just like a data center, but with all that traffic on top of it. Data centers just seem much less problematic in that regard. In some sense they’re like a warehouse without all the trucks. If not for this huge generalized concern with AI, which is a separate debate, there doesn’t seem to be a lot of logic to just banning them completely.

Susan Pendergrass (29:42): Well, it is early days. I would love to have you come back again to talk to us when the dust settles a little bit, especially in Missouri. One of the first places I remember reading about a ban was Festus, Missouri, and now there are more. I’m also hearing about some of the biggest data centers going in there. So we’d love to have you back.

Judge Glock (30:02): That’d be great. I look forward to it.

Produced by Show-Me Opportunity

The post Are Data Centers Good for Communities? with Judge Glock appeared first on Show-Me Institute.

As I’ve written many times, during the COVID-19 pandemic, Missouri became one of the nation’s leaders in telemedicine access. Patients gained easier access to remote care, providers gained greater flexibility, and many Missourians discovered firsthand how technology can reduce barriers to healthcare.

Unfortunately, when the public health emergency ended, many of those reforms disappeared. Over the past several years, lawmakers have worked to restore some of that flexibility, and this year’s legislation represents another meaningful step forward.

There are currently several bills (House Bill 2372, House Bill 2974, and Senate Bill 1233), awaiting the governor’s signature that would accomplish a few things. Under current law, providers generally must establish a physician–patient relationship before treating someone through telehealth. The new legislation makes that process more flexible by allowing providers to determine when a relationship can be safely established remotely.

The bills also make telemedicine prescribing more practical by focusing on whether a provider has enough information to appropriately diagnose and treat a patient instead of relying on rigid restrictions surrounding questionnaires or telephone-only evaluations. Perhaps even more important, providers licensed through Missouri’s reciprocity system will have clearer authority to provide telehealth services to Missouri patients. That means patients are no longer limited to the providers located near where they live and can more easily connect with healthcare professionals across the country who are willing to treat Missouri patients.

These changes may sound technical, but their impact could be significant. Much of Missouri continues to face healthcare provider shortages, particularly people who live in rural communities or who require care in specialized fields. Patients often wait weeks for appointments, travel long distances for care, or delay treatment altogether. None of this is to say telemedicine can solve every healthcare access challenge, but it can help connect patients to providers more quickly without requiring new facilities or providers to relocate.

The reforms also demonstrate a reality that has become increasingly clear over the past decade: telemedicine is now a key part of the healthcare system. Patients routinely use remote care for follow-up appointments, consultations, behavioral health services, and many other healthcare needs. Providers have invested heavily in telemedicine technology, and patients increasingly expect those options to remain available. As healthcare technology evolves, state laws should continue adapting so Missourians can benefit from those innovations.

All this is to say there is still more work to do. Missouri should continue moving toward a more modality-neutral approach that focuses on the quality of care rather than the technology used to deliver it. Lawmakers should also continue expanding telemedicine options for providers working within their existing scope of practice and further remove barriers that prevent qualified out-of-state providers from treating Missouri patients remotely.

Missouri may not yet be the telemedicine leader it was during the pandemic, but this year’s reforms move the state further in that direction. Addressing Missouri’s healthcare access challenges will require moving beyond outdated assumptions about how care should be delivered and focusing instead on whether patients can safely access the care they need.

The post Missouri Continues Telemedicine Momentum appeared first on Show-Me Institute.

Missouri’s universal reciprocity regime allows most licensed professionals from other states to have licensing requirements waived when they relocate to the Show-Me State. But what happens when a professional moves to Missouri from a state that does not license their occupation at all?

Senate Bill 1233 creates a new pathway for those individuals. Specifically, it offers a temporary license to individuals with at least three years of work experience in an occupation or profession in states that do not require a license.

For example, Missouri is one of 31 states that requires a license to work as a sign-language interpreter. Without SB 1233, if a sign-language interpreter with three years or more of experience from one of the 19 states (and the District of Columbia) that don’t require licensing moved to Missouri, they would have to spend the time and money to acquire a license before they could work here.

This bill would allow experienced professionals to continue working while pursuing a permanent Missouri license.

There are still additional improvements that can be made in occupational licensing. For example, in the licensing reciprocity process, relevant oversight bodies can still wait up to six months to issue a waiver for an applicant. A six-month waiting period is far too long.

Every occupational license carries real costs, including the loss of time and income while waiting for approval. The central question in occupational licensing is whether these costs are justified by clear and demonstrable benefits to public safety or product quality.

SB 1233 lowers the costs for experienced professionals from license-free states. It also lowers barriers to entry, which can increase the supply of professionals in different sectors and place downward pressure on prices for consumers. Missouri policymakers should continue to evaluate which existing licensing requirements function as legitimate safeguards and which function primarily as barriers to entry and work.

The post Missouri Takes Another Step Forward in Occupational Licensing appeared first on Show-Me Institute.

Susan Pendergrass speaks with Jacob Light, Hoover Fellow at the Hoover Institution, about his research on how artificial intelligence is reshaping higher education. They explore which college majors are most exposed to AI capabilities, why professors are largely not changing their syllabi or assessment methods despite widespread awareness of AI, and what students are doing in response to the uncertainty. They also discuss whether the backlash against AI on college campuses is real, what previous waves of technological change can teach us about the current moment, and more.

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Episode Transcript

Susan Pendergrass (00:00): Thank you so much for joining us today on the podcast. Jacob Light, Hoover Fellow at the Hoover Institution, talking about something that’s very timely right now in this college graduation season. I’m hearing that all the college students are having a backlash against AI. I don’t know if you would agree with that or not, but I want you to try to explain to people listening what first of all you’ve been looking at in terms of AI in college in general, and also what your findings have been, because I find them to be very interesting and somewhat surprising.

Jacob Light (00:31): Thank you so much for having me. I’m really excited to join the podcast today. I’m an economist who studies how universities respond to different forces of change, whether that be changes in the labor market, changing political conditions, and more recently, changing technology, which feels very central both as a former student and now as an instructor at a university, thinking about how AI is affecting the way that students interact with their courses. My work right now thinks about this problem of AI in higher education in two ways. First, where should we be looking for exposure of higher education to AI? Where do the skills that students are learning to develop in their courses overlap with the capabilities of artificial intelligence? The second strain of the research is how are universities adapting? How are instructors changing the way that they administer courses? How are students changing which courses they take? And how should we look at these movements as indications of how these two sides of this market are responding to this big shock?

Susan Pendergrass (01:39): So to be clear, you’re not just saying that ChatGPT becomes available and all the professors outlaw the use of AI in classes, but more so: are students continuing in 2026 to be taught skills that we know AI can do? And what’s the answer?

Jacob Light (01:57): Yeah, exactly. I think it’s important to contextualize that we teach students many skills that have already been automated. We teach students basic arithmetic and spelling, even though we have calculators and spell check. We have these tools that can perform a lot of the cognitive work that we teach students to do from a very young age, and yet we still think it’s important for students to develop skills in these areas. We still teach students to add and subtract both because those skills unlock higher order cognitive skills and also just because that exercise is useful to students. So what I do in my research is think not just about whether instructors are changing the courses they offer to reduce the weight on things that ChatGPT and large language models are able to do, but if we think it’s important for students to develop these skills even though AI can do them, things like analyzing data or writing essays, then it becomes important for instructors to modify the way they offer courses so that we still get information about how well students are learning to do the tasks that AI can potentially substitute for them.

Susan Pendergrass (03:13): I don’t want to minimize the effort you put into this, because it’s massive. You went through thousands of syllabi to really look at what’s being taught in a very specific way. You also included not just large language model AI but robots, and a lot of the skilled trades. I would imagine that the skills needed 10 years ago have changed now that robots can do a lot of that work. What are you seeing there?

Jacob Light (03:42): For this first part of the project, where I think about how different fields of study are exposed to artificial intelligence, I should say upfront that exposure here doesn’t necessarily mean that every computer scientist is going to have their job completely automated. What I’m thinking about is the degree to which students are able to use AI as a substitute for, or maybe even a complement to, their work in the classroom. The approach I take is to leverage a dataset that I’ve spent many years collecting of course offerings from a large number of US colleges and universities. For about 1,000 schools, I’ve scraped the course catalogs and course schedules, which gives me insight into every course offered at the school over a period of up to 30 years. I see course offerings, enrollment, titles, instructors, and course descriptions. I use these course descriptions to build a sense of what skills and tasks a student develops in, say, an economics class. The exposure measure is the degree to which what a student does in that class overlaps with the capabilities of artificial intelligence. To be very specific with an example: in an economics class, students are often trained to analyze data, use models, and evaluate policy. The intuition for the approach I use is that if we see AI is really good at analyzing data, using models, and evaluating policy, we would think of economics as a field of study that is highly exposed to AI. I think about exposure to AI in two different ways. For the broad capabilities of AI, I glean from patents related to artificial intelligence. I look at the overlap between the tasks that students do in their courses and tasks that AI technology patents say those technologies are capable of doing. And then very specifically at the capabilities of large language models, which I think of as a subset of AI.

Susan Pendergrass (05:21): Yeah.

Jacob Light (05:35): So I look at two measures of what AI can do: the broad range of AI capabilities, which I extract from patents, and then the specific capabilities of large language models. What I find is that when you compare the exposure of college courses to AI versus to previous types of technologies, such as robotics, we see that courses are much more exposed to the things that AI can do than to the capabilities of previous technologies. This is consistent with existing research that suggests highly skilled jobs, the types of jobs that college graduates flow into, are more exposed to artificial intelligence than they were to previous waves of technology. That’s the first order finding. But within college majors, there’s pretty wide variation in exposure, and it differs based on whether we think of exposure to the broad class of AI technologies versus just large language models.

Susan Pendergrass (06:55): What’s the most exposed? It looks like it’s computer science, right?

Jacob Light (07:00): Statistics and data science and computer science are highly exposed majors. Unfortunately, economics is also a highly exposed major. I should say it’s not necessarily a good thing or a bad thing to be exposed. On one hand, there’s a risk that students are not developing the same skills when they have access to these AI tools as they did in a pre-ChatGPT period. But also, we lower the barriers to entry into computer science and economics through the availability of these tools, because everyone’s vibe coding, and also you have bespoke tutors in your pocket that can help you navigate difficult courses and overcome barriers to entry. So it’s not obviously a bad thing.

Susan Pendergrass (07:35): Because everyone’s vibe coding.

Jacob Light (07:53): But to be specific, especially when we think about exposure to AI as represented by the capabilities of large language models, what seems to drive exposure is a combination of fields of study that involve data analysis and generating text. These are the two things we think of LLMs as being very good at. So the quantitative social sciences, economics, political science, even sociology, as well as fields that involve applied data analysis, including statistics and computer science, are going to be the fields where the skills that students develop overlap most with what AI is capable of doing.

Susan Pendergrass (08:31): So are professors changing their syllabi to reflect that? Are they dropping things that clearly could just be covered by AI?

Jacob Light (08:40): That gets to the second part of this project. Having documented that there is this concern that AI overlaps with what we teach students to do in their courses, and that students might be able to substitute AI for their own work, we might look specifically at these highly exposed fields as places where we want instructors to modify the way they teach as a means of ensuring that students are developing the skills they were developing before ChatGPT was released. We read a lot of these articles about blue books being back.

Susan Pendergrass (09:12): Using blue books? I feel nostalgic for the blue books. There’s something almost romantic about writing in a blue book versus clicking buttons on a Canvas quiz.

Jacob Light (09:12): Yeah, I don’t like blue books by the way, but using blue books, yes.

Susan Pendergrass (09:23): But isn’t that just working against an enormous tide? To think that requiring students to write in a blue book is going to force them to not use AI for the exam, but aren’t they using it daily in their coursework?

Jacob Light (09:53): Again, it’s not obvious to me that using AI in their coursework is a bad thing. So much of the work I did when I was a college student was pretty inefficient. I spent a lot of time writing code that didn’t work and writing essays that read very poorly. To automate some of those experiences might allow students to invest more in the types of higher order thinking and learning that are more valuable. But on the other hand, I think I became a better coder because I made mistakes through the process. Now I can distinguish good code from bad code because I’ve written a lot of bad code and I know what my bad code looks like. So we might think that even if we’re not changing the types of skills that students develop in their courses, that we continue to offer economics courses and computer science courses, the way that we assess whether students are learning the skills they need is going to change. There are certain types of assessments, like out-of-class essays and homework, where you just can’t get as much information about how much students are learning, versus in-class proctored exams, participation, and presentations where students have to demonstrate mastery through assessments where you can’t use AI tools. What I do is, for about 20 universities, I’ve collected a panel of syllabi covering both the pre and post-ChatGPT period, and I extract two pieces of information. The first is whether the syllabus has an AI policy or not. The second is the weights that instructors put on different types of assessments, such as half the grade being based on exams and 25% based on essays. I find two interesting things. The first is that following the release of ChatGPT, instructors became very aware of AI. We see a massive increase in the share of courses that have any AI policy, and most of those policies are restrictive of the use of AI. My own syllabus has clear instructions about when I want students to use AI and when I don’t. My students are very compliant and of course listen to everything I say, both when I’m lecturing and in the syllabus. So we see that instructors are aware of AI and think of it as a concern in the classroom.

Susan Pendergrass (09:12): You think they follow that?

Jacob Light (12:24): Sure, great, okay. But the second thing I extract is assessment weights, which allow me to assess whether instructors are changing the way they offer courses in a way that lets them extract more information about how much students are learning. What I find is that despite instructors being very aware of AI, we see virtually no changes in how much weight instructors are putting on the types of assessments where students can substitute AI for their own work, versus assessments like exams and participation where they can’t. We hear a lot about blue books being back. We hear anecdotal stories about how instructors are concerned about students using AI in the classroom. But I just don’t see this in the data.

Susan Pendergrass (13:23): That’s surprising to me.

Jacob Light (13:42): I think what’s interesting and informative is that there are two shocks in pretty quick succession over the last couple of years that push in opposite directions on the information that instructors can get from different types of assessments. During the pandemic, it became harder to offer in-person exams. There was a physical constraint that limited exams. What I see is a shift away from exams and towards homework, a gradual pre-pandemic shift away from exams that sharply accelerated during the pandemic, and that persists even in the years after in-person instruction resumes. We can use that as a benchmark: at minimum, instructors could revert back to the way they were weighting courses before the pandemic. What we see is basically nothing. There are very modest shifts away from homework and other AI-substitutable assessments, primarily essays. We’re slightly reducing the weight on essays and offsetting that with increases in participation and presentations. But we’re seeing very little movement at scale away from the types of assessments where students can substitute AI for their own work.

Susan Pendergrass (14:44): Maybe higher education just moves slowly. It’s an ivory tower. People get entrenched. Some professors use the same syllabus for 20 years. Maybe it just moves more slowly in reaction to this. I know some that are angry about the AI thing, but it’s up to them to figure out how to change it. In terms of what students are doing, how are they reacting to the changes in terms of what they’re choosing as majors? What are you seeing there?

Jacob Light (15:32): Yes, so I track changes in enrollment over the last 20 years using this course schedule data from a large number of universities. Similar to the relatively slow movement on the instructor side, students are moving pretty slowly as well. Despite stories about concerns about the viability of computer science as a major, and after a period of very rapid growth in CS enrollment, we’re only seeing a slight dip in CS enrollment and in other AI-exposed fields of study in the last couple of years. What I can show is that for the first time since around 2005, when CS enrollment began to take off, this current year, the 2025-26 year, we see a slight decrease in computer science enrollment. But it still remains elevated compared to the start of the pandemic and substantially elevated compared to 2010. In a way, perhaps this makes sense, because although there is greater uncertainty around the returns to developing CS skills, CS courses are now easier to take because you have tools that can help you with your homework and tutor you. One of the barriers to entry into CS courses previously was that they were hard, and these tools make more AI-exposed courses easier. I think the risk and the concern is that the same tools that can do your work in the classroom can also potentially do your job, and I don’t think we see students internalizing that risk yet.

Susan Pendergrass (17:12): Even though the Wall Street Journal has a layoff tracker and Meta is constantly seemingly laying folks off, and Amazon as well. We see a lot of thinning of the herd when it comes to software engineers. I just imagine it’s going to change. Is this generation of college students in a weird bind? They’re right between the pre-AI and post-AI worlds, spending a lot of money on college tuition at a time when the future of different types of work is very uncertain.

Jacob Light (17:54): I’m very sympathetic to college students who are navigating uncertainty right now of a form that I don’t think college students have had to navigate previously. During previous technological change, we’ve always looked to universities as the resource that we send people to upskill, with the promise that the skills you develop in college are going to have returns when you enter the labor market. I continue to believe that’s the case, certainly in the short term. But I recognize that the nature of work is changing quite rapidly as new technology can perform some of the tasks that workers are able to do. Economists often conceptualize occupations as a bundle of tasks, and when a new technology comes online, the technology is able to do some of those tasks while the human worker continues to perform others. The net impact on an occupation really depends on which tasks are being automated, and whether that means we need fewer people doing that occupation because the technology can do it for us, or whether the ability of technology to make workers more efficient actually increases the demand for people with those skills because now more firms will benefit from having a single software engineer on staff when it previously would not have been rational for them to have any. There’s a lot of uncertainty right now, and I think it’s difficult to navigate as a 19 or 20 year old.

Susan Pendergrass (19:37): What about this backlash? Eric Schmidt spoke at a college graduation and folks booed him, I think. Even Jonathan Haidt, who is sort of anti-smartphone and screen time. Do you perceive that? You work on a college campus. Do you see that age group wanting to turn away from AI?

Jacob Light (20:02): My perception is that the backlash is to the uncertainty that AI introduces. Many students are eager to use the technology when it makes them more efficient or when it allows them to substitute time they would spend solving problem sets towards leisure and other pursuits. But I’m sympathetic to the frustration that students are feeling, that this investment they’ve made and the promise of opportunity that college has previously offered is now at risk because of the changing technological landscape.

Susan Pendergrass (20:53): I was talking to a lawyer recently about AI and how they use it and how great it is for them. They said basically every lawyer now has their own legal assistant. And I was like, what does that do for legal assistants? Everyone’s got a research assistant, which is great. I use it all the time. But what does that do for people who used to start as a research assistant? It’s obviously changing things. I kind of remember, because I’m pretty old, desktop computers being the thing that was going to kill all these jobs, and it just shifted the market. It didn’t kill anything. It just dramatically increased productivity. I think people have a lot of dystopian views of this, but you sound like you’re a little more on the utopian side, and I think there could be a lot of positives that come out of it.

Jacob Light (21:38): I think that’s right. Economists are not in the business of making predictions generally, and I’d have to give up my PhD if I did. I take some comfort looking at previous waves of technological change, exactly as you said. Computers created more job opportunities than they reduced. Mechanized agriculture unlocked widespread growth in the economy despite reducing some employment in agriculture. My belief, if we take the past as precedent, is that we will see something like that with artificial intelligence as well. Some, perhaps many, occupations will be disrupted. Workers in those occupations will experience difficult consequences of this change. But there will be more and new opportunities available once this technology is more widely deployed. There’s a trade-off, and the transition is messy and painful. But I think on net, the precedent is that new technology is generally helpful for society.

Susan Pendergrass (22:57): AI spits out a lot of bad content and you still need a human, I think, to determine what’s bad and what’s good. I think that’s the skill set within the CS world. You can have AI code five versions of something, but somebody needs to know which one is good. So what do you think about that?

Jacob Light (23:22): I think that’s exactly right. The expertise becomes more valuable. In a way, it’s kind of a bummer that the parts of work where humans maintain their advantage are in evaluating quality rather than in generating. We’ve kind of taken the creative component of work away. I think it creates a less satisfying, perhaps less intellectually stimulating workflow. At this stage, certainly, we continue to need humans with expertise beyond the capabilities of AI to evaluate what AI is producing. I think that points to the crisis that higher education faces: if we are not able to produce these experts because students are not developing the skills we need them to develop in college, then how will we produce the next cohort of experts? Similarly to your point, if we don’t have legal assistants and research assistants who will eventually become lawyers and researchers, then we are not training people to preserve their comparative advantages over these new tools. I think that’s a big risk we face, and it emphasizes the importance of education right now more than ever.

Susan Pendergrass (24:56): So are you going to continue with this, scraping the data and looking at it?

Jacob Light (24:58): Yeah. It’s my maniacal hobby. I started this data collection in February 2020, and a month later the world changed. But I had a lot of free time on my hands, so it gave me something to do. This little hobby of mine became my pandemic hobby. It was my sourdough. This data gives really rich insight into how universities differ in ways that I don’t think researchers have been able to explore previously.

Susan Pendergrass (25:36): No, I think it’s great. That’s really cool. If people want to find out more, where can we find it?

Jacob Light (25:42): I’m a researcher at the Hoover Institution. You can go to my website at jacob-light.com. I’m always eager to talk about this work.

Susan Pendergrass (25:51): That’s fascinating stuff. Well, thanks so much. I’d love to see a follow-up in a year or two. I think it’s really interesting. Thank you so much.

Jacob Light (25:57): Absolutely. Thank you so much for having me.

Produced by Show-Me Opportunity

The post AI and the Future of College with Jacob Light appeared first on Show-Me Institute.

Avery Frank, Elias Tsapelas, and David Stokes join Zach Lawhorn to break down the final week of the 2026 Missouri legislative session. They discuss the constitutional amendment heading to voters that would begin the process of eliminating Missouri’s state income tax, where property tax reform efforts stand heading into the final days, the early literacy bill’s uncertain path through the Senate, the legislature’s approach to A through F school report cards, what the state budget does and does not get right, the Ferguson city council’s rejection of a major data center tax subsidy, and more.

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Episode Transcript

Zach Lawhorn (00:00): Welcome to the Show-Me Institute podcast. I’m Zach Lawhorn from Show-Me Opportunity. Today I’m joined by Avery Frank, Elias Tsapelas, and David Stokes from the Show-Me Institute. It is the last week of the 2026 Missouri legislative session. Today we’re going to go through what has crossed the finish line, mostly what has not crossed the finish line, and see what these guys think about the possibility of that happening here in the home stretch. Elias, we’ll begin with something that has crossed the finish line, and that is the start of a discussion about phasing out Missouri’s state income tax. Legislation did pass. It goes to the governor, and he gets to decide when it goes on the ballot. So what do we know right now, what passed, and what are Missouri voters going to be asked sometime in the fall?

Elias Tsapelas (00:50): By May 22nd, the governor needs to decide whether this constitutional amendment will go on the August or November ballot. What it says, essentially, is to Missouri voters: do you want to start the process of getting rid of Missouri’s income tax? It comes with three main components. The first piece is the legislature will be required to enact legislation that would get rid of the state’s income tax based on revenue growth. Once that income tax is gone, it cannot be reinstituted. Previous versions of this bill had some details lined out about how the income tax rate would be cut based on revenue growth, but in later versions this was stripped back to just the legislature will decide this later. The other two pieces say you will also be authorizing the legislature to expand the state sales tax base, meaning the things the state sales tax applies to. This could also involve changing the rate, because right now Missouri’s constitution does not allow the state legislature to expand the sales tax to anything that was not taxed in 2015. But this does come with a guardrail: if the legislature does change the state sales tax, it has to be done in a revenue neutral fashion. So expanding the sales tax base or raising the rate to bring in additional tax revenues has to go towards lowering the state income tax. That gives the legislature the authority to change how much revenue comes in, which would speed up the process for getting rid of the income tax. The last piece is a component for local governments. If the state changes the number of things that the sales tax applies to, this would also increase revenues to local governments. Those additional revenues would have to go towards a list of other taxes that would be lowered. In places like St. Louis and Kansas City, that would go towards lowering the earnings tax. For other local governments, they get to choose whether it goes towards lowering the sales tax, property tax, personal property taxes, or real property taxes. The key piece being revenue neutral. This is not going to be a windfall for anyone. It is basically the start of a discussion, because they don’t say what the rate might need to go to, what the sales tax could be expanded to, or what revenues would trigger income tax elimination or cuts. This is just the start of the discussion, giving the legislature the authority to keep moving in the direction we started around 2014.

Zach Lawhorn (03:57): Taking those a piece at a time: the first one, if it passes and the income tax is eliminated at some point, it cannot come back. That seems pretty straightforward. The next two seem like responses to opposition that we hear on a regular basis. The first being the revenue triggers, which seem designed to prevent what we often hear about with Kansas, where they cut the income tax without cutting spending, leading to revenue shortfalls. And the expansion of the sales tax base seems like protection against having to raise the sales tax rate on goods. Do I have that right?

Elias Tsapelas (04:40): Yes. The revenue trigger piece is basically what Missouri has been doing for a while, waiting to see how much revenue we have before lowering the income tax by that amount. We’ve been doing that for over a decade now and have lowered the top individual income tax rate from 6% to 4.7%. We’re just continuing down that path to be sure we don’t create some enormous budget hole. Now, when you look at the sales tax, Missouri has a very complicated, out-of-date sales tax system. The state sales tax rate is 4.225%, but when you go to the store you’re paying something significantly higher, largely due to local governments and a lot of special taxing districts. Missouri also has a lot of sales tax exemptions. Missouri really needs a full look at its entire sales tax system. But economically, when thinking about switching a state from being primarily funded by income taxes to something closer to sales taxes, the best way to fund a state is to tax as broad a base as possible so you can have the lowest rate possible. You want to be taxing final consumption, not business inputs. As we start the idea of transferring to more of a consumption tax in Missouri, the goal is to make sure it doesn’t become a tax increase for some people while things change elsewhere. It’s trying to keep it level the whole way, and at least right now it seems like a pretty neutral proposal going forward.

Zach Lawhorn (06:24): David, for people who don’t think about taxes as a corresponding tax system, can you explain the idea of local governments rolling back certain taxes and how people might experience that on their property tax bills or personal property tax bills?

David Stokes (06:44): It’s trickier than you might think, but it’s vital that it be done right. If you expand the sales tax base at the state level, as Elias discussed, you don’t want local governments to start collecting significantly more sales tax revenue for no reason. At the state level we’ll do something good with that and phase out the income tax, but at the local government level we don’t want just more revenue with nothing to spend it on. You need tax relief for citizens, which is why they’re going to require rollbacks. They’ve given local governments some options in how you roll that rate back, which is a good thing, but they need to give them a few more options. For example, they said you could roll back property taxes, real property taxes, personal property taxes, or sales taxes. A few things that need to be considered: many municipalities don’t have a property tax, so they won’t be able to roll back the property tax. And it’s trickier to roll back sales taxes than you might think. Unlike property taxes and income taxes, which can be reduced in small increments, sales taxes have to be done in set increments. You can’t go from a 1% sales tax to a 0.92% sales tax. It’s just not allowed and would be incredibly difficult for retailers to implement. So local governments need even more flexibility in how they roll back taxes. I would say the utility tax, which just about every county imposes, is a great option to add to the choice mix for rollbacks. These are the sales taxes that can be placed on utilities, which unlike other sales taxes can be rolled back in small increments. That’s a very good option. The biggest challenge of all, though, is the special taxing districts that Elias mentioned earlier, such as transportation development districts and community improvement districts. These usually only have sales taxes and nothing else. You have to address what they do if their sales tax collections go up 30% and they have no legal way to roll it back by that same amount. So we need to adjust that. I would also hope that part of this whole deal would be a substantial cap on how these special taxing districts like TDDs and CIDs operate in the first place, to really restrict their continued expansion in Missouri, which has been very harmful. Those are just a few ideas out of many in how local governments are going to have to address this.

Zach Lawhorn (09:59): Finally, Elias, as you said, it’ll be on the ballot sometime in the fall. But between now and either August or November, people interested in this topic are going to see a lot of data, modeling, estimates, and projections. We want to be honest about what we can know and what we cannot know. With the legislation that has passed now, what should people keep in mind when they see some of these estimates or models or projections this summer?

Elias Tsapelas (10:39): The first thing is, if you see anything claiming this is going to generate a tremendous budget shortfall or major harm to local governments, this thing is set up to be revenue neutral. This is not something that is going to create enormous holes. Most of the time, estimates that reach that conclusion assume this would work in an entirely different way than what is allowed. So that is something you don’t necessarily need to worry about. What people are more reasonably worried about is: if you empower the legislature to expand or raise the sales tax, how is that going to impact everyone? Missouri’s state and local combined sales tax rates are relatively high already. The state’s portion is pretty low, but combined it’s relatively high. So what the state decides to do in terms of how much it expands the sales tax base, whether that involves more services versus goods, will impact different people differently, in different parts of the state and at different income levels. Anything right now that says this is definitely going to be bad for X person, we just can’t know that, because there’s not enough information out there. Everyone should keep an open mind and also recognize that the reason for this amendment and this proposal is that Missouri’s economy is falling behind. We are falling behind our neighbors in terms of tax competitiveness, and the only way to change that is to improve Missouri’s tax standing. Our sales tax system is incredibly broken, so this is something that is going to need to be fixed. At least right now we are at the point of asking: do we want to go down this path? Let’s hope the legislature does a good job. We’ll be shining a light on whatever they do, but we can’t know some of the things that people are warning about right now.

Zach Lawhorn (12:50): David, after the legislature got the income tax bills out the door, they shifted to talking about property taxes, which is something we hear a lot about. People want property tax reform. With only a few days left in the session, where do those efforts stand and what are your thoughts?

David Stokes (13:11): Unlike a lot of the property tax changes of the past few years, I actually like the property tax changes being proposed this year. At least one property tax bill is in conference committee being debated between the House and Senate right now. Another major bill has passed out of the Senate but hasn’t made it through the House yet. I’m told there are going to have to be some compromises on both sides to get a bill across the finish line, and there’s nothing wrong with that. The biggest change this year, which seems very much in the weeds but is significant, would take the way property taxes are imposed in St. Louis County and apply it to the rest of the state. St. Louis County has different tax rates for all the different types of property: residential, agricultural, commercial, and personal property, which includes your car, boat, farm equipment, livestock, and the like. Those rates adjust differently as assessments go up and down each year. This approach was originally intended to be extended to the rest of the state about 20 years ago when they did it in St. Louis County, but the following year they came back and said the rest of the state didn’t have to do it. It’s a good idea. It might sound strange to some people, but a good example of why it would be beneficial came from stories in the St. Louis Business Journal about the real decline in commercial property values in the city of St. Louis over the past year. Because they set one tax rate measured under one unified property value, residential homeowners in St. Louis end up making up with their taxes for the decline in commercial property. In St. Louis County, with the siloed tax rates, if commercial property goes down, the commercial property tax rate will go up to offset that instead of passing it on to homeowners. In rural Missouri, which has so much agricultural property, this would allow agricultural property tax rates to increase to fund goods in rural areas without as dramatically impacting commercial and residential property. I think this is a good idea and I hope it passes. There are also some good amendments that would put taxpayer protections in place to avoid the temptation of local officials to target commercial property with these new different tax rates. It’s in the weeds, but I think these are good changes this year.

Zach Lawhorn (16:24): That sounds like the other side of the coin from what’s happened in Jackson County, where over the last few years people have been very upset that their assessments have gone up by more than 20% and residential homeowners have seen gigantic leaps in their property taxes. Is this kind of like having to turn one knob one way and another knob the other way?

David Stokes (16:55): Sort of. The tricky part is that the situation in Jackson County for the past 10 years has been so bad, it’s hard to compare it to other counties. It’s been uniquely horrible for the people of Jackson County. But it does start with one basic truth: 15 to 20 years ago, Jackson County was under-assessed. The assessor was ordered to increase the valuations because they were improperly low, and probably artificially and intentionally low. The right approach would have been to raise those assessed valuations to more accurate totals while lowering the rates at the same time to avoid crushing people with higher taxes. But Jackson County’s taxing entities have not really done that, starting with the Kansas City 33 school district, a very large school district in Kansas City, which is the only taxing body in Missouri exempt from rolling back rates as values increase. So you’ve seen these giant increases within that school district and they don’t even have to roll back rates. They just get to keep their same rates, as they have frequently over the past 10 years. So people are getting walloped. And then you throw in the fact that the Kansas City Assessor’s Office has done a terrible job managing the process year after year, not hitting deadlines for notifying people about changes and not properly running the appeals process. It’s just been a terrible system in Jackson County, and almost uniquely so.

Zach Lawhorn (18:30): All right. Before we have Elias read the budget line by line, Avery, I want to get an update on the education items here in the last week of the session. Early literacy, the reading bill, we’ve been talking about it all session long. How’s it looking?

Avery Frank (18:47): When it first passed out of the House before spring break, 131 to 10, I was genuinely excited. It wasn’t necessarily that it passed so early; it was that it passed with such little resistance and such bipartisan support on both sides of the aisle. Teaching our students how to read, giving every student the best chance to become a confident, capable reader, that seems like common sense and a goal that everyone wants to work toward to help our state improve and perhaps become the next Mississippi. It looked that way before spring break, but the Senate version of the early literacy bill got filibustered and set aside. The House bill has made it through the process and is on the informal calendar for third reading, so it could be taken up at any time. If it does pass the Senate, I anticipate it would easily pass the House again. But that is the problem with a lot of education legislation: can it pass the Senate? There have been different concerns about the early literacy bills. Some people are concerned that the MAP test, or the Missouri Assessment Program, which we use to test all of our students, is not a good measure and we shouldn’t be basing anything on it. Some are concerned with third-grade retention and whether it actually helps, looking at states like Mississippi and noting that while fourth-grade scores are great, eighth-grade scores have only improved a little. Those are the main pushbacks we’re seeing. I would still say this is something we really need to do. The early literacy bill is built on two different pillars. The first is a mandatory third-grade retention policy. Missouri already tests all K through third-grade students with a reading screener to see how they’re doing with reading. What this bill would do is set a passing score for those screeners. If students don’t meet that score, they would be retained in third grade, because reading is such a foundational skill. If you don’t know how to read, that’s something worth holding back for, to make sure students get it down before moving on for the rest of their educational career. Students would still have the opportunity to retake the screener, and there would be good-cause exemptions for students with disabilities, for students who have been held back previously, and for English language learners. The second main pillar is reforming our teacher preparation programs. In 2023, the National Council on Teacher Quality conducted a survey of all of our universities and teacher preparation programs and found that half of them received an F in teaching the science of reading, which is the best evidence-based way to teach students to read. The early literacy bill would align our teacher prep programs with those best practices. If they don’t do it, they can’t certify teachers. You can see how there could be pushback and reason why people would filibuster or not want it to come to the floor. That’s where it stands right now. I’m hoping people set aside their objections and recognize that this is a great first step to get Missouri back on track. Our reading scores have been really poor, especially after the pandemic. They continue to decrease and have not bounced back at all. They’re lower now than they were the first year after the pandemic, and we have to turn things around. These early literacy bills, I hope people see the common sense in them.

Zach Lawhorn (22:30): It’s not even the perfect being the enemy of the good. It’s just people being afraid to push back against the status quo. Missouri has fallen back in reading test scores, and other states, most notably Mississippi, have found ways to improve. I don’t think it’s helpful to frame this as some kind of radical moonshot. In the final days of the session, the urgency cannot be overstated. The other thing we’ve talked about a lot this session is A through F report cards, a transparency measure. Governor Kehoe issued an executive order before the session started. What’s the status of the legislature trying to adhere to the governor’s executive order?

Avery Frank (23:19): The legislature has tried to legislate its own way into how the executive order gets implemented, because DESE, the Department of Elementary and Secondary Education, could implement it in their own way. The legislature wants to determine how things are going to be scored instead of letting DESE make that decision. There’s been a lot of back and forth, and a lot of different interested parties. Not to get too in the weeds, but some districts really want academic achievement, their base score on the Missouri Assessment Program, to be weighed the most heavily because that would give them the highest score. Some want growth to be weighed the most heavily for the same reason. Some want basically no grades and a lot more qualitative information. There are a lot of different factors. The best vehicle for A through F report cards right now looks like Senate Bill 1351, which continues the long legacy of education omnibus bills used in recent years in Missouri. It combines the report card, limits on screen time for young students, and a couple of other things. I’m not sure if that’s going to make it past, to be honest. People are still concerned about whether the Missouri Assessment Program is something they want to base all of this on. Personally, I think the executive order is better than the legislation as it currently stands. They got rid of one aspect I liked as a researcher: in Governor Kehoe’s executive order, there was a penalty if districts didn’t report their data properly. In the current legislation, Senate Bill 1351, if districts don’t report sufficient data, it’s just written as an aside, basically saying they have to note on their report card that there is not sufficient data, and then they’re not included in the ranking as much. I don’t like that. It gives districts, especially poorly performing ones, an incentive not to report their data so they can have this qualifier on all of their report cards. I also don’t like it because, from all the education research I’ve been doing, we really do have a data reporting problem and we need to be a lot better about transparency. I hope we get some good report cards, because right now at the Show-Me Institute we do our best with the data we have, but we have to work with unsuppressed data, meaning we don’t have data that could potentially identify certain students. So there are some districts we have no data on because they’re so small. But DESE and the state have the best data possible. They could make a really good report card even better than we could, because they have better data than we do. That’s why I’m really hoping we get a good report card, because it would be very helpful for all the parents, legislators, and researchers across the state to see which districts are doing well and learn from them, and which ones are doing poorly and need more support.

Zach Lawhorn (26:42): Let’s talk about the budget. Elias, the legislature passed the budget a little early this year. They beat the deadline by a couple of days, right?

Elias Tsapelas (26:53): They finished early, which is a little bit different than the last few years.

Zach Lawhorn (26:56): Are we spending more or less money than last year?

Elias Tsapelas (27:01): Spending less, but I’m not throwing them a party. There’s just a lot less federal money going around. There was a lot of COVID money in recent years, and Missouri hasn’t spent all of it. The current budget this year is about $54 billion. What the legislature passed is a little bit less than $50 billion, depending on whether you count different construction items. But there was a lot of federal money in that total. At the end of the day, what we’re looking at is a budget that is still going to spend more general revenue, where our income and sales tax dollars go. It’s still going to spend more than we expect to bring in. So we’re still going to exhaust all of our surplus that we built up over those years. There were some positive things that happened this year, but ultimately part of how they got the budget done early was by spending just a little bit more, so they left some of the good on the table.

Zach Lawhorn (28:20): So we’re spending the surplus, as you’ve been warning about for several years, the federal money is drying up, and to circle back to the opening segment, I think part of the trust the legislature is going to have to build this summer is demonstrating we’re getting spending under control. You said you’re not throwing them a party. But is this reduction, whatever the reason, directionally good enough for the legislature to say they’re working on the spending side of things, or is it just not good enough?

Elias Tsapelas (29:00): I think I’ll know a lot more going into next year, because there were a lot better discussions this year, especially looking at spending incentives. As was mentioned, DESE is going to have a new funding formula, or at least the governor has a task force working on one. The way education is funded for K through 12 is going to change. There was also a big fight this year about how to fund higher education. What seemed to me like a common sense idea, essentially having the legislature fund colleges based on how many students are enrolled, turned out to be considered too radical and was pushed off for the future. But there’s talk of coming back with a performance funding measure going forward. There’s also some movement on changing how the state does its IT work. There are a lot of IT changes coming, including things affecting Medicaid and the Supplemental Nutrition Assistance Program. Missouri has a very bad track record with IT. Part of this budget moves some IT resources over to the Department of Social Services to support getting things going there, because most IT for the state of Missouri is currently consolidated in the Office of Administration. While that can seem efficient because every state department doesn’t need its own IT department, it also makes it a lot harder to hold people accountable. There has been a big issue recently with the state’s accounting software, where a contract is millions of dollars behind schedule and not working. The budget tries to get at that too, and it raises this major incentive question: are the people in charge of implementing new IT going to do their best at something that will ultimately try to eliminate their job? I think the legislature is finally starting to deal with that. Ultimately, if we go down the path of a more efficient government and a better tax system, that may mean fewer state employees, and that is something that hasn’t come up much but I think the legislature is finally starting to look at. Pushing toward better funding models, a better state workforce, all those type of things, is moving in the right direction as opposed to how it has been, where the budget just grows larger every year. They’re looking in the right direction. I would have liked to see more, but I think we’ll know a lot more in the next year, especially because the federal COVID funding will essentially be gone.

Zach Lawhorn (32:12): Our final topic, partly so we can put it in the title of the episode for clicks, but also because it seems like every week there’s a story from across the country or across the state about data centers and communities pushing back for a lot of reasons. The most recent one was Ferguson in the St. Louis area. David, can you catch us up on what was on the table for this data center in Ferguson and what happened?

David Stokes (32:40): The vote that the Ferguson city council took last week was strictly on a tax subsidy, I believe about $1.8 billion in tax abatements and various subsidies for the project. It was not a vote on approving the data center itself. This was a commercially zoned area, so it didn’t need any permission to put a data center there, and that’s a good thing. But the city nonetheless rejected the tax subsidy, which I thought was the right call. These data centers are very profitable and important, and I’m certainly not anti-data center. But the demand that they get enormous subsidies everywhere they seem to be going is improper. Festus was right to approve the data center operation there, but I think very much wrong to approve the enormous tax subsidy the city granted, which I believe was about a half a billion dollars. Avery can correct me if I’m wrong on that exact number. I like what Ferguson did, and I hope the data center moves into the old Emerson complex there nonetheless. We need data centers. Data centers produce so much tax revenue that they can generate their own tax cuts, and I don’t mean a special subsidy for the data center itself. I mean they go into a city or a small area, generate so much revenue, and you can cut taxes for everybody in that community, including the data center itself. I think that’s the road to follow, and hopefully that’s what we’ll have in Missouri. I also think we need to change the way data centers are taxed in an upcoming legislative session, taxing them a little more like utilities to reduce the incentive for one city or county to hand out a big subsidy and instead spread those tax benefits around a little more.

Zach Lawhorn (34:46): Avery, are you heartened by this rejection? Because as David said, we need the data centers, but we really want to avoid this new layer of corporate welfare that could pop up everywhere. So how do you feel about it?

Avery Frank (35:00): I’m actually very excited by the rejection in Ferguson. I’ve talked to a lot of people on both sides of the data center debate, those who have gone to the meetings and stayed up until 3 a.m. and protested, and those who want them. When I look at this Ferguson project specifically, the numbers David was talking about involved granting up to 15 years of tax abatements on real estate, personal property, and sales tax for a data center project. When I see something like that, it gets at what David was talking about. The only true significant benefit of a data center is the tax revenue it could bring. It doesn’t bring a lot of jobs. It takes a lot of electricity and a lot of water. It generates noise. It already makes a lot of people upset, and there are concerns about housing values and everything else. So if you’re not getting any tax revenue, there really is no strong incentive to have a data center project. That Emerson complex in Ferguson had thousands of employees. A data center does not take very many employees at all. So when you have people coming up and saying this data center project won’t succeed unless we get all these tax subsidies, I say that’s fine and I hope you don’t build a data center there, because the tax revenue is really the only benefit you’re getting from it. One of the bigger things is just something about Missouri in general. I’m from Tennessee and there are a lot of concerns there about having too much growth. Missouri sometimes feels like the opposite of Tennessee. We’re so desperate for growth that we’re willing to hand out a bunch of money. We don’t have enough pride. This Emerson complex is a good building and a good place. Ferguson has a STEM high school that produces very high test scores and graduates people who can work in the tech industry or an engineering industry. We shouldn’t waste a good building and a good workforce on a project that’s going to get all these tax subsidies and not bring a lot of jobs. The same thing happened over in Independence, where they gave out billions in subsidies for a data center project. Whenever I see that, I think we have to have a little bit of pride in Missouri. We can’t just be giving out all this money to get anyone to come. We have a good parcel of land, a good workforce, a lot of water, and a central location in the country. We can attract good projects, data centers or not, without giving out a bunch of subsidies. We need to understand what the benefits and costs of a data center are and what data center developers are actually looking for. They have a lot of money already. If you give them a good workforce, a place to build, and community support, I think they’ll come, even without a bunch of money.

Elias Tsapelas (38:28): I was really hoping this was the discussion we were going to have this year in Missouri’s legislature, because it started off so well with the discussion of how to get rid of the income tax and everything that goes with that. Talking about the income tax is really about how you make your state more desirable and how you grow faster. But Missouri for so long has just said: we want this industry or this type of business, so let’s give it an economic development tax credit. Let’s give out a billion dollars worth of those. Let’s give out sales tax exemptions. As far as I know, data centers in Missouri already get state and local sales tax exemptions. We just give those out. If we’re really going to start thinking about how to make the state the most desirable place, how to grow the fastest and be the most desirable for families and businesses, that’s really more about making the tax climate the best for everyone, not constantly picking winners and losers. Unfortunately, the budget didn’t see as many cuts as I had hoped. As we go into the last few days of the legislature, there are plenty of tax credit bills waiting to pass. The film tax credit is back and there’s talk of extending the sunset on it. There are other tax credits. We’re still going down that path. There are still more sales tax exemptions being considered. Missouri just needs to decide what direction we want to go, because ultimately if we do get rid of the income tax, a lot of these economic development incentives don’t even really work anymore. You have to look at different things. You have to look at what is really the criteria for families and businesses. States across the country are dealing with these issues, changing their economic conditions, their tax policy, and people are moving there. We know people are leaving Missouri. We know income is leaving Missouri. We need to change things. The status quo is not going to work going forward, and I was hoping that would have sunk in a little bit more this year than it did.

Zach Lawhorn (40:37): We will leave it there this week. We’ll talk to everyone again after the session ends over the next few days and see how everything turned out. As always, plenty more at showmeinstitute.org. David, Avery, and Elias, thank you very much.

The post Missouri’s 2026 Legislative Session Final Week appeared first on Show-Me Institute.

As Missouri’s legislative session winds down, lawmakers took a major step toward eliminating the state’s individual income tax. Both chambers of the general assembly approved HJRs 173 and 174, a proposed constitutional amendment. Voters will now decide whether to authorize the legislature to begin the process of phasing out the income tax.

Here’s a short summary of what voter approval of the amendment would set in motion:

• Requires the general assembly to enact legislation reducing the state’s top individual income tax rate based on revenue growth until it is eliminated. Once eliminated, the tax could not be reinstated.
• Authorizes the general assembly to expand the sales and use tax base to include additional goods and services. Currently, Missouri’s constitution doesn’t allow sales and use taxes to be expanded to any service or transaction that wasn’t taxed on Jan. 1, 2015.
• Requires that any changes to state or local sales and use taxes that generate additional revenue be offset. At the state level, that revenue must be used to reduce the individual income tax rate. At the local level, governments receiving additional revenue must reduce one or more other local taxes by a commensurate amount, choosing from a specified list that includes earnings taxes, personal property taxes, real property taxes, or local sales and use taxes.

This move comes at a time when Missouri is struggling to keep pace nationally. As my colleagues and I have written about repeatedly, the state’s population growth has been flat, and economic growth ranks in the bottom half of the nation. And while Missouri has reduced its top income tax rate from 6 percent to 4.7 percent over the past decade, many neighboring states have moved faster. Across the country, states are enacting policies that make them more attractive in the competition for families, workers, and investment, and it’s clear that states with low or no income taxes are pulling ahead.

If Missouri wants to change that trajectory, its tax structure has to be part of the conversation.

As I wrote when I testified on the amendment, this proposal does not eliminate the income tax overnight or answer every question up front. What it would do is give the legislature clear authority to move in that direction if voters approve. That matters because any serious effort to phase out the income tax will, sooner rather than later, require a rethinking of the state’s tax structure, especially its outdated and broken sales tax system.

In that sense, the amendment is less about a single policy change and more about forcing decisions state officials have avoided for years. What is a fiscally responsible pace to phase out Missouri’s individual income tax, the state’s single largest source of revenue? How much faster could that process move if the state modernizes its sales tax base? How should the tax policy actions of surrounding states impact that timeline?

There will undoubtedly be difficult tradeoffs if voters approve the proposed amendment, but it’s important to recognize that they are unavoidable. Improving Missouri’s economic prospects will require decisive action and an acknowledgement that maintaining the status quo has produced slow growth and will leave the state further behind its peers.

There are real concerns about how a transition like this would work and who it would affect. Those details will matter, and they will be decided through the legislative process if voters approve the amendment.

With the legislature’s work complete, the remaining question is when voters will weigh in. Under Missouri law, the governor has until May 22 to determine whether the measure will appear on the August or November ballot. The timing of that vote will shape how quickly Missouri can begin addressing these questions and close the gap with states that are already ahead.

The post A Big Step toward Ending the Income Tax appeared first on Show-Me Institute.

Susan Pendergrass speaks with Aaron Renn, author and consultant, and David Stokes, Director of Municipal Policy at the Show-Me Institute, about the recurring debate over whether the city of St. Louis should rejoin St. Louis County. They explore what city county mergers have actually accomplished in places like Indianapolis, Louisville, Nashville, and Lexington, why a full merger in St. Louis would be extraordinarily difficult to pull off, and whether the benefits would even outweigh the costs. They also discuss St. Louis’s demographic challenges, what the Pittsburgh model might offer as a path forward, the cultural barriers that make it hard to attract and retain people from outside the region, and more.

You can find Aaron’s work here.

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Episode Transcript

Susan Pendergrass (00:05): Welcome back, Aaron Renn, to the podcast. So happy to have you and David Stokes, our own expert on cities and counties and all things municipal. I appreciate you coming on, Aaron. There have been murmurings around St. Louis again on a topic that we have revisited for probably a hundred years: should the city of St. Louis be a separate county from St. Louis County?

Before we get to that, I want to ask you something because I was reading the news this morning, and I know that you’ve written about city county mergers before, like cities that are kind of dying and then either pulling in parts of their closest suburbs to sort of make everything look better, broaden their tax base, make their crime numbers look better. I was reading something you wrote a year or two ago about that, and you said that Louisville is a failed example of that. Is that right, basically?

Aaron Renn (01:01): Yeah, I’m a little skeptical of how these things have worked out in practice.

Susan Pendergrass (01:05): Yeah, in terms of losing the flavor and the coolness of the city. Literally this morning I saw an article about how Louisville is having a renaissance and these young professionals are all moving there because they didn’t tear down all their beautiful old Victorian homes, so you can still get one for close to a million dollars. They’ve got a cool art scene and a bourbon scene. So it sounds like maybe Louisville did not lose its personal flavor in the merger. I would be curious to know what you think of that.

Aaron Renn (01:33): Well, I like to put St. Louis in context. I’m glad you mentioned Louisville because many of these river cities have similar characteristics. I like to look at St. Louis as well as three cities in the Ohio Valley: Louisville, Cincinnati, and Pittsburgh. All of them heavily German Catholic in their demographics. All of them are very geopolitically fragmented with many small tiny suburbs throughout. They all have very fragmented neighborhood systems as well, where everybody has a strong sense of neighborhood identity. Where you go to high school is a big social marker. They all have phenomenal collections of urban assets and great historic buildings. They all still have their own unique character in a country where that has sort of bled away.

Aaron Renn (02:31): And they also have curiously underperformed demographically and economically in terms of growth. They’re slow growth places. So one thing I always encourage people is to pan back the lens and don’t just look at St. Louis in isolation. Look at it in comparison or dialogue with some of these other places and see what you can learn from them.

Louisville is actually a quite troubled city in important ways. From a white collar employment perspective it’s doing well, from a blue collar perspective less so. It’s one of the 10 least educated major metros in the country. I don’t want to spend too much time on Louisville, but I want to talk about the city county merger, which is distinct from recombining the city and the county. This has been considered urban planning best practice for 30 or 40 years. There was a book written by David Rusk called Cities Without Suburbs. The idea is that cities that were able to expand their boundaries through either annexation or city county mergers were prospering, whilst cities that did not, like the Clevelands, the Cincinnatis, and the St. Louises, were struggling. So the idea is we need big box government.

Indianapolis, where I live now, had a city county merger in 1970. Louisville did a city county merger, I grew up near Louisville. Jacksonville, Florida, Lexington, Kentucky, and Nashville, Tennessee did as well. What I would say is a few things. Merger is not necessarily bad. For Indianapolis, merger did prevent the city from essentially going down the tubes in important ways. So it really was a win in important ways.

But it did not prevent the historic city from going into the exact same demographic decline as St. Louis. The historic city of Indianapolis has lost almost exactly the same share of its population since 1970 as St. Louis has. Secondly, these are very politically difficult to pull off. They take enormous effort. They often fail multiple times. Louisville had multiple failures.

The most precious resource is always management time and attention. Is this where you want to put all your political chips? And in order to get it passed politically, what happens invariably is that most entities are actually not consolidated. In Louisville, none of the existing incorporated suburban governments were in fact merged. In Indianapolis, the school districts weren’t merged.

This means you don’t necessarily get all of the benefits you think from consolidation, because many things are excluded. And then unlike a corporate merger, where there’s typically a lot of downsizing and cost rationalization, in city county mergers nobody ever loses their job and salaries and benefits might even be harmonized upward to the high watermark. So don’t expect it to save any money. Personally, city county merger might have some benefits for St. Louis. I’m not saying it would have no benefits, but in my opinion it’s not going to be a needle mover and most likely it would be extraordinarily politically difficult and uncertain to pull off.

Susan Pendergrass (06:00): Yeah, no question. It’s been very politically difficult. People don’t want to do it. However, we do have these little tiny school districts and police districts. We have, I don’t know, 28 911 systems. We have a lot of what looks like bureaucratic waste and red tape. To the extent that doesn’t get resolved in a merger, then what’s the point? But I do think, you know, we’ve been talking about the demographics of St. Louis. There were over 800,000 people in the city once. Now there are maybe 280,000 and declining, and we’re in the death spiral of more people dying than being born. We’ve been in that for a while. And I guess it brings up the question of what is St. Louis to do if we are in this death spiral? We’re not having the babies. We’re having fewer babies than we did 15 years ago. So school enrollment is only declining. What is the prescription in that situation?

I’ve been to Cincinnati quite a bit. They’re trying to get people downtown with sports stadiums. It doesn’t really work. Louisville has sports stadiums downtown. I don’t know if people really want to move down there. I don’t see it working in St. Louis. So what is a city in that situation to do?

Aaron Renn (07:18): It’s going to be challenging in a sense because your problems are a little over determined. St. Louis was once a regional capital city, much like a Dallas or an Atlanta or a Denver or a Minneapolis. And it lost a lot of those functions. Many of its headquarters have left. It used to have a lot of professional services firms like ad agencies that did business all over the country, not just for the local market. Now St. Louis, although it’s still bigger than Indianapolis, looks a lot more like an Indianapolis or a Columbus, Ohio, where you have fewer corporate headquarters and most of the service firms are just there to serve the local market. St. Louis has essentially shrunk a little bit in relative importance, and it’s hard to get that back.

The demographics are also quite difficult and create a situation where it’s hard to attract business when you have a shrinking labor force, weak demographic growth, and a weak ability to bring people in from the outside. So it’s a very complicated situation and I don’t think there’s any silver bullet for St. Louis.

Susan Pendergrass (08:39): That’s what I’m asking you for. You have the answers. What’s the silver bullet?

Aaron Renn (08:43): So here are the things I would look at if I were in St. Louis. One of the clear issues that affects all of these river cities is that their wonderful, unique local cultures come with a downside, which is an extreme parochialism that has two negative effects. One, it makes it difficult for the communities to cohesively work together, which I’m not telling you anything you don’t already know. City-suburb divides tend to be bigger. In Indianapolis, regional leadership is mostly all on the same page about the big issues. Same with Columbus, Ohio. Secondly, it makes it very difficult to attract people from out of town because they come there and they can’t make friends, they can’t penetrate the social networks.

Susan Pendergrass (09:15): 100%, yes.

Aaron Renn (09:40): You hear it over and over again in places like St. Louis, Cleveland, even Minneapolis, Minnesota. There are some sayings there. If you want to make friends in Minnesota, go to kindergarten, because that’s when everybody makes their friends. Or Minnesotans will give you directions anywhere but their house. They’re never going to invite you over. St. Louis has that reputation. I don’t think it’s just a reputation. And I know you just had Ness Sandoval on.

Susan Pendergrass (09:53): Yeah.

Aaron Renn (10:08): He’s talking about you need to get better on migration. Migration isn’t going to improve if migrants are not going to be able to join the social networks here. And that’s not even just international migration, that’s domestic migrants. So I think that’s a huge issue for the city. Cultural issues are hard to solve, but maybe less intractable than infrastructure.

The other thing is looking at Pittsburgh as a sort of model. Pittsburgh hasn’t solved really most of its problems by any means, but it has been able to regenerate in the city a sort of high value economy around Carnegie Mellon and the University of Pittsburgh Medical Center. It’s done quite well. Many Silicon Valley firms have set up shop there. What’s happened in Pittsburgh, although it’s still a demographic decline story, is there’s been a demographic transition in the city. Pittsburgh went from one of the least educated cities in America to now one of the youngest and most educated. Part of it is old people moved and died off and young educated people replaced them. So the total number of people in the city was declining, but there was a churn happening underneath. And the same thing is already happening in St. Louis.

Susan Pendergrass (11:13): How did they do that?

Aaron Renn (11:33): College degree attainment in the city is now well north of 40%. So the people who live in the city of St. Louis are very educated. That demographic churn has raised educational attainment and thus incomes in the city a lot. Now Pittsburgh was different because it was an almost entirely white city. There’s a racial divide in St. Louis and gentrification concerns become more salient. But St. Louis is now an educated city. This is not an old post-industrial blue collar city. The city of St. Louis itself is very educated. And also being very small, it doesn’t necessarily need a massive change to move the needle. In Indianapolis we have a population of over 900,000. Moving that behemoth takes a lot. St. Louis now being smaller has a situation where there could be a big impact from lower numbers of things. So I think a knowledge economy built around Washington University and your medical centers has some possibilities, somewhat similar to Pittsburgh.

Susan Pendergrass (12:45): So much medical.

Aaron Renn (12:58): Carnegie Mellon’s engineering and computer science areas will be a little different. I might also look at Vanderbilt, what’s going on there? What are some peer schools you could watch to see what’s going on? But I think there are actually some reasons to think that the city of St. Louis, believe it or not, could be sort of turning a corner. It has now demographically renewed itself to a higher educational attainment state. Being small, it probably doesn’t have that much further to fall, and you can start building from there. Obviously there are governance challenges, but looking at the Pittsburgh model, studying similar complexes around peer schools, and addressing the culture issues is where I’d look.

David Stokes (13:33): Hopeful.

Susan Pendergrass (13:47): So as a spokesperson for St. Louis, what do you see for the future?

David Stokes (13:52): Well, I would be curious to get Aaron’s thoughts on that size question, about how the city of St. Louis has in fact gotten so small. It’s about 10% of the metro area. How does that affect the pros or cons of any type of a merger? These would not be a merger of equals. St. Louis County would almost subsume St. Louis City into it. How do you think that would affect things for better or worse?

Aaron Renn (14:28): Well, that was the critique of the Louisville merger by two academics at the University of Louisville. I mentioned the book Cities Without Suburbs. They wrote an academic paper called Suburbs Without a City, which basically said if the merger passed in Louisville, it would essentially mean the suburbs take over the city, not the city taking over the suburbs, because the old city of Louisville only had about 260,000 people and the suburbs would numerically dominate. The same thing would certainly happen in St. Louis. If there were a merger, suburban St. Louis County would control the city in essence.

Another consideration, and this is a Cincinnati issue, I interviewed about 15 years ago the mayor of Cincinnati, John Cranley. Here’s what he said, and I think this is an important point. He said, 30 years ago, city county merger was the thing because cities were in decline and you wanted to tap that suburban tax base to fund the city. But now it’s reversed. Now the cities are coming back and it’s the inner suburbs that are actually going down the tubes. And so in Cincinnati today, we have all the corporate headquarters, we have the universities and the medical centers, and we don’t have to share our tax revenue with anybody. If we were merged with the county government, we’d have to prop up all these failing suburbs. And so I think you’re in a similar situation in St. Louis, where the high value activity, not all of it is in the city of St. Louis because of Clayton and so on, but the St. Louis County suburbs are mostly places that are themselves on negative trajectories. Merging the city, which may be on the cusp of being able to bottom out and turn around, with all of these still declining inner suburban areas, might actually be an albatross around the city’s neck.

Susan Pendergrass (15:16): What would that mean?

David Stokes (16:37): I just think one of the differences between St. Louis and Cincinnati, and I don’t know the property tax base of Cincinnati, is that so much of the city of St. Louis is tax exempt right now. Between Washington University, Saint Louis University, and all the government entities, there’s just so much of it. I say that as somebody who supports property tax changes to make them pay something towards it. But I just don’t think the Cincinnati argument applies to the city of St. Louis right now. That property tax exemption part is a huge factor because the most growing, thriving part of it is the entire giant Barnes-WashU-Cortex complex, and the amount of property taxes they pay is miniscule.

Susan Pendergrass (16:38): Hmm.

Aaron Renn (17:26): Well, some of that is a planning issue. And I think the reality is, when you have a complex like that, are all these people going to move to St. Charles? Maybe not. I’ll tell you, I live in the suburb of Indianapolis named Carmel, and a lot of the hospitals and things have been opening facilities here. When these nonprofit hospitals come up here, we will not approve zoning changes for those hospitals unless they agree to make payments in lieu of taxes. You want to come up here and you want a zoning change, you’re going to have to pay. We were actually quite prescient in that one of the local hospital chains opened a for-profit hospital. As part of the approval deal, we said, if you ever convert to nonprofit status, you will continue paying property taxes. And we did that.

So I think there probably is leverage from the city over some of these entities. You don’t have a lot of leverage over a corporation deciding where to put their office, but that’s not a tax exempt situation. The stuff at Cortex is probably not going to leave if you make them pay a little money the next time they come to you for a zoning approval. I think you need to start looking at how to get more money out of these entities that are nonprofits in name only. These universities and hospitals are effectively gigantic hedge funds. Their executives are extremely well compensated and billions of dollars are flowing through there. Undoubtedly the better solution there is to figure out how to tax them rather than figure out how to tax the soon-to-be-dead mall in the suburb over the border.

David Stokes (19:24): Well, yeah, and that’s sort of the trade off, unfortunately, is that they do pay earnings tax. The employees, many of them very highly compensated, pay the earnings tax. And that’s what makes the city more dependent on local income taxes, not less, because they’re either tax exempt or in the case of Cortex, have tax abatements that make them essentially tax exempt.

Susan Pendergrass (19:25): We do have earnings taxes, right? So the folks who work there have to pay an earnings tax.

Aaron Renn (19:53): Yeah. Again, I don’t know exactly the fiscal architecture there. But I would say you don’t want to do a merger simply to do a tax dollar grab. The lesson of Indianapolis is we did that. We grabbed suburban tax dollars and we used it to rebuild our downtown successfully. But here we are 50 years later, and now we have enormous tracts of decayed suburbia that are an enormous problem. Our entire core county is now in a sense the inner city. We have big challenges because we were not able to invest in ways that allow those suburban areas to retain their allure over the long term.

And I’m not saying that’s impossible, but any short term juice you get, cities always rise and fall. Core cities have proven more resilient and more able to regenerate themselves than suburbs. Part of it is because state governments cannot afford to let their state’s largest city or major urban center go down the tubes.

Susan Pendergrass (21:06): Yeah.

Aaron Renn (21:16): Missouri cannot let St. Louis and Kansas City implode. Michigan cannot just write off Detroit and say who cares. But these suburban areas have proven a lot tougher to save. We don’t have a good model. We’ve spent decades thinking about how to rebuild cities and build districts. There are certain things you can pull off in a city around conventions, civic events, gathering spaces, museums, and government that are very hard to translate to suburban settings. So there’s not a great playbook, especially in declining markets, for renewing suburbs. The playbook for suburban renewal, if you want to call it that, is places like Carmel, Indiana, which are growing and affluent, and therefore can build large mixed use centers, new urbanist developments, trails, and parks. The suburbs of St. Louis County are probably tremendously deficient in infrastructure as we would understand it today.

So again, there may actually be some benefits in having St. Louis City rejoin the county in a sense, because then the county functions are spread and amortized across a larger population.

Susan Pendergrass (22:45): It would immediately improve our murder rate because we would be mixing it in.

Aaron Renn (22:48): Yeah, there is some of that. The murder rate is an artifact of the size of the city more than anything. There are places in Chicago with higher murder rates. A former colleague of mine at the Manhattan Institute, Rafael Mangual, did an analysis of Chicago. He said there are areas on the South Side of Chicago that are larger and have more people than St. Louis with far higher murder rates than St. Louis.

Susan Pendergrass (22:56): We get called out because of the small denominator.

Aaron Renn (23:17): And so there is that. The other thing is Chicago is a good example. New York City was essentially a city county merger. In 1898, the five counties that are the five boroughs of New York were consolidated into one city. Philadelphia was also a city county consolidation from the 19th century. But what happens when you create a very large city of say a million people or more is you really have to scale up your government. You have to have a government that operates at that scale.

What happened with Indianapolis was we merged city and county government, but we didn’t really have a government that could effectively manage this new larger territory. It never built out the infrastructure in the suburbs. In New York, the Bronx has subways, great parks, everything built out with proper infrastructure, because it was part of New York and New York had to expand governance to become a city of eight million. Chicago got big in the 19th century and built a city government that could run a city of three million people. And some of the stuff that gets critiqued there, for example, is a lot of city services were organized by ward or city council district. There are 50 city council districts and every city councilor is sort of a little mini mayor of their district. The alderman essentially has veto power over any zoning changes. It’s called aldermanic privilege. So there are a lot of constraints there.

But if it’s just one mayor and one city council trying to think about a huge city of 77 neighborhoods and three million people, they can’t keep that much in their head. All they can think about is downtown. And that’s what happened in Indianapolis. The mayor and city council can really only think about downtown. We should have built out structures in townships throughout the city so that you had leadership focused on that area and money focused on that area. That’s what made the suburbs work really well. A suburb like Carmel is basically township sized. We have 100,000 people, big enough to do things, but not so big that our mayor and council can’t keep the whole city in their head and plan and manage the whole city.

So if you merge with the county government, you’re going to have to create an entirely new government structure that allows you to essentially manage every sub area of the whole thing and bring it all up to a standard of services. That’s the other thing they often did in Louisville and Nashville. They merge, but they have a two tier service system where there’s an urban services district for the old city which gets more services, and then the others get less. They didn’t do that in New York. There’s one standard of service in New York, one in Philadelphia, one in Chicago. So if you can’t commit to a single standard of service, you’re basically creating a bogus merger in my opinion. If you’re going to do a merger, you need to obliterate every government and entity in St. Louis County and city, merge them all into one with one standard. That’s not going to happen.

Susan Pendergrass (26:35): That’s not going to happen. What do you think, David?

David Stokes (26:37): Yeah, that’s not going to happen.

Aaron Renn (26:43): So you end up with a lot of problems. Louisville didn’t merge any fire departments. Imagine a city that doesn’t have a consolidated fire department. Imagine a city without a single police department. That was actually Indianapolis. When we merged, the Indianapolis Police Department still patrolled the old city, but the new parts of the city that were consolidated in from the county were still controlled by the sheriff.

Susan Pendergrass (27:13): That is 100% what would happen in St. Louis. Everyone would retain their school system and their police department and their fire department. I lived for a long time in Fairfax County, Virginia, which is a single county government. It’s massive, 150,000 students in their school system. It seems to function with a single police department and fire department. But I don’t think you can backwards engineer that into a place that for hundreds of years has been operating as it has been operating.

Aaron Renn (27:43): Lexington, Kentucky worked pretty well because one, the schools were already consolidated, as in the South it’s typically county school districts. Secondly, there were no other government entities, no township governments, no other incorporated municipalities. So it merged everything. And they were sort of able to solve the urban services district issue because the outer areas of Fayette County were horse farms. They actually put in a kind of green belt rule, you can’t develop out there, because they wanted to protect these scenic landscapes. So there was actually a good reason to treat that differently, because it was a very unique American landscape. Lexington, I think, was pretty successful.

Susan Pendergrass (28:15): They are. I appreciate it when I drive across Route 64.

Aaron Renn (28:39): Lexington was pretty successful and wasn’t especially controversial when they did it, in part because there weren’t all these entrenched interests like there are in other places. If you look at places that did the mergers, they weren’t the Cincinnatis and Pittsburghs. They’ve been talking about consolidation in Pittsburgh forever. It was very hard. And Louisville did it, but it was one of the least consolidated so-called consolidated governments. What the Louisville merger functionally did was dissolve the city of Louisville and reorganize county government. The county government now has a mayor and a council instead of the old fiscal court with the judge executive and all that.

Susan Pendergrass (29:21): That’s kind of what would happen in St. Louis, right?

Aaron Renn (29:36): That’s essentially what they did. They basically dissolved the city and the county government was reorganized, but nothing was merged.

Susan Pendergrass (29:43): Did you have a question?

David Stokes (29:45): I want to get back to the fire district point. We’re talking about why this would be so hard. There’s actually a law in St. Louis that only applies in St. Louis County that makes it impossible to consolidate fire districts. Even if a modest mid-sized suburb annexes an unincorporated part of town, they’re not allowed to provide fire services to that new annexed area, or they can, but they have to pay so much to the old unincorporated fire district that it makes it impossible to do so. That’s just one example of how even if you wanted a full scale merger, it would just be impossible to actually carry through.

Susan Pendergrass (30:34): Why do you think people float this idea, David? Why does it come back every couple of years?

David Stokes (30:38): You know, it’s the old line. I remember a study I read about Pittsburgh and St. Louis many years ago. The question was, are the St. Louis and Pittsburgh areas really inefficient with all the fragmented government? And the conclusion was, well, you would never design a metro area like this, but they’ve both made it work over the last century better than you would think. The conclusion was that St. Louis and Pittsburgh aren’t actually as inefficient as you might assume when you run the numbers.

I think people have trouble accepting that. People look at so many small municipalities, many of them dysfunctional, many of them until recent times funded themselves primarily with traffic tickets, which is a terrible way to fund local government, and that’s not even an exaggeration. And there’s just this fundamental belief that if you can just plan it better you’ll create a better place. I just think it fails.

One of the reasons it would fail, going back to what Aaron led this conversation off with, is that if St. Louis County and St. Louis City joined together, they’re not actually going to lay any government employees off to save any money. St. Louis City government is not going to fire city employees. It’s never going to happen. So you’re not going to save any money and it’s all just going to collapse.

Aaron Renn (32:12): Yeah, New York City and large governments are not more efficient.

I look at it and say, look, I think merger is a solution for failed states, if you want to call them that, in the St. Louis suburbs. Take some micro-suburb that’s a complete scam or is bankrupt and merge it in with its neighbor. Do some consolidation like that, that probably needs to be led by state government, almost like a receivership sort of thing. That’s just kind of good government as you work through it. But I just don’t think the benefits you would gain from trying to do a complete governmental merger of St. Louis City with St. Louis County would outweigh the opportunity cost of how much time and effort you spend on it, when you could be spending that on other things that I think will actually move the needle more.

The downsides are arguably as high as the upsides. There’s no guarantee it’s even net positive in this environment. The time to have merged was when Indianapolis did it in 1970, not in 2026. Nashville did it in the 60s. Jacksonville did it a long time ago.

And then I think it doesn’t fix the fundamental issues around the culture. You’ve got to take a hard look at that and say, it’s maybe very difficult to change. The idea that people who aren’t from here have to be able to move here and get connected and feel like they belong in the city. There’s a couple we know who lived in St. Louis. The wife taught in St. Louis public schools. They’re big urban people. The husband was from St. Louis, and they moved here to Carmel, Indiana.

Susan Pendergrass (33:47): Tell me more about that.

Aaron Renn (34:10): Basically they said, man, people are just so much friendlier here. They make better eye contact, they engage more. It’s just so much more welcoming than it was in St. Louis, even though they were actually in a sense connected because the husband was from there.

So when even people who lived in St. Louis and liked it notice a difference when they leave, that is a killer when you’re already struggling demographically. I had a guy who owned a business in Cleveland who said to me one time, I learned the hard way never to recruit anyone from out of town to work for my company unless that person or their spouse is from Cleveland, because otherwise they will never stay. When that’s where you are as a place, that is just rough. I think that is one of the killers for these river cities.

Susan Pendergrass (35:16): Yeah, what’s the fix for that? I don’t know what the fix is.

Aaron Renn (35:38): I think the optimistic case for St. Louis, and I actually tweeted this a year or two ago, is that St. Louis City educational attainment is really high now. In a sense, it’s a small, highly educated city that is probably going to continue growing more educated. So I think the Pittsburgh option looks viable in St. Louis.

Susan Pendergrass (36:00): And certainly great medical care. I know that the average age is getting older in St. Louis. I think within 10 years, one in four people will be over the age of 65. But we also have an Alzheimer’s research center and access to medical care, which as you get older gets more important. I do think there’s an opportunity to lean in to the medical services that are available, as the country as a whole gets older. I think St. Louis looks more attractive for that reason. So I think you’re right that with universities and medical centers, there’s an opportunity.

Aaron Renn (36:35): Yeah, I think if America’s demographics keep on this trend, a lot of other places are going to get to where St. Louis is. And the thing to be careful of is that when you’re in a declining market, that often prompts centralization of activity and population. What happened with Japan is that once Japan’s population started falling, everybody started moving to Tokyo. It’s Tokyo and a handful of other cities where everything is concentrated, and they literally have ghost towns there.

I don’t think it’s any accident that Indianapolis’ growth really took off once the Rust Belt era and deindustrialization hit the state. Indianapolis and Columbus, Ohio have grown in large measure through drawing people out of the rest of the state as those states declined. Huge numbers of people move from Cleveland to Columbus every year.

Missouri is a little different than that. One of your challenges is that St. Louis does not draw people from rural Missouri. When I looked at the data, it’s not like there’s a massive flow into St. Louis from the rest of the state. So you don’t have that siphon bringing people in.

Susan Pendergrass (37:55): There are public safety issues around that, but yes.

Aaron Renn (38:00): And the issue we have is that we’ve now eaten our seed corn. There’s not going to be next generations of children in the towns I grew up in in rural Indiana to move to Indianapolis anymore. The cohort sizes are going to be smaller. So that pump, even Tokyo is declining now in population. That siphon is draining the water table. We can only rely on that so long.

But I think this is the risk for St. Louis in that kind of environment. People with opportunity might avoid or flee St. Louis and go to Austin, Texas or Nashville. They go to the handful of places in America that are really still growing. That’s a threat even for Indianapolis and Columbus, Ohio. In a declining market, it’s very hard to get people to want to come to a shrinking city because the opportunity space is shrinking. St. Louis’s opportunity space has been shrinking because you’re losing corporate headquarters and your working age population is declining. That dynamic is really going to be a challenge. But within that, the city of St. Louis might end up doing okay. Again, being small actually helps it here.

Susan Pendergrass (39:25): Any closing thoughts on that, David?

David Stokes (39:27): Just that the part of Missouri that is definitely still growing, and that probably is attracting those young rural people who are moving to a city, is going into southwest Missouri, the Springfield-Branson area. That’s absolutely the growing part of the state. And even Kansas City is growing certainly more than St. Louis is.

Aaron Renn (39:48): Yeah, it’s not a culturally cohesive state. Springfield and that area are definitely growing, and growing despite the fact that they have nowhere close to the urban assets of a St. Louis. It’s interesting to watch, and we’ll just have to see what happens.

Susan Pendergrass (40:05): It is. I think about it a lot. I’ve been talking about this in terms of school enrollment for years and years, where you could see the biggest kindergarten cohort was after the Great Recession of 2009. You know that that’s the biggest kindergarten cohort for the last 15, 16, 17 years. We do nothing but build schools and hire teachers. We are slow to catch on to these things happening. But I think your perspective is certainly very interesting. On the question of the merger, it’s not worth the cost for whatever benefits there might be. But it still gets talked about, so I appreciate you coming and giving us your thoughts on it. Maybe we’ll have to have you back to talk about it again.

David Stokes (41:02): And Aaron, I want you to come back. I want to find out how we get more roundabouts in Missouri. I love roundabouts. I go to Carmel it seems like once a year for these gigantic youth sports tournaments up at Westfield, just a little bit north of you. My kids’ sports take me there. And I love the roundabouts. You cannot get enough of them.

Aaron Renn (41:09): I’d love to talk about that. My favorite topic.

Aaron Renn (41:24): Yeah, it’s great. We hardly ever have to stop. There are barely any stoplights or stop signs left in our city. It’s amazing. We’re one of the few growing places in America where traffic is better today than it was 20 years ago.

Susan Pendergrass (41:32): They’re awesome.

David Stokes (41:45): People don’t realize how good that is for air quality and everything. You just keep moving along, not stop and start. We need 100 times more roundabouts in this area.

Susan Pendergrass (41:55): Are you pretending that people stop at stop signs in St. Louis? Because let’s be honest, people don’t stop at stop signs.

David Stokes (42:00): Well, they roll them, but it’s still wrong when they roll them. Maybe all the people blowing red lights on Kings Highway at 50 miles an hour are just being environmentally conscious. I need to give them more of the benefit of the doubt, I guess.

Susan Pendergrass (42:12): That’s exactly right. All right, thanks so much. I really appreciate it.

Aaron Renn (42:19): Thank you.

Produced by Show-Me Opportunity

The post The St. Louis City-County Merger with Aaron Renn and David Stokes appeared first on Show-Me Institute.

Last year, the passage of Senate Bill (SB) 4 allowed natural gas plants to raise rates to pay for construction before plants are put into operation, a process known as construction works in progress (CWIP). Companies using CWIP under SB 4 would still be subject to cost caps (by estimated cost and completion date) and a refund mechanism (with interest) if the project is not finished. There was speculation about whether a provision in SB 4 would also allow its usage for nuclear projects.

A recent change to SB 838 would remove any ambiguity; the change explicitly prohibits nuclear energy projects from using CWIP.

But is preventing nuclear projects from being able to use CWIP really a good idea?

Some view CWIP as necessary for new nuclear projects to get a foothold in Missouri. Excluding nuclear from this flexible financing method could either drive up total costs (since loans would bear interest) or even eliminate potential projects altogether.

At the same time, the concerns surrounding CWIP are real and should not be dismissed. Charging ratepayers before a plant is operational raises difficult questions. Should utilities earn a return before delivering a service? Does this reduce incentives to control costs during construction? And what happens if a large, high-risk nuclear project is cancelled (which has happened in the United States before)?

These are not trivial concerns. However, a better solution for Missouri would be to improve the CWIP framework for all energy sources.

SB 4 already includes cost caps and refund provisions, but additional safeguards could further protect ratepayers while still allowing needed infrastructure to be built.

Virginia recently passed CWIP reform, and it instituted additional safeguards that Missouri could also adopt:

• Excluding 20% of development costs from CWIP eligibility
• Mandatory evaluation of federal funding opportunities from the Department of Energy
• Establishing a cap on residential monthly bill increases ($1.40 per 1000 kWh)

Additionally, the Missouri Public Service Commission could evaluate compensating ratepayers appropriately for early contributions and their role in risk-sharing, such as treating CWIP financing more like a bond system.

These improvements could even better protect and reward ratepayers, as well as facilitate needed power plant construction without targeting a specific technology—an effective compromise.

The post Nuclear Energy and Construction Works in Progress (CWIP) appeared first on Show-Me Institute.