Just the Facts: Income Taxes Are Destructive to Growth

The debate over whether state legislators should hike taxes on Missourians this year is ramping up in the state Senate. The battle lines appear to be drawn, at least in some part, over the question of whether income taxes harm growth.

In fact, in terms of the research into such matters, the destructiveness of income taxes is among the few things where there is some general agreement in the economic literature. To once again quote researcher Jens Arnold of the Organisation for Economic Co-operation and Development and his review of the evidence:

A stronger reliance on income taxes seems to be associated with significantly lower levels of GDP per capita than the use of taxes on consumption and property. Within income taxes, those on corporate income seem to be associated with lower levels of GDP per capita than personal income taxesIn fact, corporate income taxes appear to be the least attractive choice from the perspective of raising GDP per capita. [emphasis mine]

Letting the government take people’s money before it can be saved or spent denies families and businesses the opportunity to invest that money in themselves, and those negative effects compound over time. That denial of investment impacts overall GDP. It’s that simple. Removing more and more money from the private economy and increasing government’s contribution to overall state GDP is a recipe for disaster that legislators shouldn’t be entertaining.

The goal should be to continue the work of reducing and eliminating income taxes in Missouri, and new taxes on, say, internet sales should not become play money for politicians rather than an offset for income tax relief.

 

Charter Schools Outperform in Indianapolis

 In Missouri, because of the narrow availability of school choice, you have to be lucky to have access to charter schools. On the other hand, Indiana has decided school choice shouldn’t be restricted to a lucky few. Although there are still gaps in choice across the state of Indiana, the state has charter schools available statewide, a voucher program, a scholarship tax credit and a private/homeschool tax deduction to help families access educational resources. Indiana’s charter school laws have even been ranked as the strongest in the nation for three years in a row since 2016.

The Center for Research on Education Outcomes (CREDO) at Stanford University released a recent study on Indianapolis charter school performance. The study tracked academic growth from the 2013-14 to the 2016-17 school years, comparing the average growth in reading and math in Indianapolis charter school students to traditional public school students.

In order to compare school performance between charter schools and traditional public schools, CREDO creates a “virtual twin” for each charter student that is a combination of similar public school students. This method considers seven characteristics (including ethnicity and income status) of a charter school student, and finds students from traditional public schools who share the same characteristics. The test scores of all the similar traditional public school students are averaged to create a growth score for the virtual twin, which is then compared to the charter student.

The CREDO study found that charter school students in Indianapolis experienced significantly more academic growth in both reading and math than traditional public school students. In the 2016-17 school year, Indianapolis charter school students gained 29 extra days of reading and 4 extra days of math compared to the state average (180 days of learning a school year). Traditional public schools were behind the state average in both subjects; 48 days behind in reading and 96 days behind in math. The difference between Indianapolis charter school students and traditional public school students is striking. Charter school students learned 100 more days of math and 77 more days of reading than the traditional public school students. That’s 20 extra weeks of math and over 15 weeks in reading for charter school students.

Charter schools also produced better results than the city’s traditional public schools for specific student groups. This held true for all the student groups the study measured: Black and Hispanic students, low-income students, English language learners and special education students.

Charter schools are helping Indianapolis students access a quality education. Why wouldn’t Missouri want the same?

 

Pre-K Supporters Dismiss Research on Efficacy of Pre-K

In a debate about the efficacy of pre-K, Kansas City Mayor Sly James was dismissive of research that suggested there might better ways to help low-income children achieve better education results. We’ve heard others tell us they don’t care about policy research, which is at best an unreasonable and potentially dangerous view, especially coming from a public official.

On Tuesday, March 12, I appeared as a panelist on an American Public Square discussion titled “Pre-K for All?“ about the upcoming April ballot measure. Proponents of pre-K point to a single, small-scale study of a specific pre-K program conducted from 1962 to 1967. The study, called HighScope Perry, did show a positive relationship between participation in the program and educational and financial success. However, the program that was studied was intensive, expensive, and only included 123 children. While the Mayor and Mid America Regional Council (MARC) specifically cites the HighScope Perry study, the plan they endorse for Kansas City is nothing like what was done there.

Russ Whitehurst of the Brookings Institution has written at length about the failure of larger-scale pre-K programs such as Head Start and the Tennessee Voluntary Pre-K Program to generate impressive results. We’ll discuss that research more in future blog posts. But in a survey of the research on various school-readiness interventions, Whitehurst pointed out that direct aid to families, such as the earned income tax credit (EITC), “produced substantially larger gains in children’s school achievement per dollar of expenditure than a year of preschool, participation in Head Start, or class size reduction in the early grades.” That is a fascinating bit of information and should be of interest to anyone who is serious about helping low-income children.

During the panel discussion I offered, “You could do more for poor families in Kansas City by removing the sales tax on food and by exempting, say, the first $26,000 of earnings from the earnings tax. You can do more by aiding families—giving them more money in their pocket—than you can by taxing them and providing a program.”

Test score expenditure graph

But Mayor James was not having it. He responded, “There’s no way that you can tell me, regardless of what study you may cite,” that by reducing taxes on the poor that they, “are going to use the money to educate their children.” And maybe they won’t, but the data Whitehurst cites don’t specify how families spend the extra money. EITC funds are not earmarked, yet this direct support to low-income families still outperformed pre-K according to Whitehurst’s research.

Perhaps what low-income families need is not to have more money taken away from them in order to provide them more services. Perhaps what they need is more money, more flexibility, more agency to address their own challenges as they see fit. Perhaps telling poor people that government knows best how to spend their money and educate their children isn’t the best way to solve problems. The research (at least if we go beyond a specific study that seems cherry-picked to support a rosy view of Pre-K programs) seems to suggest this, if only policymakers will listen.

 

What It Would Take to Bring Green Energy to Kingdom City, Missouri?

“We reason from the hand to the head,” Henry David Thoreau wrote, pointing out how a simple example drawn from ordinary life may serve to illuminate a larger truth.

As a revealing example of the magnitude of the changes that would be required to put the so-called “Green New Deal” into effect, let’s look at the little village of Kingdom City, Missouri, population 124. Endorsed by several presidential candidates, the Green New Deal would ban all use of fossil fuels over the next decade.

The big business in Kingdom City is servicing heavy trucks passing through Missouri going East and West on Interstate 70 and North and South on U.S. 54. Three filling stations in Kingdom City handle more than 450 18-wheelers on an average day.

What would it take for the Kingdom City filling stations to do the same work using electric power rather than diesel fuel?

That is an answerable question, using mathematics to convert from one form of energy usage to another. We know that a “Green” 18-wheeler must supply essentially the same average power to move a load of cargo over the same distance as a diesel-powered vehicle. Based on diesel fuel usage and engine efficiency, we estimate the required average power at 160 kW (a little over 200 horsepower).

To recharge a single truck after eight hours on the road in 20 minutes would require a charging station capacity of 3.88 megawatts. For three truck stops, each with 10 electric “pumps,” you must multiply this number by 30 to get the needed capacity. That comes to 116 megawatts, which is the equivalent of 58 2-megwatt windmills costing $3 to $4 million each.

In other words, to use electricity to refuel heavy trucks passing through Kingdom City would require a starting investment on the order of $200 million in new wind-generated electric capacity. This calculation does not include further substantial change-over costs, including the installation of additional transmission lines and the construction of recharging stations. For simplicity sake, we have also ignored the significant reduction in fuel economy caused by the approximately 10 tons of extra weight of the Tesla-like batteries that a “Green” 18-wheeler would carry.

The Kingdom City example underscores the prohibitively high cost of trying to implement even a tiny part of the all-encompassing Green New Deal. Take the $200 million starting investment in this little village and multiply it by the thousands of other locations across the United States. You quickly arrive at a figure in the hundreds of billions of dollars.

But would there be any positive impact on the environment?

Now, you must consider that three-quarters of Missouri’s electrical generating capacity comes from burning coal and another 5 percent from natural gas. We also get another 10 percent from nuclear energy, but the Green New Dealers are not calling for more nuclear power. So where, over the next decade, could we find the additional generating capacity that would power electric cars and trucks?

It could only come from increased burning of fossil fuels.

 

Summer Internships

The Show-Me Institute is pleased to offer internship opportunities for Summer 2019.

  • Internships are open to current undergraduate and graduate students, as well as recent graduates. 
  • Internships last approximately ten weeks. The exact starting and ending dates are flexible, but we anticipate that each internship will run from June 3 until August 16.
  • Summer interns will work a full-time schedule (9 a.m. to 5 p.m.). 
  • Interns will be involved in many aspects of the Institute’s operations. Interns will work closely with senior staff on a wide variety of projects. They can expect greater responsibility and personal attention than they would receive at larger organizations.
  • Interns will assist staff members with a variety of tasks. These may include researching public policy topics, assisting with social media, organizing events, and writing and editing op-eds, newsletter articles, studies, and other documents. Some administrative and clerical tasks will also be required.
  • Policy internships as well as communications and development internships are available.
  • A Show-Me Institute internship is an excellent opportunity to improve your research and writing skills. Each intern will produce regular blog posts and an op-ed on a public policy topic of interest to him or her. Each intern will receive feedback and assistance from staff members throughout the process.
  • Internships are offered in both the St. Louis and Kansas City offices.
  • Interns will be paid on an hourly basis.

Those wishing to be considered for an internship should submit the application (see below) and the requested supporting materials. The deadline for applications is Friday, April 26, 2019. However, we will begin conducting interviews as applications are received. Applicants can expect a decision in mid to late May.

School Choice Is Good

School choice is inherently good. I don’t mean to say school choice is good because it will lead to specific outcomes, such as higher test scores or higher graduation rates, although I think it will. Rather, I mean that school choice—the ability to choose your child’s school—is itself a good thing.

Education is more than teaching the three Rs; it is inherently value-laden. Education gets at our deep-seated values. Schools touch on these explicitly in what they choose to teach or not to teach. They also touch on these values in the little things they do. When we insist students call teachers Mr. or Mrs., for instance, we teach them to respect authority. When we recite the pledge of allegiance, we are inculcating reverence for our country. In almost every action, whether little or big, our schools are imparting values to our children.

This connection between schools and values is a problem in our public education system, which typically assigns students to schools. It means that if I want my values taught in the school, I must impose them on everyone else. As Vance Randall, an education professor at Brigham Young University, has written, “A major cost inherent in the establishment of state-sponsored schools in America was an educational program with conflict built into the system.”

But not every country has designed their system like ours. In Australia, Ireland, Belgium, and most other industrialized nations, the government provides some funding to non-governmental (private) schools. They allow for broader choice.

In the United States our system developed differently. Beginning in the mid to late 1800s, there was a push for the Common School. The leading lights of those days, however, such as Horace Mann, looked at the waves of immigrants coming into the country, the isolated rural villages teaching students in Polish or German, and thought that this decentralized system was chaos. They devised plans for a new system – a Common School System. As historian David Tyack put it in his 1975 book, “They tried to design, in short, the one best system.”

For over a hundred years now, America has been trying to build and refine this one best system. But it won’t work—because there is no single, best system. We disagree on which values we want imparted to our children. We also disagree on which instructional practices we want in our schools; I want direct instruction, you want discovery learning. We cannot both have our way in the traditional system. Either I win and you lose, or vice versa.

That is why school choice is good in and of itself. It recognizes that in our pluralistic society, we do not need to force one set of values and instruction on children. Instead, we can allow people—even people we disagree with—to voluntarily associate with one another and to choose the type of school that fits their child and their values.

We should not have to check our values at the schoolhouse door as a condition for receiving a public education. If we cherish freedom of thought, of expression, and of association—if we care about diversity—it hardly seems possible that we can cultivate those values by denying families the opportunity to pursue diverse educational opportunities that shape the thoughts and develop the minds of their children.

Follow-up on Kansas City Population Trends

The other day we published a post about some Brookings Institution data suggesting the Kansas City was doing well with millennials. The data was not specific to Kansas City, Missouri but rather the entire 14-county metropolitan area. There is reason to think that outer areas such as Olathe and Overland Park are doing well attracting millennials, but what about Kansas City proper? After all, the city has spent “hundreds of millions of dollars downtown, probably in excess of a billion” to attract millennials and others. Is it working?

The author of the Brookings Institution study referenced above does not know about Kansas City proper, or more specifically about downtown Kansas City. The Downtown Council itself apparently can’t provide worthwhile numbers either. Trying to piece together the data requires investing a lot of time and resources going through Census data at the county level. Until someone does that in 2019, we can rely on a 2016 paper for the Show-Me Institute by Wendell Cox, “Kansas City—Genuinely World Class.”

In Figure 3 on page 6, Cox offers us the chart at the top of this post. As you can see, populations have not grown in the urban parts of the Kansas City but rather in the areas outside the city proper. In fact, the urban and near-in suburbs are shrinking. This is expected to continue. Cox writes:

According to the Mid-America Regional Council, population growth will continue to be concentrated in the suburban counties. Between 2010 and 2040, it is projected that approximately 45 percent of the population growth will be in Johnson County, which will make up the bulk of the 55 percent of metropolitan area growth that is projected to occur in the Kansas suburbs. The Missouri counties are projected to constitute 45 percent of the metropolitan area growth, with Cass County accounting for 18 percent and Jackson County for 11 percent (Figure 4).

Lots of organizations spend a lot of money trying to attract people and jobs to Kansas City. All them have an incentive to show that all that money—in many cases tax dollars—is well spent so that their budgets will be expanded. Successes seem rare and the data aren’t promising. But if city leaders are serious about attracting residents and jobs, we need to have a serious conversation about what is working and what is not.

Some Promising Numbers About Millennials in Kansas City. Maybe.

 

William Frey of the Brookings Institution just published a report entitled “How migration of millennials and seniors has shifted since the Great Recession,” and it has some promising numbers for Kansas City. In the report, Frey writes:

Another feature of young adult migration magnets is their location in the South and West “Sun Belt” region where all except three of the top 20 magnets are located. (Those three—Minneapolis-St. Paul, Columbus, and Kansas City—are among the most highly educated Midwest areas for millennials.)

…Today’s young adults, now encompassing those in the prime millennial ages, show a penchant for “educated places”—including Denver and Seattle—as well as more affordable areas like Minneapolis and Kansas City with pre-recession hot spots like Riverside, Phoenix, and Atlanta showing reduced appeal. 

Frey, as do most researchers, uses the term Kansas City broadly, to encompass an entire metropolitan statistical area (MSA). The Kansas City MSA stretches from Independence to Lawrence and includes 14 counties. Its population is 2.1 million, compared to the under 500,000 within the political boundaries of Kansas City, Missouri itself. Knowing whether a statistic describes a city or a metropolitan area is important, lest you conclude, as some would have you believe, that Kansas City gets 25 million visitors a year. It doesn’t.

It’s important to remember the Brookings Institution numbers on millennial migration speak to the broader MSA. Frey doesn’t report how much of the growth is taking place in downtown Kansas City, or how much is taking place in Olathe and Overland Park, two places recently listed as top destinations for millennials. Frey doesn’t report it because he doesn’t know it; I asked him.

As has happened before, it is possible that reports like this will be set upon by groups like the Downtown Council and the City of Kansas City as proof that the billions of dollars spent subsidizing wealthy developers in downtown Kansas City are bearing fruit. But until we know migration numbers within the MSAs, all that optimism is premature and skepticism is warranted.

Below: a map containg data from Frey’s analysis.

Map with net migration data

Springfield’s Convention Dream

Private consultants have determined that Springfield, Missouri is on the cusp of attracting a great deal of new convention business.

According to the Springfield Convention and Visitors Bureau, a study conducted by Hunden Strategic Partners “included a comprehensive market analysis that determined a convention center could support its operations and attract successful meetings and conventions if executed properly.” A press release about the study added the following good news:

The Springfield travel and tourism industry has experienced steady growth with more than five years of record overnight visitors, topping out at more than 1.38 million in 2018. However, the city’s convention market has been flat in recent years due to growing competition from cities offering newer convention facilities that are more appealing than what Springfield has available.

“We are not seeing growth in the convention business because we simply do not have competitive facilities,” said Tracy Kimberlin, president of the Springfield Convention and Visitors Bureau.

The Hunden study claims that over 20 years the convention center would generate $1.11 billion in revenue (page 129) and create 800 new full-time jobs over 10 years (page 131). What a great opportunity for private investors!

Except that somehow, it isn’t. The project apparently cannot happen without significant taxpayer investment—which is to say, free money from the government. Pages 122, 123 and 134 detail the need to increase and redirect existing taxes and levy new taxes through a CID (Community Improvement District) and maybe even through tax-increment financing or Chapter 100 bonds (page 122). As an aside, the Hunden report offers, “It will be very difficult to declare an area ‘Blighted’ that recently received a $300 million investment.” Alas, if only that were true.

This potential return on investment for a convention center in Springfield is either a good investment opportunity or not. We find out which when private developers put together a prospectus and share it with private investors who will decide for themselves whether to invest their own money. If developers cannot raise enough private capital, then the project is probably a bad idea.

Asking taxpayers to subsidize the project—exactly because developers cannot raise enough private capital—is admitting that they want public funds to support a bad idea. The proposal ought to be rejected on its face.

If you are interested in learning more about the dubious marketing claims of the convention hotel industry, you can watch this 2015 presentation by University of Texas at San Antonio professor Heywood Sanders, who wrote the book on convention centers in the United States.

 

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