The Time Is Right for Mandatory Minimum Reform

Posted on by Patrick Tuohey

In a vote that was itself noteworthy, on May 1 the Missouri House voted unanimously, 148 to 0, to approve House Bill 1739, giving judges more discretion in applying mandatory minimum sentences. It is now before the Senate to pass and send to the governor.

I testified regarding how HB 1739 and its companion bill Senate Bill could benefit Missouri. The reform effort promises the possibility not only of saving taxpayer money, but of better protecting the individual liberty of Missourians in the criminal justice system. I hope the the Senate acts swiftly to make these reforms a reality.

The Most Unkindest Tax of All

Posted on by Patrick Tuohey

We’ve written a great deal about the various forms of taxation in Missouri. Some taxes are too high, some may be too low, and some shouldn’t exist at all. But the most dastardly tax out there, unfair and regressive, is alive and well in Missouri’s cities: the tax on groceries.

The Tax Foundation reported last year that 32 states exempt food purchased for consumption at home from tax. It reports that six other states tax food at a lower rate,

Food sales tax rates in these states are as follows: Arkansas: 1.5 percent, Illinois: 1 percent, Missouri: 1.225 percent, Tennessee: 5 percent, Utah: 3 percent, and Virginia: 2.5 percent.

This is true but incomplete. The Missouri General Assembly did in fact reduce its sales tax on food, but local sales taxes are still collected on food and beverage purchases. In St. Louis’s Central West End, the tax rate on groceries adds up to 7.4 percent; in Kansas City’s Power & Light District it is 7.6 percent.

What makes this the most unkindest tax of all, as Shakespeare might say, is that it is regressive, meaning it weighs disproportionately on the poor as everyone must buy food. Because Kansas City and St. Louis charge additional sales taxes on top of the state rate, any intention by the General Assembly to spare low-income consumers this tax is undermined.

To make matters worse, both Kansas City and St. Louis charge a flat and regressive 1 percent earnings tax on every dollar earned. The earnings tax is levied on the first dollar earned, and there is no exemption for lower-income workers. Adding insult to injury, the earnings tax is not levied on types of income enjoyed by wealthier citizens such as investment income or retirement.

Kansas City and St. Louis have a large number of low-income residents. Unfortunately, the cities’ taxes only add to the problem. The first order of business for any city leader who wants to help low-income workers should be to take less of their money away from them.

A Drought of Our Own Making

Posted on by Susan Pendergrass

Can we call a place a desert if we refuse to let water in? The Fordham Institute recently released an interesting look at which communities in the U.S. have a significant portion of low-income students but very few choices when it comes to their education. Fordham calls them “charter school deserts,” and they created interactive maps of each state with the deserts highlighted.

Sadly, these are easy to identify in Missouri. Just find the Census tracts where more than 20 percent of children live in poverty and circle them. The school choice spigot in Missouri is firmly turned off, with little hope that it will be turned on any time soon. The Missouri legislature has refused to transfer any power away from local school boards and into the hands of parents. As a result, students who live in areas of concentrated poverty around Springfield, in the southern part of the state, and in the bootheel have no options beyond their assigned public school. Going by the current laws governing charter schools, you would think that all the parents outside of St. Louis and Kansas City are perfectly satisfied with their children’s assigned public school.

In contrast, our two largest cities look more like charter school oases. Nearly half of all public school students in Kansas City and one-third of public school students in St. Louis attend a public charter school. Parents in these two cities aren’t unique in their desire for high-quality school options for their students—they’re just the only ones who can access them.

This week National Charter Schools Week is being celebrated across the country, including in those districts with at least 10 percent of their students in charter schools. One in five public school students in the U.S. attends school in one of those districts. In fact, every day nearly 3.2 million public school students head out the door to a public charter school. These schools expand public school options for parents across the country. Unfortunately, in Missouri we’ve chosen to reserve them as punishment for failing school districts and to leave everyone else thirsty.

Edward Glaeser to Discuss War on Work in St. Louis

Posted on by Bennett Lewis

Harvard economist and Manhattan Institute Senior Fellow Edward Glaeser will speak at St. Louis University on May 9. As part of the Show-Me Institute’s Speakers Series, Professor Glaeser will address what he describes as the great domestic crisis of the 21st century: “the flight from work” by prime-age men. 

While other unemployment statistics seem to be trending positively, 15 percent of men who should otherwise be working (according to historical standards) now “seem to have left the labor force permanently,” no longer even bothering to look for work. The consequences of these numbers go beyond their effect on national economic output; they threaten the national spirit.  The saying, “idle hands are the devil’s workshop” is backed by data, including a huge drop in happiness associated with unemployment. Research also links joblessness and disability with America’s deadly opioid epidemic.

Glaeser asserts that a governmental “war on work” is driving this problem.  He points to a series of programs incentivizing joblessness such as food stamps and housing voucher payments.

To solve this crisis, Glaeser argues that we must educate, reform social services, empower entrepreneurs, and even subsidize incentivize employment. That is an ambitious—but promising—agenda for ending the war on work before it consumes a generation of Americans.

I hope you can come hear him lay out that agenda on Wednesday, May 9 at St. Louis University. The lecture will begin at 6:00 p.m.

So That’s What You Spent Your Money On

Posted on by James V. Shuls

A few weeks ago I asked the question, “school administrators, what did you spend your money on?” The purpose of that piece was to show that Missouri has been increasing school funding, but that money has not translated to higher teacher salaries. I showed that much of the money went to additional people, such as aides and administrators, and some went to increased costs for benefits. A recent audit of the Hazelwood school district offers even more answers. The St. Louis Post-Dispatch has the full story, and I suggest you check it out.

Here are some of the highlights:

The audit noted that the School Board and superintendent spent more than $387,000 in the past two school years on membership fees, travel, gifts, airfare and meeting expenses. The district spends tens of thousands of dollars on items such as sympathy flowers, sympathy cards, “excessive tipping,” bellhops, valet parking, extra airline fees, gifts, T-shirts and board meals.

That’s enough money to give every teacher in the district about a $300 raise. That may not seem like much, but things like this add up. Here is another example from the Post-Dispatch’s report:

The district pays a $600 monthly car allowance to the associate superintendent in addition to mileage reimbursement, even though the associate superintendent only drove $250 worth of mileage for the entire last school year.

According to data from the Missouri Department of Elementary and Secondary Education (DESE), the average administrator in Hazelwood earned $107,526 in 2017. This includes principals and assistant principals, so the salary paid to an associate superintendent is undoubtedly higher than this. I leave it to you to decide whether a $600 monthly car allowance for an associate superintendent is a prudent investment for the district to make.

The audit also found that the school district improperly over-counted student attendance—leading to the district receiving $95,000 that it wasn’t supposed to receive—and failed to report a principal who allegedly stole thousands of dollars from the district. While those two examples are evidence of wrongdoing, what about the spending practices described above? They don’t violate any rules, but they explain a lot about where all that additional education funding is going. In a time of increased focus on teacher pay, it seems incredible that we can say to school administrators, “That’s what you spent your money on?”

[As part of the Show-Me Institute’s Checkbook Project, you can see a full breakdown of the Hazelwood School District’s spending.] 

Incremental Tax Reform: Don’t Let the Perfect Be The Enemy of the Good

Posted on by Patrick Ishmael

Last week the Show-Me Institute released a new essay that discusses the importance of tax reform. Many of the ideas in the essay have appeared in state legislation this year and in previous years, but unfortunately, it remains unclear whether the two most prominent tax reform packages—one from the House and one from the Senate—will ever actually become law.

That doesn’t mean that nothing should be done on taxes this year. In fact, a bill that would reform the state’s corporate income tax, sponsored by Sen. Andrew Koenig, has emerged from the Senate and is now before the House for consideration. The bill, Senate Bill 674, represents good policy pursued on a revenue-neutral basis, and while the legislation could be imagined as a “side car” to comprehensive tax reform plans, the bill itself is a strong standalone measure that would drastically reduce the state’s corporate income tax rate.

Cutting the corporate income tax is a cause near and dear to my heart and, with my colleague Michael Rathbone, it was the subject of one of my first essays at the Institute in 2012. That essay dove deeply into the importance of corporate income tax reform and some ways to achieve it, drawing on the broad academic consensus about the economic destructiveness of income taxes. To quote researcher Jens Arnold of the Organisation for Economic Co-operation and Development,

[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 taxes. In fact, corporate income taxes appear to be the least attractive choice from the perspective of raising GDP per capita. [emphasis mine]

That’s why SB 674, even on its own, is important. Thus, the concern here—and a concern shared by the Washington D.C.–based Tax Foundation—is not policy-specific, since the bill is a good one, but procedural. If SB 674 is amended in the House, chances are good that the bill would simply die as the legislative session comes to a close, since the Senate would have to reconsider it and time is obviously running out.

I think most reformers would want to see reform come all at once, and in truth, there is no reason why over the last two years that couldn’t have happened on tax reform. But there is something to be said for methodical incrementalism, and I hope that serious consideration will be given to the subject of corporate income tax reform on its own terms as a springboard to larger reforms, passed this year or in the near future.

After two years of missed opportunities, it would be excruciating to see another opportunity for reform vanish at the end of this legislative session. I hope the House doesn’t let this happen.

 

A Retirement House of Cards

Posted on by Susan Pendergrass

In a recent blog post about the state of affairs in a couple of Missouri state pension funds, we pointed out that they’re getting costlier and less sustainable with each passing year. Sadly, the systems serving the teachers in our two major cities are even worse. According to a 2017 asset/liability analysis commissioned by the Kansas City Public School Retirement System (KCPSRS), that system is currently only 64 percent funded, partly because the school district has failed to make the required contributions since 2012. At the current contribution rate of 19 percent (9.5 percent from the teachers/9.5 percent employers—either the Kansas City Public School District or a charter school), assuming the fund will earn a 7.75 percent return every year for the next 20 years, the system will be 53 percent funded in 10 years and just 39 percent funded in 20 years. (If the fund earns just 4.75 percent per year, the funding ratio in 2037 will be . . . 0 percent.  That’s right—no money left in the fund.) Not surprisingly, the KCPSRS has requested that the state legislature increase the school contribution to 10.5 percent next year and 12 percent in the following year. In the best case, a total of nearly 22 percent of payroll will be contributed to the KCPSRS and the fund will earn a consistent return of 7.75 percent every year for 20 years, which would get it to 80 percent funded.

The St. Louis Public School Retirement System (STLPSRS) has its own problems—it was just 64 percent funded in 2016, with 5,000 current teachers supporting 4,600 retirees. Teachers have been contributing 5 percent of payroll, with St. Louis Public Schools (SLPS) and charter schools making up the rest of what the annual actuarial analysis determines is necessary to keep it funded at least 70 percent. As a result, the bill for SLPS and the charter schools has climbed to over 15 percent and, in 2018, the actuarial analysis determined it needed to be 19 percent. However, difficulty keeping up with increasing costs led SLPS to request that the Missouri state legislature cap their contribution rate at 16 percent. In addition, teacher contributions would climb by one-half percent each year until they reach 9 percent (new teachers in fall 2018 will immediately begin paying 9 percent). According to STLPSRS, that would leave them with a $192 million shortfall within 15 years, so they’re suing SPLS and the St. Louis charter schools.

Economic conditions, unaffordable benefit promises, and an unwillingness to use realistic investment return assumptions have resulted in precarious fund positions, lawsuits, and attempts to balance the books on the back of the youngest workers. Does it have to be this way? No. Many states are moving away from defined-benefit plans (pensions) and toward defined-contribution plans [like 401(k), cash-balance, or hybrid plans]. In some cases, all new employees are placed in the new plans; in others, they can choose between the state defined-benefit plan or the new options.

We’re also seeing teacher retirement benefit innovation from within public education. In 19 states, charter schools may choose whether or not to participate in their states’ pension plans. A recent analysis of charter school participation in five states that make participation optional found that the schools most likely to opt out of the state plan are urban, elementary schools, and those that are managed by charter networks. Most of the opt-out charter schools offer their teachers 401(k) or 403(b) plans, and the teachers are vested in less than one year. The reasons given for choosing this path were mostly that the schools wanted to lower their estimated costs, give teachers a wider range of investment options, and make their teacher benefits more portable. For today’s youngest teachers, this is an important point. Most of them will not meet a vesting period of ten years in one state and, when that happens, they lose the amount that their employer contributed for them.

The good news for teachers and taxpayers is that there is time to protect current and future retirees before the system is bankrupt. The building isn’t on fire yet. However, those of us who pay close attention to this complicated topic are starting to see smoke under the door. It’s time to start talking about how to stabilize Missouri’s teacher pension systems.

New Essay Reiterates Importance of Tax Reform

Posted on by Patrick Ishmael

Today my colleague Patrick Tuohey and I are proud to announce the publication of our latest essay, “A New Tax Policy Vision for Missouri.” While the Institute has a vast body of work that often addresses state and local taxation as separate topics, this new essay takes a more comprehensive approach to the subject, in light of recent debates, and deconstructs the tax issue—an approach we hope will help encourage tax reform around sound principles of good governance. As we say in the introduction,

Taxation requires a taking, with or without the consent of the individual. Because it is a taking, the debate about taxes—about how much money should be drawn from private enterprise, in what manner, and for what purpose—is among the most important debates in which policymakers engage. With that in mind, we must carefully consider what public goods are so vital that we must impose taxes to fund them. How much taxation is fair? And who is to pay it?

Specifically the essay grapples with income tax policy, state and local tax incentives, and the appropriate provision of government services such as roads. We hope that this more basic and holistic approach to the tax policy questions that face policymakers is informative and digestible to laypersons and experts alike. Click on the link below to read the entire essay.

 

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