Tax Cuts And Jobs Act Passes

Posted on by Patrick Ishmael

As its details became clearer, we talked a lot over the least few weeks about the policy ideas that underpin the federal Tax Cuts And Jobs Act. The bill reduces taxes on individuals and corporations, nearly doubles the standard deduction, and reins in some of the itemized deductions that historically have tended to favor a cavalcade of special—and oftentimes wealthy—interests. I would have liked to see steeper cuts to the state and local tax (SALT) and mortgage deductions, but with the passage of the tax reform bill yesterday, we will have to save those fights for another time.

Congress approved a sweeping $1.5 trillion tax bill on Wednesday that slashes rates for corporations, provides new breaks for private businesses and reorganizes the individual tax code.

The Senate passed the GOP bill early Wednesday morning and the House then voted on it for a second time to fix technical problems with the legislation, the final step before it’s sent to President Donald Trump for his signature.

According to the Tax Policy Center, 8 out of 10 Americans will see their taxes reduced under the finalized bill, including the vast majority of middle income earners. It also sounds like entitlement reform could be coming soon to pair any long-term revenue reductions from this tax relief with long-term spending reductions, as well. Entitlement reform should have happened with or without tax reform, obviously, but that the two issues are being talked about in the same breath now is a positive development for supporters of good, sustainable governance.

But let’s not forget one other big development in the tax reform bill: starting in 2019, the end of Obamacare’s mandate penalty/tax.

The individual mandate was included in ObamaCare in part to draw young and healthy people to sign up for insurance in the marketplaces as a way to offset the costs of older and sicker enrollees.

Still, not everyone agrees that the measure has worked as intended, with some saying the mandate hasn’t been as effective as originally thought to entice people to buy health insurance.

“Today, we’re turning Obamacare from a mandatory program into a voluntary program and providing additional tax relief for the millions and millions of Americans who have chosen and will choose not to buy a government-mandated product that for them provides not the value that they want,” Sen. John Barrasso (Wyo.), the No. 4 Senate Republican, told reporters on Tuesday.

To me as a Millennial, the functioning of Obamacare’s mandate was a particularly objectionable piece of that bill that used younger, generally poorer Americans to subsidize everyone else in the individual market. It’s why so many young people instead risked not getting the insurance at all, especially as the premiums on the plans available to them exploded year after year. 

In the end, while I’d like to have seen more from the bill—and frankly, more from this year, including a full repeal of Obamacare—the passage of the TCJA is a welcome win in what could otherwise have been a dicey year for supporters of free market reform. 

 

Unfunded Pension Liabilities: Unaccountable and Unaffordable

Posted on by James V. Shuls

A while back a colleague at UMSL approached me in the hallway. In a joking manner she asked, “Hey, why do you want to take away my pension?” A former teacher, she had heard that was my nefarious plan. We had a great conversation about unfunded liabilities and all things pension. Last week she followed up with a question. She didn’t understand how the pension system could be unfunded. When she was a teacher, she and the district each contributed to the account. She was under the impression that she could only get that money plus interest in retirement. She was greatly mistaken. In a defined-benefit pension system, retirees can receive much more in benefits than they ever contribute to the system. Indeed, benefits are essentially unlimited (for the lifetime of the retired teacher).

 You have to understand this aspect of defined-benefit pension systems when you consider the recent report, “Unaccountable and Unaffordable,” produced by the American Legislative Exchange Council. They estimate that state-administered pension plans have more than $6 trillion in unfunded liabilities. That is the difference between the amount we’ve promised workers and how much we have in the retirement accounts to pay for those promises. This figure is up $433 billion since 2016. (These figures use a risk-free discount rate.)

 Missouri ranks 31st in total unfunded liabilities with more than $107 billion across the state’s pension plans. This translates to $17,642 per capita. That is, each Missourian would have to pay more than $17,000 to meet the obligations we’ve already promised. Unfortunately, these liabilities look like they will keep growing.

 I don’t want to take away anything that we’ve promised to a public-sector worker, but we need to realize two things. First, pension benefits are not simply a function of how much workers contribute. Second, we must do something about these mounting unfunded liabilities. Either employees and employers must contribute more (which is asking a lot when they already contribute the equivalent of 29 percent of a teacher’s salary), we must hold down benefits, or we must move to a different system. If we don’t, these unfunded liabilities will eventually wreck Missouri’s finances.

 You can check out the full report here.

 

Is an Audit in the Works for the City of Saint Louis?

Posted on by Andrew Aubuchon

A lack of clarity regarding how the City of Saint Louis manages taxpayers’ money has pushed some residents to demand answers. Audit STL, a local activist group, is currently attempting to collect signatures to trigger an audit from the Missouri State Auditor’s office. Because the Saint Louis Metropolitan Police Department was under state control prior to 2013, previous audits of the city have not included the police.

A story in the St. Louis Post Dispatch reports on Audit STL’s concerns:

“Taxpayers have a right to know how their money is being managed, the group [Audit STL] argues, especially because city leaders have asked them to approve half-cent sales tax increases twice in a six-month period.” St. Louis mayor Lyda Krewson added that “This audit will clarify the cost of all city operations so that city leadership can make informed choices. Just like at home, the city can’t afford everything we want, so we must make the hard and difficult choices to fund our priorities.”

Taxpayers certainly have the right to know how their money is being spent. That’s why we have started a checkbook project. Thus far, we have issued over 150 sunshine requests to municipalities all across Missouri for records of their spending. We are currently processing these records and building a searchable database that will be available on our website. Once completed, this checkbook will be a useful tool for concerned citizens across Missouri. 

Residents of Saint Louis have every right to know the details of their city’s finances, and if that requires a state audit, then so be it. Governmental bodies must be accountable to the people they serve, and any serious level of accountability can only be achieved through transparency. 

TIF Doesn’t Create Jobs

Posted on by Patrick Tuohey

Paul F. Byrne, a professor at Washburn University in Topeka, Kansas—who has examined tax increment financing (TIF) use in Missouri for the Show-Me Institute—has a new working paper on TIF job creation in Missouri. In the paper, Byrne examined data from the Missouri Department of Revenue and the U.S. Bureau of Labor Statistics to see if there is a correlation between the claimed job creation from TIF districts and county-wide job growth.

Anecdotally, it appears that TIF doesn’t really create jobs. As we’ve written about the H&R Block TIF and the Power & Light District, TIF doesn’t really create jobs. At most it just moves them from elsewhere in the area. Byrne wondered,

If the number of jobs created by TIF, as reported by TIF administrators, is a true economic impact, then the number of reported jobs should have a positive impact on county employment as measured by the BLS.

Anyone familiar with research on TIF (and not everyone cares about the research) will not be surprised by the results. Byrne concludes,

This paper’s results indicate that the number of jobs supported by TIF, as reported by local economic development agencies in Missouri, does not have a significant positive effect on county employment as measured by the BLS. The lack of a positive impact of reported jobs on employment suggests that TIF-supported jobs either come at the expense of other areas in the county or would have located in the county regardless of the existence of Missouri’s TIF districts.

TIF diverts a lot of money from municipalities that would otherwise go to support schools and basic services. Research from all over the country tells us that it does not create jobs, does not spur investment, and does not mitigate blight. It’s time for reform or elimination altogether. 

I Don’t Think the Data Say What You Think They Say

Posted on by James V. Shuls

Much to the consternation of public education officials, the State Board of Education voted to remove the commissioner of education, Margie Vandeven, from her position last Friday. The vote came after a failed attempt to remove the commissioner just a couple of weeks ago. The five members of the board who voted to oust Vandeven were all appointed by Gov. Eric Greitens. This post, however, is not about the maneuvering of the governor to assemble a board that would take this action. This post is about bad evidence.

When it became clear that the governor was attempting to remove Vandeven, public educators rallied to her cause. Some defended Vandeven as a competent and well-regarded public servant. Others, however, sought to attack charter schools. They presumed that the whole ordeal wasn’t about Vandeven, but about putting someone in place who would work to expand school choice in Missouri. Several public school administrators tweeted the below graphic. One wrote, “More tax dollars could soon be siphoned to these ineffective schools if @GovGreitensMO gets his way.”

The claim that this chart shows anything meaningful about charter school effectiveness would be amusing if it wasn’t being vigorously advanced by numerous individuals who should know better. Take a look to see what I mean. The table shows a comparison of public school districts performance on the Annual Performance Review with individual charter schools. There are two huge problems with this. First, we are comparing whole school districts with individual schools. Second, it compares districts with schools that serve entirely different types of students. Charter schools in Missouri are only in Saint Louis and Kansas City. It is hardly fair to compare their performance to the Rockwood or Nixa School Districts that serve much more affluent students. 

A better comparison would be to compare charter school performance to the performance of individual schools in Saint Louis and Kansas City. I’ve done that below. As expected, the comparison is much more favorable for charter schools. In total, 58% of Missouri charter schools scored above 70% on the APR. Meanwhile, just 45% of public schools in Saint Louis and Kansas City scored in that range. Interestingly, 13 of the 16 traditional public schools in the top category were magnet schools, as were 6 of the 11 in the next category. These are hardly traditional schools. Neither traditional schools nor charter schools are allowed to have admissions requirements, but magnets can. Some magnet schools require students to take admissions tests and score at a certain level before they can be admitted. 

Given this more accurate context, charter schools appear to be outperforming their traditional public school counterparts. Yet, even this comparison tells us little about the effectiveness of the schools themselves. For that, we’d need a more sophisticated analysis. Fortunately for us, the Center for Research on Educational Outcomes (CREDO) at Stanford University conducted such a comparison. Using a matching design, in which they compare charter students to similar students in district schools, they found Missouri’s charter schools outperformed the district schools in reading and math.

It is understandable for public school officials to defend Margie Vandeven or even for them to oppose charter schools. However, it is not acceptable for them to build their case on misleading data. Let’s have a productive dialogue about public education and school choice in Missouri, and let’s have that conversation by looking at what the evidence actually says. 

Policy Breakfast: No MO Red Tape

Posted on by Justin Smith
Are government regulations blocking the path to growth and job creation? This year, Governor Eric Greitens signed Executive Order 17-03, designed to identify and eliminate red tape and needless regulations. In this presentation, Justin Smith, Deputy Counsel to Governor Eric Greitens, outlines Missouri’s effort to eliminate burdensome rules on business.
 

Computer Science Classes Coming to More Rural Districts, but Much of the State Is Still Left Out

Posted on by Emily Stahly

CodeHS, a California-based company, announced a new initiative called Code Missouri that will bring computer science and coding classes to more rural school districts. It’s great news, but unfortunately it will only be available to a few districts in the state.

For the 15 rural school districts that are selected, Code Missouri is an exciting development. CodeHS is going to give these districts its computer science program, training for teachers, the curriculum, and tech support—all for free. Fayette High School, which is near Columbia, is piloting the program, and students there are learning to build their own mobile apps.

The only downside is that there will still be a lot of kids in other rural districts without the opportunity to take these classes. This is not a knock against CodeHS at all; rather, it is a call for Missouri to find a solution for all its students.

Show-Me Institute analysts have written about course access at length, especially how it can help rural schools, and how we already have much of the infrastructure for it. If students across the state could use a portion of their annual per-pupil funding to enroll in courses online or at community colleges, they could learn how to code. More importantly, course access would go beyond computer science and give students the choice to take courses across a wide variety of subjects.

No doubt, these new computer science and coding programs are going to give students in a few, fortunate districts valuable new skills and help prepare them for the future. Since the infrastructure is there and course access would redirect current education spending, what’s stopping us from giving all students in Missouri the same opportunity?

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