No Need To Throw Taxpayer Money Down The Well

Posted on by Michael Rathbone

Last year, at the height of the drought in Missouri, I wrote about Missouri Gov. Jay Nixon’s Executive Order authorizing government assistance for water sharing and distribution to farmers affected by the drought. I argued that the government should not be spending public money to assist those who already have (publicly subsidized) crop insurance.

Fast forward to today. One might think that due to the drought, farm incomes would be seriously hurt. However, that is not what happened. According to a recent survey (hat tip: St. Louis Post-Dispatch) that the St. Louis Federal Reserve released, farm income for the last quarter of 2012 was either on pace to match that of the previous year or even increase. A Kansas City Federal Reserve report had similar findings. The reason incomes did not fall: “Many bankers cited the effect of crop insurance in alleviating the expected negative impact of the drought.”

So, these farmers did not really need all that extra help last year. Their insurance was enough to cover their losses. I am glad that was the case. However, if many farmers are making more money after the drought than before it hit, couldn’t they afford to pay a bit more for their insurance premiums? Currently, taxpayers heavily subsidize crop insurance premiums.

I am not advocating eliminating crop insurance. However, cutting back on public support for crop insurance is a good idea. According to one Government Accountability Office report, a 10 percent reduction in government subsidies would have saved the taxpayers $1.2 billion in 2011. Buying insurance is meant to help prevent catastrophic losses, it is not meant to make you money. The government should reduce its commitment to paying for insurance subsidies; it seems the farmers can afford it.

Missouri Is 31st For Business Friendliness In CEO Survey

Posted on by Patrick Ishmael

Earlier this week, Chief Executive magazine issued its annual “Best & Worst States for Business” survey, which asked business leaders nationwide how they view states in key policies areas such as taxation, regulation, quality of workforce, and living environment. As with most surveys, your mileage will vary based on what you think of the survey’s methodology.

Yet, it is worth noting that the business leaders who responded to Chief Executive did not hold Missouri in especially high regard. The Show-Me State ranked 31st in business friendliness compared to the rest of the United States. Lucky for us, our neighbor Illinois came in at an abysmal 48th place; unlucky for us, Kansas came in at a comfortable 19th. (Incidentally, the Chief Executive survey results resemble the Kauffman Foundation’s findings last month on business friendliness.)

Houston, we have a problem.

Speaking of Texas, there is one other thing worth noting about Chief Executive‘s survey — what the states in the top five have in common. Three of the top five states — Texas (first place), Florida (second place), and Tennessee (fourth place) — do not have an individual income tax. Indiana (fifth place) just enacted legislation to cut its income tax; North Carolina (third place) is pushing hard to reduce its income taxes as well.

I have talked before about the Growth Corridor developing in the Midwest. Missouri should cut income taxes of all sorts, not only because they harm growth in a vacuum, but also because we are surrounded by neighbors who are enacting pro-growth policies in an effort to grow their states’ businesses . . . and to attract ours. Kansas may be the most visible example these days of a state’s tax policy posing a threat to Missouri’s economic future, but it is not just about Kansas. It is about the whole region.

We cannot wait any longer to start cutting these taxes. Missourians need tax relief, and they need it now.

Missouri Urban Assessments Need Greater Consistency

Posted on by David Stokes

Some of the land in the heart of the city of Saint Louis’ fashionable Central West End is worthless. Don’t believe me? Do you insist that the land upon which mansions, high-rise condos, and world-class hospitals sit must have some value? Well, it does not, and I can prove it. Check out 4256 Lindell on the city assessor’s online database. The land is valued at $0. That is right, $0 for the entire parcel of land. However, at 4512 West Pine (our offices), the parcel of land is appraised at $79,800. How does that happen for two similar parcels? It happens via inconsistent (and occasionally incomprehensible) land assessment procedures, and is a problem around the state.

At least the City of Saint Louis attempts to value its land (as does Saint Louis County). Many Missouri counties do not make any distinction between the land and the building or home on a piece of property. They should. Land and improvements are separate assets with different values and should be measured independently. Valuing the land and the improvement separately makes for both better assessments and a more fair and consistent tax system.

There is often a disconnect between good economics and smart politics. That is a prime reason why land taxes — property taxes on the value of land only — are so rare in the United States. Economists almost universally support land taxes because land is immobile and non-distortionary. You cannot move it and somebody is always going to own it. Furthermore, if you tax the land and not the improvement, you encourage people to invest in their property. If you add on to your home and expand your business, you are not punished with higher taxes under a land tax.

But land taxes made for bad politics. Missouri, like most states, established its tax system when it was (and, in our case, still is) an agrarian state. Guess who dislikes taxing land instead of buildings or homes? Farmers, not surprisingly. But now beneficiaries include urban condo owners who are often not assessed anything for the very valuable land they sit upon. This can be particularly troublesome when combined with tax subsidies. Some subsidy programs only apply to the building and not the land. Cities or counties that utilize those programs but do not assess the land separately risk turning what is supposed to be a partial abatement into a full abatement. That could reduce the tax base even more than intended, with corresponding higher marginal taxes on everyone else.

Land taxation has worked elsewhere, most notably in Pittsburgh. Unfortunately, the only city in Missouri that had it, Kansas City, recently eliminated it. Lawyers and politicians, not economists, recommended that terrible decision. Nevertheless, Missouri can obtain some of the benefits of land taxation simply by requiring counties to judge the value of the land in assessments. Having more taxable value in the land will encourage investment in your property, because the value of the land will not change if you, for example, build an addition.
Missouri needs greater consistency in appraisals and assessments. All county assessors should be required to break out the land and improvement values. Furthermore, they should be required to accurately reflect the difference, as opposed to haphazardly guessing. We should not have situations where one valuable urban parcel is set at $0, and another a short distance away is set at $79,800. If we are going to rely on a system of property taxes to fund local governments, we need to make it a more accurate system.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Don’t Like Common Core, Go Ahead And Leave

Posted on by James V. Shuls

Last week, the Missouri Department of Elementary and Secondary Education (DESE) hosted “information sessions” throughout the state about the new Common Core State Standards. I noted in my last blog post that citizens showed up to these meetings with questions. DESE officials, on the other hand, showed up with scripts and videos. They were not prepared or willing to field questions. If you do not believe me, check out this video from the meeting in Springfield, Mo.

The parents and community members in the video are polite and respectful as the DESE official drones on and on about the standards. I do not care what setting you are in, this is simply a poor presentation, and it happened this way throughout the state.

When people had enough and wanted to go off script, they were denied and told they could leave.

The DESE rep can be heard saying (emphasis mine):

All these questions need to be asked, but they need to be asked in a thoughtful way. So we can come and ask these questions at the end. What we cannot answer will go to the state department’s website and they will be answered there. . . . If you are unable to follow the way we are going to hold this meeting, you’re welcome to go ahead and leave.

Wouldn’t it be nice if we were allowed to “go ahead and leave” when we do not like other things DESE is doing?

Public schools cannot go ahead and leave Common Core.

And most parents do not have the ability to go ahead and leave public schools.

Essentially, DESE was telling concerned Missourians “It’s my way or the highway,” which is kind of fitting. After all, isn’t that what they are telling us by continually pushing these new standards despite mounting concern?

Volunteer Health Services Act Moves Toward Final House Vote

Posted on by Patrick Ishmael

A quick “kudos” goes out to the Missouri House Health Policy and Rules Committees, both of which in the last week voted to send the Volunteer Health Services Act, or VHSA, to the full House for a final vote. The Senate passed the bill earlier this year, meaning that if the legislation passes without any amendments through the House, it will go to the governor, who I expect will sign it.

I have talked about the VHSA many times in the past. Missouri should not stand in the way of doctors from other states who want to provide free health services to our citizens, and it is heartening to see such a simple reform to our licensing laws so close to being enacted.

Lindbergh Crowd Halts Scripted Common Core Meeting

Posted on by James V. Shuls

Common_Core_Meeting_May2_Lindbergh

Officials from the Missouri Department of Elementary and Secondary Education (DESE) are finding out that it might not be easier to ask for forgiveness than for permission, at least not when it comes to the Common Core State Standards. DESE adopted the standards without public knowledge and last night, officials from DESE attempted to justify their decision with a one-sided presentation. Many concerned citizens and parents, however, were not interested in listening to DESE’s Common Core gospel.

At the meeting I attended at the Lindbergh School District, citizens showed up with questions; DESE officials showed up with scripts and videos. The plan was to divide the crowd into small groups so we could discuss the standards. They even provided a form for us to write down what we like about the standards and what we dislike. That plan may have worked at other meetings, but the folks at Lindbergh demanded to be heard.

The DESE officials seemed shocked when patrons who wanted to be heard continually interrupted the presentation.

One lady sitting near me said, “Can’t you deviate from your script?”

Another shouted, “This goes against teaching.” She was implying that the officials should have been willing to take questions, like a good teacher would during a lesson.

After the crowd’s continual pestering, and the crowd’s refusal to separate into small groups, the DESE officials began fielding questions. Of course, they were not answering the questions, just listening to them.

The concerns were myriad, ranging from questions about data collection to issues of local control.

I asked two questions:

  1. How is this not an unfunded mandate? It will cost districts money to implement the new standards and to purchase all of the technology needed for the tests. If the legislature did this without providing additional funds, it might be a violation of the Hancock Amendment. What is the difference if DESE requires additional spending, but does not provide additional resources for school districts?

  2. There is so much double-speak. On one hand, you say these are just standards, they do not tell teachers how to teach. Then in the next sentence, you say that this is changing what teachers are doing in the classroom. How can it be both?

Though I liked my questions, I think the best came from a gentleman in the back of the room. He asked, “Why are you surprised by this response?” He was asking what many were thinking. As a school board member from a district in Franklin County shouted, “We’ve seen these videos.” In fact, many of the people at the meeting had read the information on the script and they had watched the videos on the website.

What the parents wanted was to be heard, not to have the Common Core force-fed to them.

Missourians deserve a fair discussion; they deserve a true debate of the issues. Instead, DESE officials have made up their mind. That is apparent in the statement that Missouri State Board of Education member Mike Ponder made: “I know that people can have a difference of opinion on the matter, but the idea behind the Common Core is here to stay.” In other words, we are doing this whether you like it or not.

If Missourians want a true dialogue on this issue, it will have to come from the people.

To learn more about the Common Core, I encourage you to visit:

* Why we need school choice (An essay detailing my personal story. It links math instruction, Common Core, and school choice).

* What is so common about the Common Core (Blog)

* DESE should consider district level waivers (Blog)

* Missouri should avoid implementation of the Common Core (Testimony)

* Constructive Criticism for Common Core Constructivism Deniers (on Jay P. Greene’s Blog)

Gunning For Tax Breaks

Posted on by Michael Rathbone

It appears the Missouri House is set to approve a bill that would grant a tax break to gun manufacturers (hat tip: John Combest). My first reaction was that this is a stunt. Yet, worse ideas have come out of the Missouri Legislature so maybe the House is for real.

Stunt or not, this is a bad idea. According to the bill’s own sponsor, gun companies are moving because of strict gun regulations. There is no mention of the tax environment. No matter one’s opinion regarding gun control, giving tax dollars to companies that do not need them does not make sense. It is not like other tax credit programs have covered themselves in glory.

If the state really wants to make Missouri more appealing to all businesses, including gun manufacturers, it should eliminate business income taxes. That would be too simple, though, wouldn’t it?

The first step in overcoming a problem is admitting it exists. The state seems to give at least lip service to that via the Tax Credit Review Commission. But just when you think there might be hope to get our tax credit problem under control, you see stuff like this. Hopefully, this will not actually become law, but who knows at this point?

Missouri Assessments Need Greater Consistency

Posted on by David Stokes

As Missouri enters its bi-annual reassessment process, I think people would be surprised to know just how substantial the difference in taxation is between different types of land. In Chesterfield (a wealthy suburb of Saint Louis where they still have some farms) there is a 56-acre agricultural parcel along the Missouri River that paid only $87 in taxes in 2012. A neighboring 59-acre parcel assessed as commercial land paid 42 times more than that in taxes: $3,651. Even more dramatically, a friend of mine paid more than $7,400 in taxes for 4 acres of residential property nearby. How did this difference become so dramatic? How does 56 acres pay $87 while 4 acres plus a home pays 85 times more than that?

Our state needs to confront the issue of underassessment in rural Missouri. Throughout Missouri, some of America’s best farmland is assessed and taxed at an incredibly low rate. The United States Department of Agriculture calculates all the agricultural property in Missouri at a market value of $74 billion. According to the Missouri State Tax Commission (STC), however, that same land has a taxable value of just $1.7 billion. That means we are setting taxes based on 2 percent of market value. The STC has attempted to partly address this by increasing set assessments for farmland, but the legislature has prevented such action.

Unlike residential, commercial, or even unused agricultural property, Missouri law does not base farm appraisals on market prices. Actively farmed land is appraised and taxed based on a state grading system, not assessment practices. Not surprisingly, that grading system sets assessments that are extremely low. For example, Missouri’s farmland has an average market value of $3,340 an acre. But the best farmland in the state can be valued — at most — at $985 an acre for purposes of taxation. For pastureland, the average value in Missouri is $1,820, but the most it can be valued for taxes is just $195. If your home or business is worth $100,000, it is supposed to be appraised at $100,000. Only farmland gets automatically set at a discount.

Then it gets even more extreme. An assessment ratio is then applied to the value of all property. That ratio is 32 percent for commercial property, 19 percent for residential property, and 12 percent for agricultural property. Your $100,000 home appraisal pays taxes based on an assessment of $19,000. But your $5,000 acre of prime farmland is valued at only $985, and then pays taxes on 12 percent of that, a value of just $118. That is how you get 56 acres of land paying only $87 in taxes.

Why does this matter to the average taxpayer? My purpose here is not to complain about low taxes. In fact, I like low taxes and I do not think farmers should pay high taxes. But if local government in Missouri is going to be primarily based on property taxation, then the system needs to be consistent and fair to all.

Low farmland assessments lead to low property tax bases for rural school districts. That would be fine if it simply meant that rural schools received less and spent less, and it only affected rural residents and children, in accordance with their wishes as voters and taxpayers. However, our statewide school funding formula attempts to equalize school funding. Low rural tax bases mean that income and sales taxes that people pay elsewhere in Missouri, and especially in the heavily populated, high-income portions of Saint Louis and Jackson counties, have more of their taxes transferred to rural schools. What we essentially have is an established system where rural areas pay low taxes yet the suburban taxpayers of Saint Louis and Kansas City subsidize their schools. Ensuring that rural schools have access to adequate education funding is necessary, but the people with high assessments and high taxes should not be subsidizing a system designed around low assessments in the first place.

Missouri needs greater consistency in appraisals and assessments. Market prices should be given a greater role in farm appraisals and assessments, like other types of real property. At a minimum, the new grading system with higher assessment amounts that the STC set should be adopted. If we are going to rely on a system of property taxes, we need to make it a more accurate system.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

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