I was on Kansas City Public Television’s “Kansas City Week in Review” last week to discuss the impact of Kansas’ tax reform proposals on Kansas City and Missouri. Video of that segment is below. You can find more on the issues regarding Kansas’ reforms in the research paper “Passing Through Missouri: Left Behind on Taxes?” My colleague Michael Rathbone and I researched and wrote the paper, which was released last Friday. That research report expands on our previous report, “Cutting The Ties That Bind: End Missouri’s Corporate Income Tax,” which was released late last year.
McGraw Milhaven – David Stokes on KTRS
David Stokes has a recurring spot on McGraw Milhaven’s KTRS radio program. In this appearance, Stokes and the host discuss topics such as the cut to Post Office service, the possibility of eliminating the Post Office entirely, potential problems with eliminating the Post Office and how to address them, and whether the penny should be abandoned in the US.
Not All Ideas Are Bad – Some Are Actually Good
You might think that all I do is complain about bad ideas coming out of Jefferson City. For the most part, you would be correct. However, on occasion, I do compliment good ideas when I see them. Take, for example, Missouri House Bill 380. HB 380 would completely eliminate the tax on pass-through entities and introduce a $100 million cap on economic development tax credits.
I have written a lot about the need to respond to Kansas’ tax cut. By eliminating the tax on pass-through entities, many Missouri businesses would be able to keep more of their money to invest in new projects and even lower prices for customers. In addition, it would not only make Missouri more attractive to businesses outside the state, it would also serve as an incentive for in-state businesses to remain here. HB 380 would partially mitigate any projected revenue shortfall by placing a cap on economic development tax credits. If the plan had been in place last year, the cap would have saved the state more than $300 million.
Even if there was not a proposed tax cut in HB 380, the proposed tax credit cap in the measure is, in and of itself, a good idea. Getting the government less involved in picking winners and losers through the tax code is a worthy goal. By substantially cutting down on the number of credits that will be issued, the government’s involvement in economic development is substantially diminished. Coupling a cap with an elimination of the tax on pass-through entities makes the bill even better. There is a lot to like in HB 380 and I hope Missouri experiences some kind of tax relief.
My colleague Patrick Ishmael and I just released a new paper on the topic of pass-through entities, “Passing Through Missouri: Left Behind On Taxes?” You can read the paper here.
Jay Nixon Makes The Wrong Call On Medicaid
Missouri Gov. Jay Nixon calls an up-or-down vote on expansion of the state’s Medicaid program “the biggest decision facing our state right now.” And so it is.
Unfortunately, the governor is selling the idea that Missouri and other states should take all the help they can get from Uncle Sam. Nixon treats the offer of billions of dollars from the U.S. Treasury as “free money” — even though it is one more instance of expanding an entitlement today out of debt imposed upon our children and grandchildren tomorrow.
In his Jan. 28 State of the State address, Nixon spoke to the fear that Missouri would lose $5.7 billion in federal grants over the next three years if it does not step forward to claim the prize.
But that is hardly the worst thing that could happen — given widespread dissatisfaction with the rapid growth in spending that has already occurred in this program. We do not have to expand Medicaid. This would not put existing benefits at risk.
The far greater danger is that Missouri (and other states) will fail to stop their spendthrift uncle in Washington, D.C., from bankrupting the nation — and slamming the door on job and wealth creation for years to come.
It is time to reform Medicaid — not to expand it.
Even more than that, this is a time for the states to come to the aid of their country — in saying “no” to an overreaching federal government that is seemingly determined to spend not just to the absolute limit of its taxing power, but also to the absolute limit of its borrowing power.
Over the past four years, the federal debt has increased from $10.6 trillion to more than $16 trillion. Federal indebtedness now amounts to more than $50,000 for every man, woman, and child.
Anyone who does not think Medicaid is part of the problem should look at the numbers.
For more than a decade, Medicaid has been the fastest-growing part of state budgets across the nation. In Missouri, Medicaid expenditures increased from $3.4 billion in fiscal year 2000 to $8.2 billion in fiscal year 2012. Despite the increased outlays, which now amount to more than a third of the state’s total expenditures, it is increasingly difficult for patients to find doctors. And doctors say they have little incentive to stay in the program because of reduced reimbursement rates and administrative headaches.
Medicaid showcases the many problems that grow out of greater and greater reliance on government-mandated and government-controlled health care — in limiting competition and freedom of choice and undermining the bond between patient and doctor.
In his address to the legislature, Nixon glossed over such problems, suggesting that the Medicaid expansion (as a critical part of the Affordable Care Act) is a done deal — passed by Congress, signed by the president, and upheld by the Supreme Court.
“The question before us is a narrow one,” Nixon claimed. “Will we bring the tax dollars that Missourians send to Washington back home to strengthen our Medicaid system here in Missouri? Or will we let the tax dollars Missourians send to Washington be spent in other states instead?”
There are two substantial problems with this line of reasoning.
First, the Supreme Court did not endorse the law in its entirety. As originally written, the law would have required each of the states to support the planned expansion of Medicaid . . . or face the loss of all federal matching funds. The Supreme Court struck down that part of the law — calling it “a gun to the head.” The Court ruled that the states must be free to opt out of the Medicaid expansion program if they wish.
Second, the real issue is not tax dollars that are (in Nixon’s word) being sent to Washington from Missouri and other states. It is the use of borrowed money (much of it coming from China, Saudi Arabia, and other such countries) that will pass the bill for today’s higher (and heedlessly wasteful) levels of government spending to our children and grandchildren.
Even without holding a “gun to the head” of each of the states, the federal government continues to dangle a large carrot in front of their noses — offering to pay more than 90 percent of new Medicaid costs through 2022. That compares with the usual split between the federal government and the states of about 60-to-40 in Medicaid funding.
It will take real courage for lawmakers in Missouri and other states to turn aside the poisoned chalice. But that is exactly what they must do.
Andrew B. Wilson is a resident fellow and senior writer at the Show-Me Institute, which promotes free-market solutions for Missouri public policy issues.
Shame on Saint Louis County Council for Union Cronyism
We witness one of the more unsavory examples of democracy gone wrong when elected officials abandon any pretense of fair-mindedness and nakedly use the power of government to reward supporters and punish opponents. Saint Louis County government gave us a brazen example of this when the county council passed an ordinance (No. 25,298) with a 5-2 vote in December that favors union contractors over their non-union counterparts. This is the county’s latest, and most outlandish, example of union-favoring legislation. The Missouri General Assembly should take action to prohibit local governments from enacting these types of laws.
The Saint Louis County Council passed, and County Executive Charlie Dooley signed, a bill that will prohibit non-union construction contractors from participating in all but the smallest county projects. Two members of the council’s Democrat majority who voted for the bill, Chairman Mike O’Mara and Patrick Dolan, are affiliated with unions that will directly benefit from this rank favoritism. At a minimum (here, the barest of minimums), they should have recused themselves from the vote.
The new law lays down several new requirements on county construction bidders. Of course, it does not specifically say the bids and contracts are “union-only” because that would be illegal. Instead, it mandates a requirement that will legally accomplish the same goal. The new ordinance requires that bidders offer apprentice-training programs that are generally found in union shops. For all practical purposes, the only way a contractor or company can offer this type of program — and be allowed to participate in county bids — is to become a union shop. It would be an extreme burden for the typical independent, non-union company to participate in the apprentice program. Whatever that burden may be, the county council has no business mandating it.
While some non-union companies do participate in apprentice programs through industry organizations, union-affiliated companies still have a decided advantage in meeting the requirements of this new bill. This is a blatant ploy to guarantee that union companies will win all county bids.
The non-union shops will now not win any bids, and likely will not participate in the bid process either. This will hurt taxpayers. Limiting the number of potential bidders can only have one effect: raising overall prices. Researchers at the Beacon Hill Institute found that Project-Labor Agreements (PLAs), another method of union-favoring project bidding, raised costs to taxpayers by 27 percent over non-PLA projects (which included many non-union bidders). This new law for Saint Louis County will likely have a similar result.
Using the council’s authority to prevent non-union contractors from even attempting to participate in county projects is an egregious misuse of power. It is bad enough that this will increase costs to taxpayers, but the use of government for political favoritism is simply indefensible and immoral.
State government need not allow this. Local governments are creatures of states, and the residents of Saint Louis County deserve for the state to correct this legislation. State government should quickly address this practice and prohibit local governments from favoring unions in the bidding process. (To be clear, local governments should not be allowed to discriminate against unions and union contractors, either.) We have a system of checks and balances to address exactly this type of unbalanced legislation. Unfortunately, the first option — a county executive veto — failed. Higher levels of government or the circuit courts need to correct this unseemly example of crony government.
David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.
Could The Tax Credit Bar For A ‘Solid Investment’ Be Any Lower?
Former Missouri Sen. Jeff Smith wrote in an op/ed published in the St. Louis Post-Dispatch last week that the “conventional wisdom” about the Low Income Housing Tax Credit (LIHTC) is wrong — that the LIHTC is not in fact a wasteful state boondoggle, but a “solid investment for taxpayers.” I have written about the LIHTC, and suffice to say, I disagree with him.
Of course, as the executive director of the Missouri Workforce Housing Association, Smith certainly has an interest in pumping up the program. According to the MOWHA website (emphasis mine):
The mission of the Missouri Workforce Housing Association (MOWHA) is to have a sustained effort influencing positive workforce housing policy at the federal, state, and local levels. We work with the Missouri Housing Development Commission (MHDC), the Affordable Housing Assistance Program (AHAP), Low Income Housing Tax Credits (LIHTC) . . .
The concern about tax credits such as the LIHTC is not just their potential for growth, but their costs and benefits. The LIHTC regularly clears more than $100 million from the state’s budget each year. The taxpayer benefit? Eleven cents on the dollar — a massive net loss to the state with every LIHTC project it subsidizes. If that is a “solid investment,” what isn’t?
Missourians would be better served with state policies that benefit all businesses through low, stable tax rates. It would be best served by the elimination of taxes on businesses entirely, a reform other states are already pursuing. That is a solid investment worth pursuing.
Moving For A Quality Education
Randy Georges Sr. knows something about school choice. He moved from the Tortola, British Virgin Islands to Missouri to obtain a quality education; now, he may have to move across town so Randy Jr. can have the same opportunity.
Like most concerned parents, Randy and his wife, Monique, have high hopes for their children and believe education is the path to success. Unfortunately, their house is zoned for one of the lower performing schools in the Springfield School District. They tried to use the district’s intra-district choice program, to no avail. Lacking other options, the family was forced to send their son to Bingham Elementary, where only one-third of all students are reading on grade level.
They could apply for the transfer program again next year, but success is not guaranteed; so the Georges family is analyzing all other options, including moving again. This situation is not unique; families across the state grapple with this very issue every year. They can either accept a sub-standard education for their children, struggle to pay tuition, or move. This is a shame, especially when it does not have to be this way.
In conversations with individuals from 10 private schools in Springfield, I discovered that there are more than 500 available spaces. The Georges family lives just a block from one of these schools.
When former U.S. Secretary of Education Rod Paige was superintendent of the Houston, Texas, school district, he offered some of the students the ability to attend a private school at the district’s expense.
At the time, Secretary Paige’s actions were a novel idea, but today, many states are following suit. According to the Center for Education Reform, there are now 25 programs in 14 states that enable students to attend private schools with a voucher or a tax-credit scholarship. Additionally, Arizona has instituted a first-of-its-kind program, education savings accounts, which can be used to pay for private school tuition or a host of other educational services or products.
These programs provide families with options, typically at a cost savings for the state. Take Springfield, for example: tuition at the private schools I spoke with was $3,300 less than the amount the Springfield School District spent per-pupil last year. Mind you, that figure does not even include the district’s expenses for facilities. A program that enables students to fill those 500 open spaces in the private schools could save the district more than $1.6 million. Moreover, it could ease some of the overcrowding problems in the district.
The idea of public dollars going to private schools is not popular to some, but the idea that the only way to get a good education is to live in the correct ZIP code or be able to afford private school tuition should be even more reprehensible. Providing families with options is not a private versus public issue; it is an issue of doing what is right.
James V. Shuls is the education policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.
Where Success Comes Before Work
Derek Weber is a man with big ideas. He is president of goBRANDgo!, a marketing agency that aims to “empowergize” entrepreneurs.
Armed with a plan to create a nonprofit incubator for startups, Weber approached Saint Louis agencies to turn the former Shepard Elementary School (3450 Wisconsin) into “a kind of entrepreneurial theme park” called The Conflux. According to Weber, “the only way to make [it financially feasible] . . . is through a combination of city, state, and federal tax credit programs.”
Is this really the only way? What about looking for investors and potential donors, exploring less costly options, or evaluating the demand for his project?
Helping entrepreneurs is indeed a noble pursuit, as they help our economy grow. But I find it inconsistent to be a strong supporter of entrepreneurs, yet act in a way that violates the true spirit of entrepreneurship. What sort of example would this publicly funded “entrepreneurial theme park” be setting for the entrepreneurs The Conflux intends to help?
This is a clear indication that our society continues to become more reliant on government assistance every day. Why else would a man who so ardently supports entrepreneurship insist that his nonprofit can only work if it has government support? Superfluous city, state, and federal government tax credit handouts perpetuate a culture that feels entitled to government aid. Still, there are countless nonprofit organizations that rely on hard-earned donations from individuals and organizations. These nonprofits work tirelessly to raise money to support a cause in which they believe — they do not simply rely on the government to fund their mission.
And most nonprofits would likely agree with Vince Lombardi when he said, “the only place success comes before work is in the dictionary.” But evidently, success also comes before work when you go seeking government subsidies.
Part 2: It Is Time To Close The Book On Aerotropolis
Last week, I noted that Aerotropolis is back in the legislative conversation as supporters try (again) to direct state subsidies to the Lambert-St. Louis International Airport-based project. Along with expressing our skepticism of the project’s economics, we have long-criticized the economic puffery surrounding the idea of Aerotropolis in Saint Louis. The Missouri Legislature opted not to give the project money in 2011 and again in 2012.
Yet public money has already gone toward Aerotropolis. Last year, Saint Louis County officials diverted $3 million in gambling tax revenues to support Aerotropolis. At the time, Lambert’s director, Rhonda Hamm-Niebruegge, told the St. Louis County Economic Council that with the gambling money (emphasis mine),
We are ready to go. . . . These funds put the muscle into our argument that St. Louis is the right place to move cargo around the world. We have capacity and we are happily uncongested, unlike most other United States cargo hubs, such as Chicago and New York.
What happened to the money? The St. Louis Post-Dispatch reported that not only did the original funds go unused, but that the airport is now gunning for a new $60 million cargo tax credit.
Last year, St. Louis County established a $3 million fund to subsidize cargo flights, but it has not been used. Airlines, say Hamm-Niebruegge, worry that they would burn through that pot too quickly; having a program worth $7.5 million a year for eight years will give the effort more staying power.
“It’s so critical for us to have a long-term view,” she said.
To summarize:
- In 2012, $3 million in casino taxes “put the muscle into [the airport’s] argument that St. Louis is the right place to move cargo around the world.”
- In 2013, not only was there such a lack of interest in the Saint Louis Aerotropolis project that no private actors drew on the money, but the airport says it needs more money. . . by a factor of 20.
If they have not already done so, policymakers have to ask themselves now: When will the Aerotropolis reality live up to the Aerotropolis rhetoric? Will it ever?
The fact is, Missouri’s economic development projects oftentimes live and die based on the promises supporters make, rather than the results they produce. Aerotropolis is simply a giant, tottering example of this unfortunate state of affairs. Now on its third time before the legislature and after literally years of puffery, it is time for Missouri to close the book on Aerotropolis and, more generally, other “big promise” tax credit projects. There are better ways to promote economic growth in Missouri. This is not it.
