A Golden Opportunity

Posted on by Michael Rathbone

Now that there are veto-proof Republican majorities in the state legislature, lawmakers have the opportunity to enact real, substantive changes to Missouri public policy. Show-Me Institute Policy Analyst Patrick Ishmael commented on some things that he would like to see and I want to comment further on items that the legislature should consider.

Missouri is lagging behind economically compared to other states. The state should avoid development schemes such as Aerotropolis and instead focus on other means of boosting the state’s economic competitiveness, such as tax reform.

Oklahoma is looking to enact major tax reform with an eye toward eliminating the state’s income tax. That is a worthy long-term goal and it is an issue that the Show-Me Institute has studied in the past. In the nearer term, the state should focus on eliminating the income tax on c-corps and pass-through entities. Pass-through entities are businesses whose income is taxed at the individual level instead of the company level. Many small businesses and professional corporations, such as a dental practice, are pass-through entities. Kansas got the drop on us when it eliminated its tax on pass-through entities. Missouri can do one better if both the corporate income tax and the tax on pass-through entities are eliminated.

There have been a couple of attempts to reform the corporate income tax. Missouri Sen. Will Kraus (R-Dist. 8) proposed a bill that would have modified certain tax credits and used the increased revenue to offset the corporate income tax. The Missouri House passed a corporate tax cut in 2011. Unfortunately, these attempts did not go any further. However, the legislature can still move forward, especially now that there is a veto-proof majority. Policy changes that Missouri’s neighbors have enacted have made change more necessary.

No Free Rides for Delta

Posted on by Kacie Barnes (Galbraith)

If you regularly follow the blog, you know that officials in Columbia, Mo., offered a revenue guarantee to American Airlines to entice the company to start flying into mid-Missouri. Delta, which has serviced the Columbia market for four years, was offered no such deal during that time. Columbia Mayor Bob McDavid announced on Tuesday that the city offered Delta a $3 million deal. This was an attempt to quell Delta’s negative response to American’s financial aid from the city.

Well guess what happened. Delta declined the offer, and announced it will exit the Columbia market in February 2013.

I said it before and I will say it again: what were Columbia decision-makers thinking?

They interfered with the market by offering American a revenue guarantee, which is essentially a subsidy. Delta officials had to step up and say “hey wait a minute — this isn’t fair if we are competing with an airline whose flights are subsidized by the government. We cannot compete with that.”

Columbia then found itself in a lose-lose situation. The city would have been out another couple million dollars if Delta accepted a deal that matched American’s, forcing taxpayers to spend even more. Or, Delta would decide to leave an unfair market and the city would lose the options they worked hard to grow at the airport, which is what happened.

What happens in two years, when the revenue guarantee for American ends? Will the city extend the deal, or just hope that the market suddenly becomes profitable? It is not prudent to subsidize a market that would not survive on its own just because someone likes the idea of it. I hope this will serve as a memorable example of the damaging consequences of government intervention in the free market.

The Most Dangerous Place To Be Right Now: The Sidelines

Posted on by Patrick Ishmael

The election season has — finally — ended, and soon the governing season will begin again in earnest. Although public policy will unfortunately continue to drift leftward at the national level, Missouri freedom lovers do not have the luxury of wallowing in their disappointment.

Starting next year, the Missouri Republican Party will have veto-proof majorities in both the state House and Senate. The re-elected Democrat governor had been able to stifle legislation from the legislative majority with vetoes and veto threats during his first term — a united Republican caucus would make that impossible in his second.

Indeed, the state legislature will have more power next year to exert its will in state governance. What will it do with that responsibility? What will it fight for?

I know what I will fight for.

I will fight to put an end to a decade’s worth of tax credit shenanigans that produce proposals such as 2011’s Aerotropolis and instead re-focus the state on enacting tax reforms that benefit all companies rather than the favored few. I will fight to have the corporate income tax eliminated and to have Missouri credibly respond to Kansas’ massive tax reforms of 2012.

I will fight for a health care policy that focuses on empowering the patient and the doctor, not the government. I will fight to have burdensome licensing laws reformed, particularly laws preventing some health care professionals from providing free care to Missouri’s neediest.

Especially today, supporters of liberty must ask themselves: “What will I fight for?” The state will be moving next year. The question is, in what direction?

The worst place you can be in the next few years is on the sidelines. Fight on.

The State Needs To Stop Acting Like A Bank

Posted on by Michael Rathbone

During this time of year, no one wants to say, “Bah, Humbug!” However, I would be remiss if I did not mention that the state might run into a revenue shortfall (between $400 million and $600 million) next year.

That can be troublesome, but it also presents an opportunity for the state to re-examine some of its questionable spending decisions. In earlier commentary, I have listed some areas where the state should reconsider spending money.

However, for now, I will focus on the state’s support of the Missouri Agricultural and Small Business Development Authority.

The mission of the authority is to make “capital available to Missouri farmers, particularly independent producers; agribusiness; and small business at competitive interest rates on a scale to make a major impact.”

This raises a red flag for me. An entity that makes capital available to businesses at a “competitive” interest rate sounds an awful lot like a bank to me. In fact, a couple of the programs that the authority administers include: Missouri Agribusiness Revolving Loan Fund, Alternative Loan Program and Animal Waste Treatment Loan Program.

The total state funds loaned to the Animal Waste Treatment Loan Program alone is close to $500,000 ($485,333.56 for fiscal year 2011, specifically).

Is anybody uncomfortable that a part of state government is acting like a bank? Why can’t the recipients of these loans get private financing? If they are great deals, why are private banks and/or financial institutions not jumping at the chance to invest in these projects?

Farms already face lower property tax burdens compared to commercial businesses (farm property has an assessment ratio of 12 percent compared to commercial at 32 percent and residential at 19 percent, and the soil quality grading system sets a very low appraised value already) so why do they need additional help with subsidized loans?

Also, how can a government and a private enterprise compete when it comes to financing? By issuing below market interest rates to different businesses, isn’t the state undercutting private financial institutions?

Even if a state department/agency/program loses money, it can acquire new financing by compulsion with increased taxes. A private organization does not have that same power to tax (although with TDDs and CIDs, we are getting there).

Thus, with the ability to achieve easier financing, what real incentive is there for the state to make wise spending decisions when it comes to these loans besides avoiding grief from dedicated bloggers such as me? Isn’t it time for the state to get out of the business of lending with your money and return to the basics?

Just some food for thought.

Michael Rathbone is a policy researcher at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Through the TIF Looking Glass, In High Style

Posted on by David Stokes

The Saint Louis city Tax Increment Financing (TIF) Commission recently approved $2.3 million in tax subsidies for a new Mercedes-Benz dealership in the city. The city board of alderman will take up the proposal for consideration soon, and judging by history over the past 20 years, they will almost certainly pass it. Think about this for a moment. That is $2.3 million of other people’s money going to a Mercedes dealership. In a very nice part of the city, no less.

I presume they declared the area “blighted.” Because the city does not post the TIF documents online, I am not certain of that (but it is highly likely). So, a piece of land just across the highway from the city’s crown jewel (Forest Park) is blighted. And because this not-really-blighted land is being called “blighted,” taxpayers get to subsidize it for more than $2 million. This is abject insanity. Talk about tax breaks for the rich . . .

How to Succeed in Business Without Really Trying

Posted on by Michael Rathbone

Yours truly was recently a guest of New York City while it suffered through a pretty devastating hurricane. Thankfully, I am fine. The worst thing that happened to me was that I gained a few pounds from binging on Oreos and flying home in day-old clothes. Considering what happened to a lot of people in New York, I got off light.

While I was in New York, a gentleman approached my father and offered him $1 for one of my father’s cigarettes. My father declined and I realized that there are people willing to pay $1 for a single cigarette. Cigarettes are addictive, but this display of demand still took me by surprise.  What this indicates is that demand for cigarettes is pretty inelastic.

This is important because one of the arguments in favor of raising taxes on cigarettes is that it will cause smokers to quit, but if the gentleman I encountered in New York is any indication, raising the tax might not get as many people to quit as tax hike proponents believe. At the very least, if someone is willing to offer $1 for a single cigarette, how effective would a 90 cents per pack tax be in deterring smoking?

It is possible that the high cigarette tax in New York encouraged this gentleman to seek cigarettes from sources other than a convenience store (New York state imposes a $4.35 per pack tax on cigarettes). Yet raising taxes by so much brings with it its own set of problems, among them being the incidents of cigarette smuggling that occur in high tax jurisdictions. It is not the government’s job to change people’s behavior through the tax code. If my experience in New York is any indication, it will have a difficult time doing so.

McGraw Milhaven – David Stokes on KTRS

Posted on by David Stokes

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 proposed TIFs for Whole Foods and a new Mercedes dealership, locations where TIFs make the least sense, historic tax credits on home renovations, the Show-Me Institute’s new paper on teacher salaries, how to attract more math and science teachers to public schools, Stokes’ election day plans, the elimination of straight-ticket ballots in MO.

 

In Defense of Gym Teachers, and Art, and Band, and Music, and . . .

Posted on by James V. Shuls

On her Education Week blog, Sara Mead wrote a piece titled “Stop Picking on Gym Teachers!” in which she takes issue with Mike McShane’s AEI blog post, “When gym teachers make more than math teachers.”

Both of these posts stem from my paper, “The Salary Straitjacket.” So who is right, Mead or McShane? Well, both are correct.

McShane writes, “Once we realize that different teachers have different labor market values, we can have a conversation about linking teacher pay to teacher performance.”

Mead concludes, “There are almost certainly circumstances where it makes sense to pay a really great gym, or art, or music teacher more than some math teachers get paid. The real problem is that our current system doesn’t take issues of value-added or demand/supply into account at all.”

Though they may disagree with who has better options in the marketplace, both scholars agree that schools should not pay all teachers the same. Instead they should reward teachers based on their marketability, which includes their performance.

I did not write “The Salary Straitjacket” simply to say that math and science teachers make less when they should make more. I wrote the paper because we need to rethink how we compensate teachers; the low pay of math and science was a clear illustration of why. In the end, it is not about one type of teacher being better or more valuable than another; it is about rewarding teachers for their unique contribution to their school.

I conclude the paper with this: “The bottom line is that Missouri school districts must depart from the single salary schedule if they want to attract and retain high-quality math and science teachers . . .” Replace math and science in that sentence with any other subject and I think the statement will still hold true. We must stop treating all teachers as if they are the same.

Kansas City Star Skittish on Streetcar Proposal, and Rightfully So

Posted on by Patrick Ishmael

I have written about how Kansas Citians living in a newly-created streetcar district will be casting ballots by mail to determine if a special tax will be levied to pay for the city’s proposed trolleys. Those ballots were mailed out on Tuesday, and the voters who received them have until Dec. 11 to return the ballots to the court administering the election in order to have the votes counted. As I said, the method of voting chosen here, hoops and all, virtually guarantees that the tax measure will pass, and likely with only a tiny fraction of the eligible voters participating. The vote creating the district passed by a 2-to-1 margin . . . but with a pathetic participation of 8 percent of registered voters. That is a tiny sample for an issue as major as this one.

Of course, just because the tax will likely pass does not justify it as good policy. The Kansas City Star — which is located in the streetcar district and, therefore, will bear some of the brunt of the new taxes — has real concerns about the proposal.

But the pluses are outweighed by the risks that would come with the new taxes imposed only in the special transportation district created to support the streetcar system. The district encompasses the core of downtown […]. That includes the Kansas City Star which is willing to pay more for a streetcar system that offers a better financed plan.

Within the relatively narrow area, the sales tax would rise by a full percentage point. Property taxes would go up as well — residential by nearly 9 percent and commercial by 5 percent.

Supporters are gambling that the higher taxes — and higher rents that would follow — won’t unduly retard downtown’s growth. However, the risk is real that the increased taxes could do just that.

Kansas Citians are among the most heavily-taxed people in the Midwest. For business owners in the proposed district, the streetcar tax is just another burden job creators will have to shoulder. As long as they remain in the district, of course.

The Star’s Lewis Diuguid was right to say back in May that private funding should be playing a far more central role in the streetcar project. Private donations were a driving force behind the building of the Kauffman Center for the Performing Arts. Why can’t it be so with the Kansas City streetcar as well?

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