On September 27, 2012, the Show-Me Institute co-sponsored the latest lecture in the economic speaker series at the Saint Louis University John Cook School of Business.
In this talk, renowned health care expert John C. Goodman explained, with humor and lively examples, how the problems with health care in the U.S. stem not from too little regulation, but from too much. Dr. Goodman also described a path to improving health care by allowing markets to work.
On Tuesday, the Cato Institute published the latest edition of its Fiscal Policy Report Card on America’s Governors, a biennial analysis of how America’s governors did in maintaining fiscal sanity at the state level. As the study’s author Chris Edwards explains, the report card “examines state budget actions since 2010. It uses statistical data to grade the governors on their taxing and spending records —governors who have cut taxes and spending the most receive the highest grades, while those who have increased taxes and spending the most receive the lowest grades.”
Not unexpectedly, Kansas Gov. Sam Brownback received an “A” — in fact, the only “A” among the states that border Missouri. Edwards makes particular note of the massive tax cuts Brownback enacted this year, lowering personal income taxes and ending taxation on income derived from certain businesses. As Rex Sinquefield and I observed last Friday, that move was a big, big play for Missouri businesses that the state must address. Edwards also highlights the fact that Brownback “signed into law needed pension reforms for state workers, and he has abolished some state agencies.” The governors in Nebraska, Oklahoma, and Iowa also earned good grades, each scoring a “B” on Cato’s report card. It is worth reiterating: This is all occurring on Missouri’s doorstep.
And Missouri’s governor? Citing in part “Tax Credits as a Tool of State Economic Development Policy” — a Show-Me Institute study — Edwards assigned Gov. Jay Nixon a grade of “C,” noting that while taxes have not really risen in the state, “tax incentive disease runs rampant in Missouri, as it does in many states.” (Indeed, Missouri’s love affair with tax incentives is unfortunately bipartisan.) Interestingly, the ratings of governors in our nine-state region, generally speaking, get worse the farther east you go.
You can find Cato’s full study here.
Last week, the presidential debate took its place among notable sparring contests, perhaps rivaled in anticipation only by Ali-Frazier I. Despite the sharp exchange of verbal blows, both men seemed to agree on one thing, the need to lower the corporate income tax. It was great to hear both candidates recognize that our federal corporate income tax rate of 35 percent is too high.
The Show-Me Institute has discussed the merits of eliminating the Missouri corporate income tax. A lower or non-existent corporate tax rate will leave corporations with more of their money to invest in new projects or to hire new employees. Lower corporate taxes would allow taxing jurisdictions to be more competitive compared to neighboring jurisdictions with higher tax rates. Lowering the corporate tax rate would also be fairer than special incentives and tax credits because it would apply equally to all corporations instead of certain companies that politicians favor.
Both Gov. Mitt Romney and President Barack Obama stated in the debate that they would like to “pay for” a corporate income tax cut by closing loopholes and exemptions. In an upcoming paper for the Show-Me Institute, my colleague Patrick Ishmael and I propose eliminating Missouri’s corporate income tax. In order to ensure that Missouri’s revenues are not negatively impacted, Patrick and I propose that Missouri phase out the issuance of economic development tax credits, which have their own set of problems.
It appears that lowering the federal corporate tax rate has now become a bipartisan idea. Hopefully, it can be a bipartisan idea here as well. If Missouri wants to avoid going down for the count, it should move forward with corporate tax reform.
In case you have not heard, there is trouble brewing at the “Party Capital of the Lake of the Ozarks.” It is a big brouhaha over parking and reminds me of the final scene of Reservoir Dogs, where everyone is pointing a gun at someone else, then they all shoot — and everyone gets shot. There were no winners in that fight, and there are no winners in this one.
This dispute is wonderful — if you happen to be a policy analyst at a free-market think tank who is paid to study such lunacy. For everyone else, the problems that the overall parking predicament has caused near the Shady Gators and Camden on the Lake at 7-Mile Cover has been enormously frustrating.
To review, a Transportation Development District (TDD) was formed in 2008 to operate parking lots in the area for customers of nearby businesses. Businesses that collect the tax and pay into the TDD (Camden on the Lake) got tired of people parking there but going to businesses that do not pay into the TDD, such as the wildly popular Shady Gators. The TDD instituted a parking charge for parking in the lots. Some people refused to pay the parking charge and started parking on the neighborhood streets. Residents complained. The police started writing tickets for parking violations on residential streets nearby. Vandals started removing the “No Parking” signs, thus making it impossible to write tickets. All the while, the TDD did a poor job of filing proper financial reports. With no ability to enforce “No Parking” rules and the continuance of the fee to park in the lots, more and more people parked in the surrounding neighborhood. Total chaos has ensued. Simple enough issue, right?
Every action in this series is understandable, except the vandalism and the late reporting. It is predictable under economic theory, and it is solvable through enforcement of property rights and reliance on market forces. Here are a few key facts to consider. First, there is no right to free parking. Second, you deal with congestion issues either with price or with capacity. Third, other people have property rights, and if you violate them (by parking in a residential area, etc.) you should expect a reaction. Finally, people will attempt to free-ride when possible, but good policy and enforcement of property rights can help make people pay for the goods they chose to consume (i.e.. parking).
To restate the problem: Businesses like Camden on the Lake have an obvious interest in making it easy for customers to patronize them, but they do not want to pay for people to patronize other stores. So the operators of Camden on the Lake started charging customers of Shady Gators, among others, to use the lots. Shady Gators complained, because they were getting the best of all worlds: free customer parking at no cost to them. This is the classic free-rider problem.
What is the solution? First, abandon the TDD and privatize the parking lots. The private sector is fully capable of operating parking systems. The TDD just gives businesses the ability to pay for their lots via taxes instead of their own charges. Second, respect the property rights of residents. Like Chicagoans who live near Wrigley Field and rent out their garages on game days, residents who choose to allow and charge for parking on their property should, of course, be able to do so. But those who do not wish to have business parking in front of their homes should have the “No Parking” restrictions enforced. Third, (and this is the obvious part) allow market forces to come into play and expand parking capacity. If businesses want the same level of customer demand to continue, it will be worth it to them to purchase additional property for parking or build another level on the current lot. If there is a strong demand for parking (and there clearly is) firms and entrepreneurs will meet that demand. The government should neither subsidize, via TDD, nor block, via zoning, the expansion of private parking to serve the customer needs for the 7-Mile Cove.
David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.
Kansas has slashed its tax rates, and Show-Me Institute President Rex Sinquefield thinks that means big trouble for Missouri. He talked about it with guest host Rick Edlund and policy analyst Patrick Ishmael on the Big 550 KTRS. Listen in…
Kansas has slashed its taxes, and Show-Me Institute President Rex Sinquefield thinks that means big trouble for Missouri. He talked about it with guest host Rick Edlund and Show-Me Institute Policy Analyst Patrick Ishmael on the Big 550 KTRS on Oct. 5. Listen in:
Most people believe in public education. We understand that a well-functioning society needs an educated citizenry. But what is public education?
Public education is an idea. It is the idea that all kids, whether wealthy or poor, deserve to have access to an educational system that will equip them for life; a system that will enable them to achieve to the highest levels. Yet for some reason, we have come to equate the idea of public education with the standard system of delivering public education, traditional school districts.
Yesterday morning, I had the pleasure of attending a breakfast event at KIPP Inspire Academy. The featured speaker was Mike Feinberg, one of the founders of the original KIPP school in Houston (see him here on Oprah). Feinberg pointed out that the traditional method, where we draw attendance zones around schools and assign students to those schools, is not “god’s gift to public education.” We have not miraculously found the very best way of delivering public education. Traditional school districts are only one method of delivering education to students and that method leaves families with very few options.
All schools, whether public, charter, homeschools, or private can be part of the idea of public education. Because all schools that educate students are contributing to the public good.
Some people want to pit school choice against “public education.” The truth of the matter is that school choice is liberating public education. School choice is about giving the public more say in where their kids go to school. It is about making schools accountable to families, not the government. After all, the idea of a high-quality public education should not be limited to attendance zones.
Last week, the St. Louis Post-Dispatch published a staff editorial doubting the idea that the dynamic effects of reducing taxes encourage economic growth, suggesting that “simple solutions” like tax cuts do not always bear fruit.
Investors can, and often do, choose to invest their tax savings elsewhere, either overseas or in financial products that churn money but don’t create many jobs. Individuals amass great fortunes without becoming great industrialists. Companies today are sitting on $2 trillion in cash, which is a lot of oats.
The literature is mixed on the extent to which tax rates alone affect economic growth, but it is bizarre for the Post-Dispatch to assert later in its editorial that “[i]f cutting taxes doesn’t yield growth, increasing them is not likely to do so, either.” That is an understatement. Ask those in Illinois whether raising taxes is helping that state’s economic growth. The Post-Dispatch suggests that the effect of the government cutting or raising taxes is comparable in effect but ultimately immaterial to whether an economy grows, which any business owner will tell you is absurd. Tax competition affects where capital pools and where businesses set up shop.
What the Post-Dispatch mistakes as a problem of tax rates is in fact a problem of tax structures. Companies do not hold onto money because they like taking the savings they gain from lower taxes to a Scrooge McDuck-style vault. If companies are sitting on money, they are probably doing it for a good reason. One reason might be that the economic environment is so uncertain that companies simply do not want to expose their capital to the risks inherent in the market at that time.
But another reason companies may sit on money is that the costs the tax structure imposes may outstrip the benefit of spending that money. If a company is going to get taxed one, on money that could otherwise be productive in the market place and two, at a confiscatory or otherwise burdensome rate, the company will probably try to protect that capital from taxation for as long as possible.
Therein lies the problem. Taxes on capital are among the most destructive in terms of growth. Among them, taxes on corporate income are possibly the worst. They remove from the economy money that otherwise could have been productive and siphon it away to pay for government programs that oftentimes grow nothing other than themselves. That is a tax structure problem, not a greedy business problem. To grow, an economy needs low, stable rates that do not punish productivity. The Post-Dispatch’s editorial fails to even briefly address this reality.
But maybe that was not the point. As I have noted before, it seems that the Post-Dispatch is always looking for ways of generating new revenues to the government. For example, from earlier this year:
A lot of folks purchased Mega Millions lottery tickets last week dreaming about what they could do with $640 million. Imagine what $4 billion would do for Missouri.
The point is that the way to pay for government services is not to try to more vigorously shake cash free from the money trees of free enterprise. The solution is to not punish the planting of new trees — to encourage productivity, not chop it down in a quest for revenue. Tax hikes are not the answer; fundamental reform to the structure of taxes is.
We had a very busy first week of October for op-eds at the Show-Me Institute. The Missouri Record ran a piece on lessons for Missouri from the Chicago Teacher’s Strike by James Shuls and Andrew Wilson. The Sedalia Democrat and the Southeast Missourian both ran a commentary by Mike Rathbone about tax incentives for Ballpark Village. Finally, Lake News Online carried an op-ed by David Stokes (a.k.a., me) on the controversial Transportation Development District (TDD) and parking dispute near the Shady Gators and Camden on the Lake.
Listen in at 9:30 a.m. this Wednesday when I discuss the Ozark TDD on the Morning Magazine with Manny Haley on KRMS radio in Osage Beach.
