Kansas City Should Expand, Not Remove, Land Taxes

Posted on by David Stokes

The Missouri Record just carried an op-ed on land taxes by Prof. Joe Haslag and me regarding the choice next Tuesday in Kansas City. It is not our place to tell people how to vote — that is your decision, not ours. But it is important for people to know that this is not a revenue-neutral switch. The proposed elimination of the land tax and increase in sales tax will result in more total tax collections — at least in the short-term. Also, economists almost unanimously endorse land taxes as a way to raise public funds while limiting the economic harms that taxation creates. Anyway, we say it better in the op-ed. From the piece:

Almost every economist sees the advantage of land taxes. The general welfare calls for taxes that do the least harm in the form of affecting the quantities of goods or services that people ultimately care about. Nearly all economists agree that a land tax is one of those policies in which taxing land affects the value of the parcel, but does not affect the quantity of land. Henry George, Milton Friedman, Paul Samuelson, and Joseph Stiglitz all recognize the desirable properties associated with land taxation.

Those four famous economists come from very different angles, if labeled politically (which they would probably object to, but I digress). The Show-Me Institute has conducted analysis on the benefits of land taxation. (Please see pages 5-11 of Haslag’s study on how Kansas City can replace the E-tax.) It is poor public policy to get rid of an effective tax in favor of expanding other taxes. Why doesn’t Kansas City heed the lessons of the past and reduce more harmful taxes, like the earnings tax, in favor of increased land taxes? There is a wide body of economic research supporting that position.

Minimum Wage Initiative Cost Estimate May Mislead Voters

Posted on by Mary Hopkins

The Missouri Supreme Court has ruled that the state auditor can prepare an estimate of how much a ballot initiative will cost the state. The court also ruled that the language of an initiative to raise the minimum wage from $7.25 to $8.25 is fair and sufficient, so it will be on the ballot this November. Though this initiative has been given the court’s stamp of approval, some of the language in the ballot summary is suspect and may mislead voters into believing that a minimum wage hike does not present a significant cost to the state.

Although the case raised many issues, the most interesting was the government’s cost estimate that will accompany the ballot title in November. Here, the voters must be especially diligent in their research if they want to make an informed decision. The estimate suggests that “increased state and local government wage and benefit costs resulting from this proposal will exceed $1 million annually.” This summary, which was highly contested throughout the court hearings, is technically correct — the cost will exceed $1 million — but it does not give an accurate picture of the probable cost, which may be closer to $16 million annually. How can that be? To arrive at the conclusion that the cost to the state would “exceed $1 million annually,” the auditor sent requests to 25 local public employers (such as Linn State Technical College and the City of Columbia) requesting an estimate of how much the wage increase would cost them annually. The auditor landed on the $1 million total because only seven entities responded with an actual estimate. Just seven of the hundreds of public employers in Missouri were counted to come up with this fiscal note summary. Because the auditor cannot force entities to respond with such estimates, it would not be prudent to blame that office. That being said, voters should know that the estimate they will see this November does not provide even a close estimate of the cost. In fact, the expert witness for those challenging the initiative suggested the true cost would exceed at least $16 million annually.

Remember the old adage, buyers beware? Here, it is voters beware.

The language you will see in the voting booth may suggest that Missourians will get a lot of change for a little price, when the reality is quite different.

For more information about the effects of the minimum wage, check out other Show-Me Institute publications on the subject.

Yes, There Is A Problem, But The Prescription Is Wrong

Posted on by Michael Rathbone

The St. Louis Post-Dispatch recently published a guest commentary by Daniel C. Willingham that, among other things, decries the explosive growth in government spending and the lack of economic recovery that has followed. Willingham discusses how federal spending has exploded and the national debt has increased enormously. What does the country have to show for it? Gross Domestic Product (the output of goods and services produced by labor and property located in the United States) grew by a meager 1.5 percent last quarter and the unemployment rate is still stuck above 8 percent.

Willingham should be commended for recognizing the results of this spending binge. However, the author then advocates increasing the New Markets Tax Credit (a credit that goes to taxpayers who make a qualified equity investment into a qualified community development entity). This is going in the wrong direction. Expanding the government’s power to pick winners and losers through the tax code is not the way to move forward.

In fact, many bipartisan tax reform plans have called for moving in the opposite direction. Plans like the Simpson-Bowles Commission and Congressman Paul Ryan’s Roadmap for America’s Future call for eliminating most credits and deductions while lowering tax rates.

Missouri has issued billions of dollars in economic development tax credits and yet its economic performance has been dismal. If issuing more and more in tax credits really is the answer, Missouri should be booming. Why should the federal government follow Missouri’s example?

Donnybrook: Brenda Talent Returns to KETC

Posted on by Brenda Talent

Show-Me Institute Executive Director Brenda Talent was a
guest
on Saint
Louis local roundtable discussion show Donnybrook on July 26, 2012.
Among the topics covered this time were: The tragic shooting in Aurora, Colorado, and what impact if any the event should have on gun policy, the recent Post-Dispatch coverage of the Clay vs Carnahan congressional race, Governor Nixon’s new television ad’s omission of his party affiliation, U.S. Olympic Team uniforms manufactured in China, and the GSA convention locating (or not) in Saint Louis.

Click here to watch the program online.

Missouri Stagnation! In Color

Posted on by Michael Rathbone

This is not the first time that I have lamented about Missouri’s economic performance. However, the U.S. Bureau of Economic Analysis released a map that shows just how well Missouri does when compared to the rest of the country:

Chart 1, showing growth in real GDP by state

As you can see, Missouri is in the bottom 10 in terms of economic growth. From 2010-11, the latest year for which data is available, Missouri also ranked second to last in terms of employment growth.

What are Missouri officials doing to catch up with the rest of the country? They expanded a small business tax deduction, but compared to Kansas cutting its personal income tax rates, Missouri’s actions seem . . . underwhelming.

My colleague Patrick Ishmael and I have called for eliminating the state’s corporate income tax and replacing the lost revenue with the elimination of economic development tax credits. This would serve to both a.) make Missouri more economically competitive with other states, and b.) get Missouri out of the business of picking winners and losers. The state would also benefit from other solutions such as reforming occupational licensing.

Missouri’s economic performance has been abysmal. It needs to change course. Repeating the same things over and over again will not somehow miraculously turn the state around.

School Choice And Individual Liberty

Posted on by James V. Shuls

Nobel Prize-winning economist Milton Friedman once remarked: “The true test of any scholar’s work is not what his contemporaries say, but what happens to his work in the next 25 or 50 years. And the thing that I will really be proud of is if some of the work I have done is still cited in the text books long after I am gone.” Though he has not been gone long, Friedman’s work will undoubtedly be included in the annals of academia for many decades. However, Friedman’s legacy is not just in textbooks. His legacy lives on in the hearts of thousands of students who enjoy educational options they would not have if not for his revolutionary ideas.

In 1955, Friedman introduced the concept that school choice via the use of vouchers could improve the quality of education. Yet, a quality education system was not his ultimate goal. Rather, he believed individual freedom was, or should be, the ultimate goal of a society. And by giving families the freedom to choose for themselves the best educational options for their children, Friedman theorized the market would respond with an improvement in the quality of education delivered.

The current body of research supports this theory. Random assignment experiments, which are the most rigorous type of research study, tend to find positive effects for students using vouchers, and none have found negative effects for voucher students. There is even some evidence that local public schools improve, and no evidence they are worse off, when they face voucher competition. The most promising evidence of voucher success, however, may be in terms of graduation rates. Students attending voucher schools tend to graduate at much higher rates than comparable students in nearby public schools. For example, students participating in the Washington, D.C., Opportunity Scholarship Program were 20 percent more likely to graduate from high school if they attended a voucher school. To rephrase a line Friedman often used, “the society that puts freedom before [educational] equality will end up with a great measure of both.”

Friedman believed the idea of a public education for all children did not necessitate that government be the sole provider of that education. He believed families should be free to choose from a variety of schools operated “by private enterprises operated for profit, nonprofit institutions established by private endowment, religious bodies, and some even by governmental units.” It has taken some time, but Friedman’s ideas of individual freedom through school choice are taking root in the American psyche. Indeed, the Wall Street Journal dubbed 2011 “The Year of School Choice.”

Though we have made progress in increasing school choice, Missouri has a long road to haul before families are able to enjoy the level of freedom that Friedman envisioned. We must continue to work until all families are free to choose the best educational options for their children. As Friedman said, “Freedom is not a natural state of mankind. It is a rare and wonderful achievement.”

James V. Shuls is an education policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The Institute is participating in Friedman Legacy for Freedom Day on July 31, an international event celebrating the late Milton Friedman.

Rising Taxes And Tax Giveaways In Kansas City

Posted on by Patrick Ishmael

In two weeks, Kansas City voters will consider a proposal which would eliminate the city’s land tax and replace it with a sales tax, an issue which Show-Me’s David Stokes and Joe Haslag wrote about last week. Beyond the policy points that Stokes and Haslag raise, this land tax/sales tax swap, as presented to voters, would result in a net tax increase for Kansas Citians. Unfortunately, some supporters of the change have been less than transparent in explaining that aspect of the measure.

Tax hikes are troubling under most circumstances anyway, but they are particularly troubling in the context of development cultures where tax incentives are running amok. As the Kansas City Star‘s Dave Helling astutely notes today, the proposed tax hike would not only apply to both struggling and prosperous Kansas City neighborhoods, but the tax revenue would not be wholly plowed back into improving public services. Rather, millions would go to supporting city Tax Increment Financing (TIF) projects that, in many instances, probably should not have received TIF anyway.

“The first TIF proposal that reaches my desk had darn well better be from the east side,” [former Kansas City Mayor Mark Funkhauser] thundered, promising to focus the subsidy on the city’s poorest neighborhoods.

Of course, the first TIF proposal to reach Funkhouser’s desk wasn’t really from the east side. He signed it anyway. […]

Never mind. His idea was sound. [ . . . ]

Boosters of Question 1 promise to eliminate several city levies in exchange for a half-cent sales tax hike. They don’t say it, but passing Question 1 would also unquestionably increase the city’s overall tax burden, by about $24 million a year, money that would come in part from the city’s poorest residents.

That might be a good deal if all that extra $24 million went for better streets or cleaner parks. Alas, about $4 million would go to — you guessed it — reimbursements for TIF projects, possibly including that new hotel near the Plaza.

For those unfamiliar with TIF, it allows incremental increases in taxes from a development to be dedicated to certain costs of that development. Originally intended to help struggling communities attract investment, TIF has grown to be used as a standard tax incentive regardless of the economic status of a development’s surrounding area.

Stokes and other Show-Me scholars have long suggested that TIF is overdue for a reform. This latest tax proposal serves to reaffirm that proposition. Raising taxes is typically a suspect proposition, but raising taxes and transferring some of that money to city projects in tony areas through tax incentives meant to help struggling communities is especially disappointing. Kansas City already has some of the highest tax rates in the Midwest, and along with the ballot proposition that would raise taxes, officials are considering raising taxes further for a vanity trolley car downtown.

Does this sound like a sustainable trajectory? Given the tax hike and transfer, does this even sound like a just trajectory, a trajectory that treats Kansas Citians and their hard-earned money appropriately?

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