The St. Louis Post-Dispatch published an op-ed today in which I wrote about “The Loopy Rationale For A Loop Trolley” in University City/City of Saint Louis. I argue there is no evidence that a $45 million trolley along Delmar Blvd. will lead to economic development. Please check it out.
Yes, Missouri Taxpayers Will Bail Out Public Pensions
Missouri made small changes in 2010 to new state employee pension plans in an attempt to lower costs. But small changes are not enough to avoid a pension crisis.
Last week, the board of the Missouri State Employees Retirement System approved a 20 percent increase (from $274 million to $330 million) in pension costs to the state. This increase will go into effect next year. Missouri will either have to cut funding in other areas to fit this into the budget, or increase taxes.
Tax money and investment income provide a majority of the state pension system’s funding. Forecasted investment growth rates have been too high, especially during the recent economic downturn. This means that there have been unrealistic high expectations of the amount of investment income the pension plans would receive. Now, taxpayers are stuck with the bill to make up for lower than anticipated investment income.
The $330 million cost to Missouri is a clear sign that further reform to the state pension system is needed.
Wow: Missouri Accounts For Nearly One-In-Seven Historic Preservation Tax Credit Projects
So say stats from the National Park Service that were delivered to the reconstituted Missouri Tax Credit Review Commission last week. We have talked about the largesse of state historic preservation credits many, many times. These are incentives that have often gone to projects of highly questionable public benefit, like private homes and at least one country club. And while many of the buildings hardly fit the definition of “historic,” taxpayer-subsidized spending on these projects has truly been monumental.
Figures compiled by the agency show Missouri had the greatest number of completed projects that were certified for tax breaks during the 2011 fiscal year. The state’s 99 historic renovation projects comprised nearly 14 percent of the entire total for the nation.
Park Service figures show Missouri’s historic renovation projects cost nearly $331 million in fiscal 2011 — second only behind $365 million of costs in Illinois.
Doing the math, about one-in-seven preservation projects in the country that use these incentives are in the Show-Me State. Are one-in-seven “historic buildings” in Missouri? Seems more likely that it is a special interest handout. These credits need to be reformed, and soon. It is absurd that they have not been reformed.
Falling Farther Off The Pace
Kentucky, known world-wide for its horse races, is trying to keep pace with Kansas as it gallops toward an economically competitive tax code. Meanwhile, it looks like Missouri will not even Show. Kentucky is also looking into fundamentally overhauling its tax structure. Just recently, Kentucky Gov. Steve Beshear’s Blue Ribbon Commission on Tax Reform accepted a report detailing several ways the state can overhaul its tax code. Some of the specific recommendations are debatable, but it is not the specific policy points so much as the core ideas on which these recommendations are based that I want to highlight. According to reports:
“. . . broadening the tax base will make the system more elastic; and shifting taxation away from business capital and labor earnings and toward consumption will make it more competitive . . .”
These are ideas that the Show-Me Institute has supported, including replacing the personal income tax with an expanded sales tax along with support for eliminating the corporate income tax.
Now, I am not saying that Kentucky will be overhauling its tax system tomorrow. Government commissions such as these have a tendency of not going anywhere (see Missouri’s Tax Credit Review Commission). However, Kansas recently cut its income tax. Both Nebraska and Oklahoma are looking to seriously overhaul their tax codes so one can forgive me if the fact that Kentucky now is considering tax reform makes me a bit nervous.
Missouri does not exist in a vacuum. What others states do has an effect on it. If other states scramble to cut or even do away with their personal income tax, what do you think that will do to Missouri’s economic prospects? Missouri needs to take bold steps to reform its tax code. If Missouri fails to act, it will fall farther behind.
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 recent debate on the possibility of merging Saint Louis City and County government services, the tobacco tax increase on the November ballot in Missouri, smoking bans and tobacco taxes generally, and what may become of Ballpark Village.
Government Lobbying Contracts
Most citizens have at least a cursory familiarity with the role of lobbying in the political process. Lobbying refers to actions that individuals, groups, and special interests undertake for the purpose of influencing public officials. Typically, lobbying occurs on behalf of private parties. However, a far more concerning form of lobbying — and one with which far fewer citizens are familiar — is lobbying that occurs on behalf of public institutions, which taxpayer dollars fund.
Taxpayer-funded lobbying — often referred to as intergovernmental lobbying — is the process of one governmental entity lobbying another. The entities that engage in this brand of lobbying include school districts, universities, police departments, fire protection districts, cities, counties, and various other agencies at every level of government that — in turn — lobby each other, state governments, and the federal government. In essence, taxpayer-funded lobbying implies that government — quite literally — lobbies itself.
According to Americans for Prosperity, this form of lobbying consumes up to $1 trillion of the tax revenue collected in this country each year. In consideration of tight budgets across the state of Missouri, expenditures such as these warrant particular scrutiny and a careful evaluation of the effects and legitimacy of intergovernmental lobbying.
There are many other concerns with taxpayer-funded lobbying. The largest is simply the unseemliness of its role in the constant expansion of the role of government at every level in all of our lives.
The Show-Me Institute’s Missouri government lobbying project is dedicated to bringing some sunlight into the practice. We have attempted to collect every current lobbying contract between a government institution and a private lobbying firm in Missouri. That effort is ongoing. It is our hope that interested Missourians will use this information to more effectively monitor their own local governments. Staying vigilant in regards to the activities of your government is difficult. We hope this tool makes it a little easier.
REPORT: “Taxpayer-Funded Lobbying: Government Lobbying Government,” by David Stokes and Abhi Sivasailam
RELATED COMMENTARY: “Missouri’s Taxpayers Lobbying To Pay More Taxes?” by Mary Kate Hopkins
Oklahoma Challenges Health Care Tax In Federally-Run Insurance Exchanges
This is pretty big news (via Michael Cannon.) The way the Affordable Care Act (also known as “ObamaCare”) is written, subsidies for health insurance plans purchased through health insurance exchanges can only go to individuals buying insurance in “state-based” exchanges — that is, exchanges that the states create. If there is no state exchange, the text of the law says there can be no subsidies in that state. Insurance plans sold in exchanges that the federal government creates would not get the subsidies.
For states, that is a huge distinction with major policy implications. Many employers under the ACA can be fined/taxed if they do not provide health insurance to individuals who qualify for the federal government’s subsidies. However, if a state does not build its own exchange, then no employee would qualify for the subsidy, and therefore employers in the state would not be subject to the tax because none of their employees would meet the criteria set out in the law.
Then there is the national implication. If the federal government cannot collect those taxes/fines from employers, then the ACA — already rife with budgetary gimmickry — becomes even less sustainable and more fiscally dangerous. If enough states choose not to create exchanges, the ACA would become basically unworkable. (Credit goes to Cannon for really hammering this point home over the last year. You can find his full study on the matter here.)
Not surprisingly, it was only recently that Washington woke up to this reality. The Internal Revenue Service has now put forward an administrative rule that would expand the subsidies and taxes to federal exchanges, despite what the law says. Of course, there are some barriers to the IRS just making up new taxes. Enter the Oklahoma suit:
Under Defendants’ Interpretation, [this rule] expand[s] the circumstances under which an Applicable Large Employer must make an Assessable Payment . . . with the result that an employer may be required to make an Assessable Payment under circumstances not provided for in any statute and explicitly ruled out by unambiguous language in the Affordable Care Act.
Plaintiff believes . . . that subjecting the State of Oklahoma in its capacity as an employer to the employer mandate would cause the Affordable Care Act to exceed Congress’s legislative authority; to violate the Tenth Amendment; to impermissibly interfere with the residual sovereignty of the State of Oklahoma; and to violate Constitutional norms relating to the relationship between the states, including the State of Oklahoma, and the Federal Government.
Earlier this year, Christie Herrera, formerly of the American Legislative Exchange Council (ALEC), and I wrote an op/ed for the Southeast Missourian on the issue of state exchanges. As we made clear, Missouri has not, and should not, implement a state insurance exchange under Obamacare for a variety of reasons. One of the most important reasons out there is that by declining to create the exchange, the state could avoid a bevy of burdensome taxes on employers. Granted, there is no telling exactly how a court will rule on this and to what extent the law could be saved despite itself, but the Oklahoma challenge begins the process of determining once and for all whether the law means what it says, or means something else completely.
Conference Call For Freedom
Earlier today, I participated in a conference call with Steve Forbes, who was promoting his latest book. Forbes talked about the morality of free markets and how entrepreneurs can create abundance for all of society, much like what Arthur Brooks said during the most recent Show-Me Institute Speaker Series. Forbes stressed the necessity of tax reform and advocated for simplifying the tax code.
I asked Forbes about the tornado of tax cuts that have recently swept across Kansas. He stated that what Kansas is doing is highly important and that states have a tendency to imitate successful actions that their neighbors implement. He used welfare reform as an example of one state enacting a significant policy change and other states following suit. Missouri should be following Kansas’ lead, just as Oklahoma and Nebraska are considering doing.
Missouri already lags behind its neighbors economically. In the past, we have argued that the state should eliminate its corporate income tax in order to boost Missouri’s economic growth. The Show-Me Institute has also examined ways that Missouri could eliminate the income tax entirely.
Missouri’s neighbors are moving forward. The state is at a decision point; will it make real changes or will it stick to the status quo?
Stuck In The Middle: Context Matters, Just Not For Missouri Wonk
A couple of days ago, the Missouri Wonk Report posted a blog claiming: “Missouri Gains Ground in Educational Achievement.” The wonks at Missouri Wonk cite the increasing percentage of Missourians who have completed high school or college from 1970 to 2010 as evidence of improvement in educational achievement. (They are really talking about attainment, not achievement, but I digress). There is one glaring problem with this analysis . . . context.
Indeed, Missouri has increased the number of high school graduates over the past 40 years, but so has every other state. Below I include a graph of the percentage of college graduates from 1990 to 2009 for Missouri and the neighboring states. This was a very quick comparison compiled from data reported by the Census (Table 233: Educational Attainment by State). It is clear from this graph that Missouri is not improving at a rate significantly different from other states. It is a well-established fact that more Americans are graduating from college than they were years ago. The question is, how are we doing in comparison to others?
Table 1: Percent of adults with a bachelor’s degree or more
To illustrate this point, take a look at the Show-Me Institute essay Slip Sliding Away. The authors of the piece look at the growth of Missouri’s Gross Domestic Product from 1997 to 2010. Without a doubt, the GDP of Missouri grew within that time frame. Yet, the authors do not conclude that Missouri has been making gains, because they put the estimates in the appropriate context by comparing Missouri to the nation and neighboring states.
Just as it was in the GDP comparison, it is clear that Missouri is not making gains in academic attainment, when the appropriate comparisons are made. I do not mean to get all wonky, but the folks at Missouri Wonk simply have this wrong.
For more information about Missouri’s middling academic growth, please check out other Show-Me Daily Posts: here, here, here, and here.
