Could Nine People Stop Tax Credit Nonsense In 2012 (And Maybe Help State Budget)?

Posted on by Audrey Spalding

The St. Louis Post-Dispatch editorial board is urging Missouri Gov. Jay Nixon (D) to stall the awarding of state tax credits. Why? Missouri is facing an estimated budget shortfall of $500 million, a number very close to annual state tax credit awards. As the Post editorial points out, tax credits for corporate welfare have grown unabated while funding for schools has been cut.

Tax credit reform is difficult. We saw that during the last legislative session, and during the Tax Credit Review Commission’s hearings (beneficiaries of state tax credits tend to fight hard to keep their credits). And those interested in benefiting from a new tax credit program seem to fight almost even harder to establish a new program.

Perhaps more difficult for politicians is the fact that tax credit reform does not cut cleanly along party lines. Some Republican legislators strongly support tax credit reform, while others oppose it — just as some Democrat legislators strongly support reform, while others oppose it (or even advocate for the creation of new programs).

I disagree with the Post‘s rosy optimism that Nixon will act responsibly. Our governor has a history of waffling on tax credit reform, something my colleagues at the Show-Me Institute have documented repeatedly. He also seemingly likes to travel to announce the “creation” of jobs under questionable state tax incentive programs. Personally, I would pin tax credit reform hopes on legislators.

Did you know a single committee might have the power to vote to halt some tax credit programs this year?

According to state law, “…no new tax credits, except the senior citizens property tax credit…shall be issued or certified…unless the estimate of such credits have been reviewed and approved by a majority of the senate appropriations committee and house budget committee.”

If a majority of either the Missouri House or Senate committees referenced vote to not approve one or more of the more egregious tax credit program estimates (and there are several), then perhaps no money would be issued for those programs this year.  Under this scenario, the daunting challenge of convincing many legislators who may have constituents and contributors who benefit greatly from tax credit programs seems to be reduced.

It is time for legislators to put the needs of Missouri taxpayers ahead of their own political concerns. Concerns about party politics should not dictate the budget solutions pursued in 2012.

The state is facing a budget shortfall of hundreds of millions — perhaps approximately $500 million. Defunding a few of the more wasteful tax credit programs could certainly help address that. And it may be easier to do than some may think.

Missouri Public Schools: Policy Discussion

Posted on by Michael Podgursky

On December 6, 2011, the Show-Me Institute was honored to host Saint Louis Public Schools Superintendent Kelvin Adams along with University of Missouri economist and education expert Michael Podgursky in a discussion on the state of education in Missouri and what the future may hold in education policy. Seating was limited, but the capacity crowd brought their questions and participated in a lively and informative discussion.

Are Missouri Public Schools Failing to Make the Grade?

Posted on by Josh Smith

If you have not done so lately, check out the latest videos on our video page.

A couple recent videos:

Both videos are embedded below.

Clumsily Lurching Towards Comprehensive School Choice In Missouri?

Posted on by Greg Aubuchon

The Kansas City Star has reported a delay in the lawsuit between five suburban school districts and the Kansas City Public Schools. The five districts allege that Kansas City Public is not following the law in paying the tuition expenses of students that transfer from the unaccredited district, as allowed under a state law and a Missouri Supreme Court decision (Turner v. School District of Clayton). The law, as it currently stands, grants students in unaccredited districts the choice to transfer to accredited districts and public schools in the same or adjoining county. The unaccredited district pays tuition to the receiving district for the transferees.

But let’s not get bogged down in the legal details here. Instead, notice how the law represents one giant step for students, yet one small step for Missouri school choice (my apologies to Neil Armstrong). Why is this so?

First, under the law, the unaccredited status of a school district triggers the right to school choice. While this is fine as far as it goes, what about students who suffer academically in failing schools in accredited districts? If the evil to be remedied is students victimized by failing schools, then the law should target all failing schools, not merely schools in unaccredited districts.

Second, the Missouri law limits transfers to other public schools in close proximity. Why not extend school choice to any public or private school in the state of Missouri? In this way, students will have greater choice, and increased opportunities, to reach their dreams and to receive a first-class education. Ask yourself: Why not?

Legislators Can Rebalance Tax System — And Make Missouri More Competitive — Without Raising Taxes

Posted on by Patrick Ishmael

Last week, I highlighted one good-intentioned but misconceived proposal that a Missouri legislator suggested to get the state’s economy moving. This week, there is a proposal that may have a kernel of a good idea in it, though the implementation leaves something to be desired.

State Sen. John Lamping, R-Ladue, has followed through with his plan to file a bill that eliminates state income taxes on the first $2,000 in individual income and replaces the money by hiking the state’s cigarette tax — now among the nation’s lowest.

Lamping says the bill is revenue neutral.

Under his proposal, SB 638, no Missourian would pay taxes on the first $2,000 of earned income. Now, state income tax is levied on all income, no matter how small. That cut would cost the state $128 million a year.

As David Stokes noted Thursday, non-smokers and infrequent smokers would be net beneficiaries if the legislation is implemented. The problem is, who would not be a net beneficiary? Smokers tend to be poorer than non-smokers, and any hike in the cigarette tax will tend to hit those living in poverty fairly hard. In 2009, the CDC found that “[t]he prevalence of current smoking was higher among adults living below the federal poverty level (31.1%) than among those at or above this level (19.4%).” Will there be a deterrent effect if there is a marginal increase of 26 cents in the cigarette tax? Possibly, but it also is fairly likely that what the poor gain from the income tax reduction could get eviscerated by the cigarette tax hike. If income taxes were exempted at a higher level, a “worse off” scenario for poor smokers would be less likely.

But there is an alternative to a straight cigarette tax hike if legislators really want to exempt income from the individual income tax. I wrote last week that major reductions to the corporate income tax could be made with the elimination of millions of dollars in failing tax credits. There also is ample room for a deeper cut to the individual income tax that would increase the likelihood that the poor would be net beneficiaries in a tax system rebalancing. Aside from the drastic hikes in the cigarette tax that have been proposed elsewhere, which would exacerbate the problem for the poor, a reduction in tax credits could account for much of the revenue required to make major cuts to the individual income tax.

Put more succinctly, to reduce income taxes, other taxes do not necessarily have to go up if state tax credits go down to a more manageable and appropriate level. Instead of picking winners and losers, let everyone benefit. It would make for a better Missouri and a better-balanced tax system.

Who Should Pay for Highways?

Posted on by David Stokes

The Missouri Department of Transportation, MODOT, is looking into ways of funding necessary maintenance on the main east-to-west highway across Missouri — Interstate 70. One funding option is to raise the gas tax state-wide. An alternative proposal from MODOT is to institute a toll on the highway. In this video, Show-Me Institute Policy Analyst David Stokes suggests the the latter option makes more sense economically, as the people using the highway will be the ones paying for it. This video is a companion to Stokes’ recent op-ed, which can be found here.

Still At The Starting Gate . . .

Posted on by Michael Rathbone

Missouri is not alone in wanting to give its economy a boost in 2012. But what is the best way to do it? As Missouri Gov. Jay Nixon’s (D) State of the State address approaches on Tuesday, it might be useful to take a look at what some of our neighbors are doing. Recently, Kansas Gov. Sam Brownback (R) unveiled his proposal for tax reform in that state.

Highlights of the Brownback Plan include:

  • Lower the top individual income tax rate from 6.45 percent to 4.9 percent (Missouri’s is 6 percent).

  • Double the standard deduction to $9,000 for head-of-household filers.

  • Eliminate various tax breaks, including those for home mortgages and earned income.

  • Eliminate individual income taxes on non-wage business income like limited liability companies.

  • Preserve the 1-cent state sales tax.

Now, the plan is described as “close to revenue neutral” and the article quotes a legislator who states “the devil is in the details,” and I happen to agree. However, this proposal points Kansas in the right direction. Any attempt to lower tax rates and broaden the tax base (i.e., closing loopholes and ending tax breaks) should be commended. Is Missouri going to follow (Kansas is not alone in proposing tax reform; Nebraska also is looking at cutting taxes)? State officials in Jefferson City have the opportunity, with the new legislative session, to make some serious changes and set Missouri on the right path to compete economically.

At the Show-Me Institute, we have proposed various tweaks in the state’s tax code that could be beneficial and make the state more competitive. Is Missouri going to move down this road, or are state officials going to continue promoting economic development debacles like Mamtek (and other projects that should remain dead), which make for good photo-ops but have resulted in a failure to grow Missouri’s economy?

A Tax Switch Worth Discussing

Posted on by David Stokes

Missouri Sen. John Lamping (R-Dist. 24), who is no longer my senator because of redistricting, has introduced a bill to basically trade a cigarette tax increase for an income tax decrease. His bill aims to remove the state income tax on the first $2,000 everyone makes, and to offset it with a cigarette tax increase of 26 cents per pack. (Thanks to johncombest.com for the above links.)

I think this is definitely an idea worth discussing. Everyone in the state would benefit from the tax cut (approximately $35 per worker, and part-time employees would benefit just as much as full-time — unless they are really part-time), and smokers would only pay more after they buy their 135th pack of smokes for the year. Basically, a pack-a-day smoker would pay an extra $60 per year in taxes under this plan, while more casual smokers would basically break even or come out ahead. (Is there anyone left alive who still smokes more than one pack a day? I mean, other than this kid, who doesn’t pay American tobacco taxes.)

The small size of the cigarette tax increase in this bill makes it immune from our criticisms that residents of other states would stop buying their cigarettes here, and thus cost Missouri that voluntary money. Of course, some marginal level of out-of-state purchases will be lost, but for the most part, Missouri’s tobacco tax would still be much lower than surrounding states. I think most of our commuters, visitors, etc., who enjoy a draw would still make a point to buy their smokes here.

I like the part of this proposal that all Missourians would benefit equally from the income tax cut. I like that casual smokers would roughly break even, and heavy smokers would only see a small tax increase. I like that out-of-state smokers would likely still continue to buy here when possible.

I do not necessarily like that a percent of the population (the smokers) are being targeted to fund a general benefit. However, we crossed that bridge a long time ago, and this proposal is far less drastic, and more equitable, than many similar proposals. I do not deny the political reality that tobacco taxes are going to be increased at some point. If that reality takes the form of a small cigarette tax hike that funds a tax cut for all Missouri workers (including the smokers), then Missouri could do a lot worse.

It is not just that the state could do worse, it is that we probably would do worse, such as some drastic cigarette tax hike that drives out-of-state buyers back home and uses the new tax money to fund a new tax credit only for films about ethanol-powered historic buildings near transit.

I think Sen. Lamping’s proposal has a lot of merit and deserves serious discussion.

We All Have Our Priorities

Posted on by Michael Rathbone

Another session of the Missouri General Assembly has begun and lawmakers in Jefferson City, by law, must close the projected shortfall in the state’s budget. The actual amount of the shortfall is difficult to determine. One source estimates it is $500 million, another says the shortfall ranges between $400 million and $600 million. Needless to say, the number is not insubstantial.

The question arises about what to cut. However, what if appropriators flipped this picture upside-down? What if the legislators asked what should be funded first, instead of what should be cut?

It turns out that the authors of the Missouri Constitution gave this some thought.  The state Constitution provides a list of the order in which money is to be appropriated. It seems the authors of the state Constitution tried to tell us the state’s spending priorities. Those funding priorities are (in order):

1. For payment of sinking fund and interest on outstanding obligations of the state.
2. For the purpose of public education.
3. For the payment of the cost of assessing and collecting the revenue.
4. For the payment of the civil lists (in this case, state employees).
5. For the support of eleemosynary (charity) and other state institutions.
6. For public health and public welfare.
7. For all other state purposes.
8. For the expense of the general assembly.

Now, I am not saying cuts in say, education spending, are completely off limits. If there is waste, get rid of it, no matter where it is. However, the legislature should prioritize spending based on the guidelines of what is emphasized in the Constitution, and if spending cuts are needed, they should be in lower priority items. One example of something that might not qualify as “high priority” is the Missouri Wine and Grape Board. Another example is state ethanol subsidies. Between these programs and K-12 education, which is a higher priority to you?

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