Sub Shops and Sales Taxes: A Delicious Natural Experiment

Posted on by David Stokes

A couple of weeks ago, I embarked on an audacious experiment. I dreamed an impossible dream that one day, if God were willing and the creek didn’t rise, I could eat at all the delis and sub shops around the Central West End of St. Louis and compare the varying sales tax rates that result from CIDs, TDDs, CBDs, etc. People told me this dream was impossible: the local government sales tax version of the British Navy’s quest for the Northwest Passage. I did not listen to the naysayers. I knew that if I had the dedication and commitment, I could both eat sub sandwiches and — this is where it gets tricky — remember to keep the receipts. Like a bird over the ocean that indicated to a nervous sailor that land was near, this blog post tells you that my impossible dream has become a reality.

My experiment led to two major findings: 1) Wow, there are a lot of sub shops on Euclid; and, 2) criminy, some of these sales taxes are high! I think most people would be surprised to find out that the sales taxes charged by different restaurants in the Central West End varied by as much as 5 percent. That’s 50 cents on a $10 lunch order for restaurants located only a block apart. (Everything I got was “to go,” but it is a good question whether I should be charged the additional extra sales tax on “sit-down restaurants” in the city. Nor should it involve Missouri’s reduced sales tax on food, which does not apply to restaurants.)

Here is a composite of seven receipts from the past few weeks — including one receipt from Starbucks that was obviously from a fellow employee, because I have never had a cup of coffee in my entire life. (Yes, we know it’s not a sub shop.)

The sales tax rates vary from 10.99 percent to less than 6 percent. (Please note that because of rounding, you can’t be sure in some examples whether the tax is 10 percent or 9.99 percent.) When you go to the Jimmy John’s or Planet Sub on Euclid, you pay multiple additional sales taxes that help fund the development districted in which they are located. In this case, it is the Euclid Buckingham Transportation Development District (at least). That leads to a high sales tax of 10.99 percent. If you go across the street to Pickles Deli, you pay 1 percent less. You save a tiny bit more if you go to either of the Subways in the area; both charged 72 cents on a $7.25 bill, or 9.99 percent. (Again, rounding could also make it 9.98 percent or so. I wish they listed the exact rate on the bill, like Starbucks and Jimmy John’s do.)

The Starbucks on Maryland also charges the 10.99-percent sales tax, with a 32-cent tax on a $2.90 bill. Here we see some unfortunate weaknesses in the data. Because Community Improvement Districts, Neighborhood Improvement Districts, etc. can have generic names, you can’t always tell which one a particular address might be located in. The GEO St. Louis parcel address data does list the TIF district that might apply to a property, but it does not list CIDs, etc. Finally, the state TDD list does not list individual properties.

The real shocker, though, is the St. Louis Bread Company on the Forest Park Parkway. (Ignore the word “Panera” on the receipt.) The sales tax there is less than 6 percent! How the heck can restaurants one block apart have a tax difference of 5 percent? The answer is that, somehow, this particular Bread Company has not been included in any of the special taxing districts that add an additional sales tax. (It is most likely the beneficiary of some type of property tax incentive, but property taxes are not the point of this post.) It might be the only restaurant in the CWE that is outside of any special business districts, and not in any CID, TDD, etc. (Here is a good new city database on these issues.) The big question, though, is whether or not some restaurants are improperly charging — or improperly not charging — the extra sit-down sales tax rate of 1.5 percent. (Read section 92.325 of the state statutes for the pertinent laws.)

While I will remain a fan of Jimmy John’s and Planet Sub (especially on $2.50 Turkey Sub Thursdays), the realization that I am voluntarily giving 5 percent more to the government just because I go there will probably have me patronizing the Bread Co. more often. Then again, perhaps this blog post will have the unfortunate effect of leading to the Bread Company collecting the extra restaurant sales tax like the other places appear to do.

Commission Recommends Positive Changes to Missouri’s Tax Credit Programs

Posted on by Christine Harbin

When the Tax Credit Review Commission was created in June, I predicted that it would not call for scaling back tax credit programs in Missouri. I suspected that this would be the case largely because of the composition of the commission, which includes businessmen whose companies have been issued tax credits, along with bureaucrats and politicians who have an incentive to grow the size of government.

The Tax Credit Review Commission is in the process of delivering its final recommendations, and, to my pleasant surprise, it is calling for significant cuts and reforms. Relatively speaking, this is a great time to be a taxpayer in Missouri.

When the government subsidizes select businesses and industries, this serves effectively as an admission by the state government that the cost of doing business is too high in Missouri. As an unfortunate consequence of such policy, the businesses and individuals that remain in the tax base are left to pick up the tab, which makes it even harder for them to compete. This also gives special interests the incentive to petition the government for favors, when they could otherwise spend their efforts engaging in productive work by creating goods or providing services to consumers. If the state government wants to create widespread, lasting economic growth, it should focus on providing a favorable business climate for all individuals, businesses, and industries, rather than just providing aid to a select few with generous incentive packages that distort the playing field.

By limiting tax credit programs, Missouri can assess a tax rate that is lower and more equal for all taxpayers. This low-tax environment would attract new businesses and individuals to Missouri more efficiently than any targeted tax credit program could. More importantly, it would attract a wide variety of businesses. This is crucial, because government officials have no special insight into which targeted industries will be successful — indeed, they often choose industries that perform far below expectations. This influx of business would, in turn, result in a steady stream of more reliable tax revenues, so government in Missouri would not have to struggle to pay for itself.

Missouri’s development tax credit programs have not fulfilled their stated purposes, and spending more on them will not likely result in better outcomes. Money that has previously been devoted to targeted development would be much more effectively spent if left in the hands of individual Missourians, who are much better able to respond to decentralized market signals, satisfying a much wider array of consumer wants and needs than can be met by a few companies on the receiving end of taxpayer enticements.

The ostensible purpose for the Tax Credit Review Commission, as Gov. Jay Nixon outlined in his opening remarks to the commission, was threefold: help the state make wise use of taxpayers’ dollars to create jobs, incite economic development, and build strong communities. Although I wish that the commission had investigated whether tools other than tax credits could better achieve these goals, I’m thrilled that they are recommending considerable reforms.

I applaud the Tax Credit Review Commission for recommending aggressive cuts and limits. The state’s economy and the people of Missouri will benefit if officials follow through on these recommendations.

Christine Harbin is a research analyst for the Show-Me Institute, a Missouri-based think tank.

Can We Improve Urban Schools?

Posted on by Eric Hanushek

In this Jan. 22, 2009, lecture at the Kansas City Public Library's Plaza Branch Truman Forum, sponsored by the Show-Me Institute, Tom Bloch, and the University Academy, Eric Hanushek outlines the fundamental changes that need to take place in Missouri's failing urban schools before parents can expect to see real change and improvement for their children.

Student for Hire

Posted on by John Payne

The Chronicle of Higher Education ran a fascinating article by a guy who claims to write academic papers for struggling and/or lazy college students, and make a very decent living at it, clearing more than $65,000 a year. Granted, the whole article could be a complete fabrication — it’s hard to tell when you are dealing with someone who is a professional liar by his own admission — but it sounds completely plausible. From my teaching experience, I can confidently say that even the best students are tempted to cheat, so it stands to reason there would be a market to aid in that process. The article is the best thing I’ve read all week, and therefore worth reading in its entirety, but this section jumped out at me:

It is late in the semester when the business student contacts me, a time when I typically juggle deadlines and push out 20 to 40 pages a day. I had written a short research proposal for her a few weeks before, suggesting a project that connected a surge of unethical business practices to the patterns of trade liberalization. The proposal was approved, and now I had six days to complete the assignment. This was not quite a rush order, which we get top dollar to write. This assignment would be priced at a standard $2,000, half of which goes in my pocket.

A few hours after I had agreed to write the paper, I received the following e-mail: “sending sorces for ur to use thanx.”

I did not reply immediately. One hour later, I received another message:

“did u get the sorce I send

please where you are now?

Desprit to pass spring projict”

Not only was this student going to be a constant thorn in my side, but she also communicated in haiku, each less decipherable than the one before it. I let her know that I was giving her work the utmost attention, that I had received her sources, and that I would be in touch if I had any questions. Then I put it aside.

From my experience, three demographic groups seek out my services: the English-as-second-language student; the hopelessly deficient student; and the lazy rich kid.

For the last, colleges are a perfect launching ground—they are built to reward the rich and to forgive them their laziness. Let’s be honest: The successful among us are not always the best and the brightest, and certainly not the most ethical. My favorite customers are those with an unlimited supply of money and no shortage of instructions on how they would like to see their work executed. While the deficient student will generally not know how to ask for what he wants until he doesn’t get it, the lazy rich student will know exactly what he wants. He is poised for a life of paying others and telling them what to do. Indeed, he is acquiring all the skills he needs to stay on top.

As for the first two types of students—the ESL and the hopelessly deficient—colleges are utterly failing them. Students who come to American universities from other countries find that their efforts to learn a new language are confounded not only by cultural difficulties but also by the pressures of grading. The focus on evaluation rather than education means that those who haven’t mastered English must do so quickly or suffer the consequences. My service provides a particularly quick way to “master” English. And those who are hopelessly deficient—a euphemism, I admit—struggle with communication in general.

The problem of the lazy rich kid has been around since universities have existed. Many of the early universities existed for the sole purpose of giving the second sons of nobility a place to drink and just enough instruction that none of the peasants or gentry would later realize they were actually terrible barristers and priests. The problem is likely intractable without massive monitoring costs, which would likely outweigh the benefits.

The other two groups are more tragic. Some of the brightest students at American universities come from abroad, and if they are not properly educated, the world could miss out on some major innovations and breakthroughs. If this is indeed a persistent problem, colleges would be well-advised to invest more in English-as-a-second-language instruction if they want to continue attracting high-caliber students from across the globe.

Finally, the “hopelessly deficient” probably should not be in college in the first place. That sounds harsh, and in some ways it is, but if someone struggles with basic communication to that extent, there is little of meaning that they can get from the college experience — at least, nothing that they can’t get by hanging out in a lot of bars during their early 20s. Furthermore, even if these students pass through college with the help of paid cheaters, they will likely be incapable of performing most of the jobs that require a college degree. It would be better for them to pursue some other career path earlier before wasting several years and untold amounts of money — including support from their colleges and the government — preparing for tasks they cannot fulfill.

I also found the fields most likely to use this service (again, this is at best anecdotal) disheartening, but not terribly surprising: nursing students, seminarians, and … prospective teachers:

I’d say education is the worst. I’ve written papers for students in elementary-education programs, special-education majors, and ESL-training courses. I’ve written lesson plans for aspiring high-school teachers, and I’ve synthesized reports from notes that customers have taken during classroom observations. I’ve written essays for those studying to become school administrators, and I’ve completed theses for those on course to become principals. In the enormous conspiracy that is student cheating, the frontline intelligence community is infiltrated by double agents. (Future educators of America, I know who you are.)

I could comment much further on that, but I should probably let it speak for itself.

Law Is Not a Band-Aid for Every Problem

Posted on by Mary Chism

As much as our society changes, some ideals stand the test of the centuries. One of these ideals is law. This does not necessarily imply that law is the most effective solution for every problem of society, but rather that laws tend to be long-lasting and powerful. We should be careful about which rules we allow to become law, because they may outlive us and the situations that they were designed to fix. Furthermore, it is all too easy for laws to become the means for one person or group of people to force their will upon those in a weaker position.

Frédéric Bastiat, a French economist and legislator who fought for free trade rights in the 1840s, warned his contemporaries of this threat that law can pose, and he also pointed out how easy it is for law to become a powerful weapon against any who disagree with the legislators.

The Show-Me Institute book club, which meets every other Wednesday night at 7:00 (join us at our next meeting on December 1!), discussed Bastiat’s Selected Essays on Political Economy last year. The first essay, “What Is Seen and What Is Not Seen,” outlines a vital concept of economics — and, indeed, of life in general. Bastiat explains that actions have consequences in both the short term and the long term, both seen and unseen, and that often the unseen consequences are far-reaching in their scope. The unseen consequences of new laws can be disastrous when circumstances change. Moreover, a lawmaker may not be in a position to understand the practical consequences for all the people who will be affected by a law. In this way, a law which is intended solely to help people may end up hurting many, for a long time to come.

The Springfield News-Leader ran an article this week in which the author, Dr. John Lilly, explains how Bastiat’s ideas continue to be relevant 150 years after they were written. Lilly examines the origin and purpose of law, explaining that when one person takes another’s property by force, this is the definition of “plunder.” From the article:

Life, liberty and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty and property existed beforehand that caused men to make laws in the first place.

[…] Legal plunder occurs when the law takes from one person, and gives it to another person. Legal plunder benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

Lilly asserts that law exists in order to serve people and protect their rights, but that law can also be twisted to sanction and enforce plunder. He illustrates this with a quote:

Bastiat stated, “And, in all sincerity, can anything more than the absence of plunder be required of the law? Can the law — which necessarily requires the use of force — rationally be used for anything except protecting the rights of everyone? I defy anyone to extend it beyond this purpose without perverting it and, consequently, turning might against right.”

State Film Tax Credit Program Reading List

Posted on by Christine Harbin

In Mound City Money, David Nicklaus highlights a recent study from the Center on Budget and Policy Priorities that demonstrates the ineffectiveness of state film tax credit programs. This is particularly well-timed, because the Tax Credit Review Commission just voted to recommend eliminating this program in Missouri. From the study:

  • No state can “win” the film subsidy war . Film subsidies are sometimes described as an “investment” that will pay off by creating a long-lasting industry. This strategy is dubious at best. Even Louisiana and New Mexico — the two states most often cited as exemplars of successful industry-building strategies — are finding it hard to hold on to the production that they have lured. The film industry is inherently risky and therefore dependent on subsidies.

Regular readers of Show-Me Daily know that I am a frequent critic of these programs. The following is a list of additional recent studies that I have referenced previously, all of which are specific to film tax credit programs. Each of these concludes that film tax credit programs have negative fiscal consequences for states. If any of you are aware of quality literature on the topic that I may have excluded, please leave a note in the comments section of this post.

  1. In October 2010, the state auditor’s office in Iowa released a report on the state’s film tax credit program, which was subject to recent scandals. The auditor found that a full 80 percent of the credits that the state had granted were issued improperly — amounting to more than $25 million.

  2. In September 2010, the Senate Fiscal Agency in Michigan released a study showing that the state spends more on film tax programs than they generate in economic activity. For example, in fiscal year 2010–11, Michigan will spend $125 million on film credits, which will generate merely $13.5 million in new tax receipts. This amounts to a net fiscal cost of $111.5 million.

  3. In March 2010, the Wisconsin Department of Commerce published a cost-benefit analysis of the state’s film tax credit program, reporting that it costs 20 times more to create a job using the state’s movie tax incentive program than it does using other state job creation programs.

  4. In January 2010, Tax Foundation released a study, “Movie Production Incentives: Blockbuster Support for Lackluster Policy,” concluding that production incentives such as targeted tax credits do not spur economic growth.

  5. According to a 2007 study by Oxford Economics, “The Economic Impact of the UK Film Industry,” the film industry has a multiplier of only 2.0. This is lower than the multiplier for the economy average, and indicates that the indirect impacts on employment and output from the film industry are not very far-reaching. Even if there were a significant multiplier when money is spent in the economy, then certainly permanent businesses would provide more favorable returns — not short-lived activity such as film productions.

Subcommittee Recommends Buying Back Tax Credits

Posted on by Christine Harbin

The Tax Credit Review Commission is beginning to deliver its final recommendations on targeted tax credit programs. From an article by the Missouri Watchdog:

The low-income housing program has more than $1 billion in credits outstanding through the year 2022. The subcommittee recommends buying back some of those credits to lessen the state’s indebtedness.

Recommending buying back credits is an admission that outstanding tax credits represent a considerable future liability for the state. If individuals and businesses did not redeem tax credits at indeterminate times in the future, then state revenues would be more constant and the state government would be able to forecast and plan its budget more easily. If there were a high number of tax credits outstanding, and they were suddenly redeemed, it could create or exacerbate budget problems in the future.

I have some questions relating to the logistics of this recommendation, however. Won’t buying back credits increase the state’s indebtedness in the present? Will the state government buy them at their face value, or will it buy them at a premium to encourage recipients to sell early?

Fantastic News for Missouri Taxpayers!

Posted on by Christine Harbin

Maybe I spoke too soon. The Tax Credit Review Commission just voted to recommend cutting the film tax credit program in Missouri!

I have written 21 blog posts, and also an editorial, on the specific subject of the film tax credit program in Missouri. Maybe this recent recommendation indicates that people listened to me!

The committee also voted to recommend ending other tax credit programs during that meeting, including the Distressed Areas Land Assemblage tax credit and the Rebuilding Communities tax credit.

I applaud the commission for recommending aggressive cuts to these particular programs, and I hope that the legislature adopts them. I am thrilled that the film tax credit program may be ended soon; I don’t want to jinx it!

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