The French Find a Free-Market Solution to Historic Preservation

Posted on by Christine Harbin

When I was driving into work today, I heard a story on NPR about how a private company is turning a dilapidated part of the French Palace of Versailles, the Hôtel du Grand Contrôle, into a luxury hotel. According to the story:

[Deputy Administrator for the Palace of Versailles] Hautchamp says Versailles doesn’t have the $7 million it will take to restore the building, which is why it turned to Belgian hotel company Ivy International. The company will renovate the mansion and turn its 23 bedrooms into a luxury hotel.

A percentage of the profits will be paid back to the Palace of Versailles in rent. The restoration is the first in a series of commercial projects aimed at saving French monuments.

Not only is this a rare opportunity to apply knowledge from my French major in a professional capacity (it’s the plight of the liberal arts major, n’est-ce pas?), this story illustrates how practical solutions to public policy problems exist in the private sector.

Turning Versailles into a hotel will have many positive consequences. More people will be able to enjoy the building than they do in the status quo, or if it were in ruins. Additionally, taxpayers won’t be forced to pay for the restoration, nor will the restoration compete with other government programs for funds. Another positive consequence is that the building and its history will be preserved. The following quote in the article particularly illustrates this point:

“It surprised me at first,” Denise Mosset says. “But if we don’t have the money to restore it, this is better than letting it fall into ruin.”

This story is particularly relevant to Saint Louis, which has beautiful architecture, limited financial resources, and competing needs for these resources. The city of Versailles found a free-market solution to historic preservation, and the city of Saint Louis would be wise to investigate the same. Policymakers in Missouri could learn a lot from the French.

Additionally, and parenthetically, this story represents how, in free economies, individuals can improve their quality of consumption over time. In the past, Versailles was a building that could only be enjoyed by the super elite (the French monarchy). In the present, it will be enjoyed by non-elite guests every day.

Tattoo You

Posted on by David Stokes

I think tattoos should be treated like champagne. As many of you know, only sparkling wine from a certain part of France can legally be sold as “champagne.” Along those lines, I think that only tattoo artists born or trained on the planet of Tatooine should be allowed to refer to their work as a tattoo. For everyone else, it should just be “ink.”

Whatever it is called, Missouri wants to raise the taxes and fees on it. Not surprisingly, for those who follow this blog and know the real motivations behind occupational licensing and taxing, some current tattoo shop owners support the tax and fee increase. KOMU reports (emphasis added):

“Surprising to some, some artists think fees should go up because it will help get the people who do tattoos illegally out of the market. Dean Jones, managing owner at Living Canvas in Columbia, says the possible increase does not bother him at all.”

I love how they make a big deal in the story about shops that don’t give out after-care instructions for their “illegal” tattoos. It took me less than 10 seconds to find online all the after-care instructions you would want.

I am not opposed to all regulation of the tattoo industry. I think statewide licensing of individual artists is unnecessary, and many other tattoo regulations are absurd, but basic sanitary inspections by county health departments seems reasonable.

I have news for people who believe that a higher license fee will keep people from performing tattoo work illegally: Higher costs and increased regulation may mean that more people — not fewer — will start doing the work “illegally.”

The state should get out of the business of regulating tattoo artists, and leave public health issues to local health departments.

Subsidizing the Missouri State Fair

Posted on by Christine Harbin

 

A regular Show-Me Daily reader alerts me to an article in the Kansas City Star reporting that the Missouri Development Finance Board recently issued $343,000 in tax credits toward a new livestock pavilion at the Missouri State Fair.

While representing the Show-Me Institute at the Missouri State Fair last August, I noticed that the state government already has a large footprint on the fairgrounds. Most notably, there is the Missouri Department of Transportation’s expansive Highway Gardens, which I have discussed previously on this blog. There were many private companies represented at the state fair (e.g., farm equipment manufacturers, RV and trailers, etc.), but they were located on a section of the fairgrounds that was comparatively compact.

To what extent is the state government crowding out private investment at the state fair? Has the state government investigated whether a private company would be willing to sponsor the livestock pavilion or the highway gardens?

Additionally, this presents a possible opportunity for tax credit stacking. Will the livestock pavilion feature cows that received qualified beef tax credits? As Thomas Duda has explained in the context of subsidizing housing developments, tax stacking contributes to the crowding out of private investment.

Furthermore, this fact from the article thoroughly disappoints me:

The board waived its normal two-presentation requirement for applicants in order to approve the State Fair project under its 2010 allotment of tax credits […].

If the government doesn’t go through its review process, what’s the point of having one at all? What attributes make a project worthy of skipping review? Are these attributes completely arbitrary and subject to political pressure?

New Year’s Resolutions for Missouri Public Policy: From the Cutting Room Floor

Posted on by Christine Harbin

My recent editorial, “New Year’s Resolutions for Missouri Public Policy,” ran in the St. Louis Beacon and the Joplin Globe, and was linked to by Combest.

The following are additional resolutions that didn’t make the final list. I tried to model these after resolutions that individuals commonly make for themselves. I thank my colleagues for their collaboration, and I encourage our Show-Me Daily readers to leave additional resolutions in the comments section.

  1. Get Out of Debt:
     
    This year, state and local governments in Missouri should resolve to get a handle on their finances. Policymakers can accomplish this by holding off on the pork barrel spending projects and fitting in time for fiscal fitness. Eliminating and reducing debt will have positive fiscal consequences in the future, because the state will not be spending tax monies on interest on debt. Government should resolve to live within its means, as an individual does. There are many policy areas that could save money. For example, school districts could elect against giving superintendents health care for life.

  2. Eliminate Clutter:
     
    The state government should conduct a top-down, bottom-up review of all state agencies and regulations to eliminate waste, inefficiency, and government intrusion unrelated to public health and safety. To accomplish this, policymakers may pursue public-private partnerships, privatize services, eliminate underperforming programs, etc.

  3. Get Organized:
     
    The state can take measures to reduce bureaucracy and red tape, especially huge mistakes and oversights in its expenditures. For example, the state government is issuing targeted tax credits too quickly to keep track of them. According to an article from the Associated Press, 56 businesses, nonprofit groups, and individuals in Missouri have failed to meet the mandates of a 2004 state law that requires annual progress reports after receiving tax credits. The state government awarded $2 million in tax credits to a convicted embezzler for a development project in Cape Girardeau. With better organization, scandals like this would be much less likely.

  4. Find a Job:
     
    The state unemployment rate continues to exceed 9 percent. Missouri would attract a greater number of businesses to the region if it implemented strategies that reduce the cost of doing business in the state. Specific strategies that policymakers can implement are: eliminating personal and corporate income taxes, reducing occupational licensing requirements, and eliminating property tax surcharges.

  5. Lose Weight:
     
    Just as individuals need to lose weight to remain fit and healthy, cities and other taxing districts need to save money by cutting out the fat whenever possible in order to remain fiscally sound. Policymakers in Missouri should take steps to limit this growth. Individual governments in Missouri can share resources, consider consolidation or disincorporation when appropriate, and contract with private service providers as much as possible. Individuals make the tough choices to eat less for better health. Taxing districts can make those same hard decisions to outsource, privatize, consolidate, or share services in order to perform key public services at as low a cost as possible. (Hat tip: David Stokes!)

  6. Spend More Time With the Kids:
     
    Missouri can take measures to improve educational outcomes, such as increasing school choice. A specific strategy that policymakers can implement would be to expand access to charter schools and virtual schools, the latter of which can provide 24-hour education services to meet flexible schedules. It’s important to note that the most successful charter schools lengthen both school hours and the school year in order to help students catch up with their peers in other schools. (Hat tip: John Payne!)

  7. Quit Smoking:
     
    Even staunch environmentalists now understand that the total carbon emissions from the use of ethanol are worse than the emissions from the fuel that ethanol replaces. Energy specialists recognize that it takes more energy to produce a unit of ethanol than the energy that unit returns. It’s bad for your health, your wallet, and the environment. It’s time for the state of Missouri to quit subsidizing, mandating, and abusing this substance.

  8. Travel Less:
     
    Gov. Jay Nixon has the habit of holding ribbon-cutting ceremonies for subsidized projects around the state, and then billing the expenses to other agencies. These travel expenditures come at the expense of other programs because they compete for the agencies’ services. Taxpayers in Missouri would be better off if they weren’t footing the bill for these trips, because they could keep a greater proportion of their earnings. (Hat tip: Audrey Spalding!)

  9. Spend More Time With Family and Friends:
     
    Just as an individual resolves to “Spend more time with family and friends,” a state government can resolve to increase the level of civil society interaction in Missouri through privatization. Instead of seeing government employees take care of your water utility, or going to a government-sponsored health clinic, we can interact with members of our community that we choose to do business with privately. This resolution could also describe hanging out with a family member or friend while they African-braid your hair or examine your horse’s teeth, even though they do not have a license.

Massachusetts Repeals Liquor Taxes; Should Missouri, Too?

Posted on by Christine Harbin

Residents of Massachusetts have a special reason to celebrate the new year. Beginning Jan. 1, the state repealed its 6.25-percent sales tax on alcoholic beverages.

Liquor taxes are a kind of so-called “sin tax,” a topic that that contributors to Show-Me Daily have discussed before. The primary purpose of such taxes is to discourage behaviors that may be considered socially undesirable, and the secondary purpose is to generate revenue for the government.

Sin taxes have a marginal nature, which is illustrated in this example from Massachusetts. Liquor stores that are located close to the Massachusetts border will particularly benefit as a direct consequence of the repeal — they will experience increased sales from nonresidents. Similarly, stores that are located on the other side of the border will likely experience fewer sales. This illustrates how rational individuals tend to think on the margin, another topic that we have blogged about previously. From an interview of a liquor store owner published in the Tauton Daily Gazette:

“It wasn’t a mass exodus [when Massachusetts instituted a liquor tax]” Matias said. “You would still see Rhode Island plates in the parking lot. They just wouldn’t come as often. If you saw a guy every two weeks, now he might come once a month.” The repeal is expected to be a boost for the South End stores. An Ocean State resident is more likely to make the trek to Massachusetts now that the savings is significant.

Compared to other states, Missouri assesses some of the lowest tax rates on alcoholic beverages (and on cigarettes, too). Similar to the illustration provided by the aforementioned article, a marginally higher number of individuals purchase these products in Missouri instead of in their home states because of the difference in tax rates.

Should Missouri eliminate its tax on alcoholic beverages, too? A disadvantage of that policy change would be that state government would miss out on revenue. Massachusetts, for instance will miss out on $100 million as a consequence of eliminating its tax. However, as an advantage, stores in Missouri would experience a higher volume of sales. Policymakers are always looking for ways to encourage economic activity and job creation. Perhaps repealing the liquor tax could be a means to achieve these goals, in part.

New Year’s Resolutions for Missouri Public Policy

Posted on by Christine Harbin

Year end is a time to reflect — and to think ahead. In the holiday spirit, the Show-Me Institute has compiled a list of five New Year’s resolutions for state officials, to promote better government for 2011 and beyond. Taken together, these policy changes have the potential to propel Missouri’s income and job growth into the front ranks.

First, lose weight. The Nov. 2 election showed that the overwhelming majority of Missourians (and Americans generally) want smaller, less intrusive government and reduced taxes. Missouri legislators should therefore unite to kill pork barrel spending projects and make major spending cuts.

Municipalities need to rein in runaway pension costs for city employees, including firefighters and police. They should also consider privatizing the provision of water, electrical power, and other services. The Show-Me Institute has produced a wealth of research demonstrating the benefits of privatization, which creates much-needed cash through the sale of public-owned assets and contributes to municipal revenues through the addition of new taxpaying entities in the private sector. Research shows that privately owned utilities consistently provide more efficient services than their public-sector counterparts.

Second, stop meddling in other people’s business. The Show-Me Institute has spotlighted the proliferation of needless licensing requirements that do nothing to promote public safety in businesses as different as home heating and air conditioning work (HVAC) and African hair-braiding. Such requirements are often promoted by established businesses as a means of inhibiting competition and choice.

Third, give families real school choice. Our research has consistently shown that education is improved when parents and students are given more choices and traditional public schools face greater competition from charter and virtual schools. Adjusted for inflation, we spend four times as much for education in urban areas today as in 1960, but educational achievement is no higher. Today, the Saint Louis and Kansas City school districts spend more than $15,000 per pupil — more than all but the most expensive private schools. Charter schools provide a real opportunity for poor students stuck in failing schools. They also enable teachers and administrators to innovate more freely, and force other public schools to improve their performance in order to compete successfully.

Fourth, halt the silly business of awarding specialized tax credits to favored enterprises. In one of my op-eds about the inanity of tax credits for favored industries, I pointed out that government policy should not prefer filmmaking over, say, hog farming, “simply because one is considered to be more glamorous.” Most of the local jobs created by Missouri film productions like Up In the Air were both low-wage and temporary — many lasting only a single day. Missouri should do away with its development tax credit programs, which have a record of failing to boost either income or employment — even if you do like George Clooney.

Last but not least, repeal the state income tax and replace it with a broader sales tax. The adoption of such a plan in 2011 would be the single most important step that Missouri could take to move Missouri to the front of the pack in terms of growth. The noted economist Arthur Laffer, who spoke at the Show-Me Institute in October, observed that during the past decade, the nine states without a personal income tax have “outperformed those states with the highest personal income tax rates by 26.5 percent, and have outperformed the U.S. average by 20 percent.” Even more impressive, those nine states “outperformed Missouri by a whopping 41.5 percent.” Eliminating the income tax would encourage people to work and save more, crucial factors for economic growth. A broader sales tax can also be balanced with mechanisms that would compensate those with lower incomes for any potentially regressive effects.

In the past, it has often seemed that major changes originate on the coasts and slowly make their way to the heartland. I think that flow has been reversed during the past year and a half. I believe that Missouri — and the heartland — will play a leading role in our nation’s economic recovery. We will do so through a renewed commitment to free enterprise.

Christine Harbin is a policy analyst for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

 

Government Should Not Be in the Business of Preventing Price Gouging

Posted on by Christine Harbin

There was an engaging discussion on the appropriateness of government intervention in price regulation in the comments section of a recent post of mine. Commenter D. Amiri wrote:

In the example of gasoline, which I do believe is unique, the demand could be high due to events not directly related to the price of gas, such as 9/11. Many bought gasoline on that day or the day after for fear that prices would rise in the future. What happened, however, is that some gas stations took advantage of the increased demand and jacked up their prices. […]

But gasoline is unique for many reasons: (a) demand is usually very high and relatively constant/predictable (b) practically speaking, one can only buy so much gasoline at one time (c) gasoline is a dangerous substance (d) gasoline is absolutely vital to the national economy (e) gasoline is product derived from an internationally traded commodity at which level prices already reflect speculation of higher/lower demand and supply.

None of these reasons is call for government intervention in gasoline markets. When the government intervenes in the market for a good by controlling the price, it causes artificial shortages and surpluses, and it also obstructs resources from being put to their highest use. Overall welfare is maximized when prices are allowed to represent relative values accurately.

  1. If the level of demand is high and constant already, then why should the government focus on protecting it from volatility? Price “gouging” is simply a misleading term for supply and demand. By increasing their prices in response to higher demand, gas station owners are simply capturing excess consumer surplus.

  2. All resources are scarce and finite. This is not an attribute that is unique to gasoline.

  3. The role of government doesn’t entail protecting individuals from products that they consume voluntarily. Practically every activity or product can be potentially harmful — smoking cigarettes, consuming raw milk, crossing the street — and individuals weigh the risks against their associated benefits. There is a risk that the gas station will ignite when I am filling my car with gas, but if I don’t fill it up, I can’t easily get places.

  4. Gasoline may be an important source of energy in the status quo, but substitutes exist (e.g., electricity, ethanol, geothermal, etc.). If the price of gasoline increases in the future, this will provide an incentive for entrepreneurs to seek other substitutes and to improve relevant processes.

  5. This is another attribute that is not unique to gasoline. A considerable percentage of the goods and services that people consume are internationally traded. Should the federal government protect the price of bananas or wine from volatility? It would not be feasible for the federal government to regulate prices in all of these markets.

Prices coordinate individual action efficiently by communicating relative scarcities and preferences, as I have discussed previously. However, government officials knock the price system out of equilibrium whenever they decide to subsidize or restrict an economic activity. When the government knocks the price of a good or service out of equilibrium, it results in a misallocation of resources. In other words, resources no longer go toward their highest use.

Changes in price are important for allocating scarce resources. This is why the price for plywood increases during hurricanes — individuals living in disaster-ridden areas have a higher demand for plywood than, say, a person building a treehouse elsewhere in the country. Because the former individual has a more critical need for the resource, he or she is willing to pay more for it. Those who think that the price has grown too high will refrain from buying the product, which leaves more available to be purchased by those with a higher willingness to buy. In the absence of externalities, a sudden rise in price levels does not represent market failure, so even theoretical economic rationales for government intervention don’t apply.

Implementing Pro-Growth Tax Policy Requires Rigorous Analysis

Posted on by Audrey Spalding

When the legislature reconvenes in January, the contentious issue of whether Missouri should repeal the state income tax will surely arise. At stake is not lost tax revenue, because proposals for repealing the state income tax also entail increasing the state sales tax in order to keep state tax revenues at the same level. Rather, the issue at hand is whether Missouri would be more prosperous with a more broadly based sales tax instead of the combination of state sales and income taxes that we have today.

Show-Me Institute scholars have researched this issue extensively. Most recently, the institute’s chief economist, Joseph Haslag, who is also an economics professor at the University of Missouri–Columbia, cowrote an essay with Washington University economics doctoral student Grant Casteel. The essay, available online at showmeinstitute.org, shows that the Missouri economy would grow more quickly if the income tax were repealed and the state sales tax were increased instead.

Taxation is an added cost, so it tends to discourage any taxed activity. In labor markets, an income tax increases the cost of employees working and employers hiring. Because workers subjected to an income tax receive lower wages than they otherwise would, the income tax discourages some employees from working as many hours as they might otherwise. Additionally, an income tax increases the price of hiring a worker — an employer will have to pay more for the same quality worker under an income tax system than he would otherwise.

By contrast, a sales tax discourages consumption. So the question becomes, will an economy grow faster if the state, through its tax policy, tends to discourage employment or if it tends to discourage consumption?

In their essay, Haslag and Casteel test several economic models of the Missouri economy to show that, in the long-run, Missouri would be better off with a higher sales tax. The additional tax on consumption would encourage Missourians to save more than they do now, and the lack of a state income tax would provide fewer disincentives to work. Combined, those effects would result in a substantial economic growth windfall.

Previously, Haslag has estimated that if the income tax were repealed, Missouri would see $438.6 billion more in real GDP growth over a 25-year period. This would result in more jobs and a higher standard of living for all Missourians, a tangible benefit that should not be ignored.

The essay by Haslag and Casteel, along with the estimate of increased economic growth, together affirm the findings of prominent economist Arthur Laffer: States with income taxes have slower-growing economies than states without income taxes. Additionally, Laffer has found that the 11 states that adopted personal income taxes in the past 50 years have seen their economies deteriorate. In some cases, Laffer found, the results have been catastrophic.

At the Show-Me Institute, we strive to be as forthcoming as possible about our research methods. Those who may question Haslag and Casteel’s findings can examine their methodology in their essay. In fact, Haslag and Casteel go to great lengths to explain the economic models and assumptions on which their findings are built. We encourage others, especially those who argue that an income tax is somehow better for Missouri, to do the same.

Economic policy is too important for state officials to implement it without rigorous analysis. We cannot let passionate rhetoric substitute for sound research when the economic health of Missouri is at stake. When it comes time for the General Assembly to consider changing Missouri’s tax structure, we hope that legislators will pay close attention to the analytic evidence presented, and disregard strong statements made without any supporting quantitative research.

Legislators should take note of the proven deleterious effect of income taxes in other states and the substantial economic growth that could occur if the income tax were repealed. It is time to consider changing the state’s tax structure so that Missouri’s economy does not continue to fall behind.

Audrey Spalding is a policy analyst for the Show-Me Institute, a Missouri-based think tank.


 

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