Tax Credit Programs in Missouri: Projected vs. Actual Results

Posted on by Christine Harbin

According to a recent AP story by David Lieb:

[Gov. Jay] Nixon’s main evidence is anecdotal yet tangible. He cites the decisions of a dozen specific businesses to add employees in Missouri. And he backs that up with statistics showing general growth in employment over the past six months.

When comparing the past three months or 12 months _ instead of six _ Missouri’s employment remains down. And a leading economic survey shows Missouri business growth may actually be waning.

But Nixon has been pumping up the positives, traveling to towns across Missouri to join businesses leaders in announcing the addition of anywhere from a few dozen to a few hundred employees. He’s attended five such announcements in the past five weeks and a dozen in the past four-and-a-half months.

The governor did exactly this in his opening remarks at the Tax Credit Review Commission last week. He cited the Perryville plant, the $5 million in state tax credits that it was recently given, and the 400 jobs that it is projected to generate. Unfortunately, he’s far from the only policymaker doing this in Missouri. Last year, for example, Saint Louis’ mayor likely used the projected amount (note: not actual amount) of economic activity generated from the film Up In The Air as a demonstration of its supposed success.

Why doesn’t the governor cite a program that has been in progress for a period of time? (I suspect that it may be because these programs aren’t working.)

I realize that I shouldn’t be surprised when a politician spins statistics in an effort to persuade the public that his policies are working. Politicians are self-interested, and they will say and do whatever it takes to get reelected. However, I find it misleading to herald the number of projected jobs and projected economic activity as evidence for success. When evaluating the success of tax credit programs in Missouri, policymakers should instead consider whether any jobs or economic activity have been generated by programs in progress, not those that were very recently authorized or issued.

Love That Smoky Flavor!

Posted on by Mary Chism

According to this article from the St. Louis Post-Dispatch, Washington University’s Center for Tobacco Policy Research reported finding 31 times as much nicotine in the air of St. Louis restaurants and bars that allow smoking as in establishments where cigarette use is banned. Nicotine has been shown to linger in the air even after circulating through an air purification system, so secondhand smoke can affect nonsmokers who sit in a separate section, as well as any employees who work in a smoking environment.

The article features a photograph of Rachel Kelly, a server who is happy to work in one of Kirkwood’s restaurants where smoking is banned. She also avoids patronizing restaurants that allow smoking, and says that she will leave a restaurant if patrons are smoking cigarettes.

This is a common story in arguments favoring smoking bans, but some parts of the story are being left out. Kelly is protected from secondhand smoke in her work environment, but how can restaurant owners who do allow smoking protect their nonsmoking customers from secondhand smoke? One answer is that the customers can protect themselves by not eating there, which is exactly the strategy employed by Kelly. We’ve discussed many times the fact that no one is forcing customers to eat surrounded by smoke, but should smokers be forced to eat in clean, smoke-free air?

As the article points out, Missouri has a smoking rate of 23.1 percent, which is above the national average of 20 percent. What this tells us is that more than one Missourian out of every five likes to smoke, despite the well-publicized risks of smoking, and despite the rising cost of cigarettes due to increased taxation of tobacco products. If these people continue smoking even in the face of such obstacles, presumably they must derive great enjoyment or utility from it. These citizens are willing to pay large amounts of money for the opportunity to smoke, and presumably, many of them would also pay to engage in various leisure activities while smoking. In his testimony before the City Council of Clayton, David Stokes pointed out that different businesses cater to the unique preferences of their customers, creating a varied marketplace that can satisfy the needs of many. Smokers (and the entrepreneurs who cater to them) may be in the minority, but they have the same rights as other citizens.

“If Missouri Will Issue a Dollar for a Tax Credit, It Should Get a Dollar Back”

Posted on by Christine Harbin

Last week, I attended the first meeting of the Tax Credit Review Commission in Jefferson City. In his opening remarks, co-chair Steve Stogel communicated a long series of “big ideas” related to state tax credits. Most of them were questions that he wants the committee to answer. The first big idea, to which I will devote this blog post, was the following: “If Missouri will issue a dollar for a tax credit, it should get a dollar back.”

First, as Stogel subsequently started to discuss, this begs the question of what to measure and what to define. This is often very difficult. Is this dollar generated in the same year? Over 10 years? Is this a dollar of general revenue? of general and local revenue? A dollar of economic activity in the private sector?

Even if we were able to measure the consequences of a particular tax credit program accurately and consistently, there exist further questions. For instance, what is the significance of $1? Why is the goal not $2? Why is it not 50 cents? What is the suitable ROI that the state of Missouri is seeking in its economic development expenditures? How could the government know what the optimal level is?

If Missouri issued $1 in tax credits and got $1 back, then what’s the point? The state economy would be back to where it started from, minus administrative and transaction costs — not to mention deadweight loss.

Economic development policy relies on the existence of a “multiplier effect.” As the Show-Me Institute’s chief economist, Dr. Joseph Haslag, recently explained in an editorial in the Columbia Business Times, the ability of tax credits to incite resonating economic activity is dubious at best:

No magic multiplier effect is created because of the government tax credit. Rather, the evidence points to a substitution from all other industries to the ones receiving the tax credit. […]

The evidence […] suggests that no such spillovers or multipliers arise. For one thing, the city’s tax base has shrunk. To supply the same number of services, revenues must be made up by applying a larger-than-otherwise tax rate to the remaining tax base.

Furthermore, because government expenditures tend to crowd out private investment, much of this economic activity (e.g., hotel stays, restaurant meals) would have been generated by individuals in the private sector.

A Solution That Is Neat, Plausible, and Wrong

Posted on by John Payne

When I was pursuing my teacher certification, nearly all of my education classes stressed that teachers should teach to different learning styles. The most prominent theory of learning styles is the Harvard psychologist Howard Gardner’s Theory of Multiple Intelligences, which says that there are nine different kinds of intelligence, including the traditional lingual and logical-mathematical, as well as musical, inter and intrapersonal, and existential, and that people learn best when information is presented to them via their strongest intelligences. It’s an interesting theory that’s relatively simple to grasp, and it’s not terribly difficult to craft a curriculum around the ideas. Unfortunately, there’s not really any empirical data to show that it — or any of the other learning-style theories — are true. A review of the available literature on learning styles from 2008 found no evidence to support learning-style theories and some evidence that contradicted them. From the study’s abstract:

Our review of the literature disclosed ample evidence that children and adults will, if asked, express preferences about how they prefer information to be presented to them. There is also plentiful evidence arguing that people differ in the degree to which they have some fairly specific aptitudes for different kinds of thinking and for processing different types of information. However, we found virtually no evidence for the interaction pattern mentioned above, which was judged to be a precondition for validating the educational applications of learning styles. Although the literature on learning styles is enormous, very few studies have even used an experimental methodology capable of testing the validity of learning styles applied to education. Moreover, of those that did use an appropriate method, several found results that flatly contradict the popular meshing hypothesis.

We conclude therefore, that at present, there is no adequate evidence base to justify incorporating learning-styles assessments into general educational practice. Thus, limited education resources would better be devoted to adopting other educational practices that have a strong evidence base, of which there are an increasing number. However, given the lack of methodologically sound studies of learning styles, it would be an error to conclude that all possible versions of learning styles have been tested and found wanting; many have simply not been tested at all. Further research on the use of learning-styles assessment in instruction may in some cases be warranted, but such research needs to be performed appropriately.

So, why does a completely unproven theory dominate teacher training? Part of the answer is that education, like most industries, is subject to fads that seem fascinating and obvious at the time but later prove to be ineffective. However, I think that the government’s near monopoly on schools contributes to the problem. Because education is dominated by one entity, it is extremely static; therefore, while it may be very difficult for a renegade idea to take hold, once it has been ensconced as revealed truth, it will remain in curricula long after it is proven false. I don’t know for certain that a more competitive education industry would be less susceptible to incorrect theories, but at the very least it would allow for innovators to come in and demonstrate new and possibly superior methods of teaching. Some will be better and some will be worse, but it is only through that kind of trial and error that we can advance — not by clinging to unproven dogmas.

(Headline reference here.)

Missouri’s Licensing Boards: Killing Jobs Every Day

Posted on by Dave Roland

Decades ago, only doctors, lawyers, and accountants were required to get a license from the state before they could lawfully practice their professions. Over time, however, clever people in other lines of work realized that they could use the state government insulate themselves from competition by establishing licensing requirements and other regulatory barriers. The established interests in that profession would, of course, be “grandfathered” in and so would not have to obtain the schooling or pass the examinations that would be required for those wishing to compete with them.

This strategy worked like a charm. Professional associations would horrify lawmakers with stories about the dangers citizens faced from untrained, unproven service providers, arguing that the only reasonable course of action would be for the state to forbid citizens the right to work in these professions (or, alternatively, the right to hire someone of their choosing) unless the government had first given its stamp of approval. Then, the established practitioners would “capture” the regulatory agency put in place to oversee that profession, steadily broadening its powers and making it more and more difficult for competitors to enter the market — again, all in the name of customer protection.

Eventually, unlicensed people would be legally prohibited from providing even perfectly harmless services for which they were well qualified, all because the established interests in that profession had been able to persuade the legislature that consumers could not be trusted to choose competent professionals in the absence of a prohibitory licensing regime. As David Stokes has pointed out, this sort of occupational licensing does nothing to improve customer service or satisfaction, but it sure does make these services more expensive for the consumer! Numerous lawsuits have been filed challenging the validity of these absurd licensing requirements, but courts have upheld almost every licensing scheme ever concocted, taking the position that if any rational person anywhere could have ever considered the licensing requirements to be reasonable, they must be upheld. Today, nearly 30 percent of American workers must get formal government permission before they can earn a living in their chosen profession.

Does it sound like I’m just blowing this out of proportion? Consider that a number of states require citizens to become licensed funeral directors before they are allowed to sell caskets. For years Louisiana was the only state in the nation that required citizens to obtain a license before they could lawfully arrange and sell flowers until, in the face of a federal lawsuit and a withering public relations campaign by the Institute for Justice, the state legislature finally repealed the law. All across the country, interior designers have been actively pushing for laws that would make it illegal to offer unlicensed advice about throw pillows. Courts have been upholding these patently absurd laws — and others like them — all because the regulatory agencies deemed them necessary to protect the health and safety of the public!

Not only is Missouri’s state government taking part in this paternalistic, protectionist pastime, in the midst of a devastating economy the Missouri Division of Professional Registration has gone on the warpath against ordinary citizens whose only offense is attempting to earn an honest living in a harmless profession.

In a case currently pending before the Missouri Supreme Court, the Missouri Real Estate Commission is trying to shut down an apartment-locating service in Kansas City. The service employs a handful of single mothers who may not have book training, but they are experts at helping people new to the area find quality apartments. The government admits that the information provided by the service is truthful and entirely harmless, and the government’s own expert witness said that the service they provide should require no specialized training. According to the Real Estate Commission, not only does state law require that these women be added to the ranks of the unemployed, they should also be considered criminals. All for providing helpful, honest, and harmless advice.

African hair braiding is a cultural art form passed down from generation to generation for hundreds of years. Braiders use no harsh chemicals, nor any cutting implements on their customers, and, because excellent braiders have a highly-desired skill, this profession offers a tremendous opportunity for people to provide for their families even if they don’t have a college degree. For years, however, the state Board of Cosmetology has been adamant that no one should be permitted to make a living as an African hair braider until first completing 1,500 hours of formal cosmetology training and passing the obligatory tests established by the board. Out of those 1,500 hours of training, how much is likely to be spent learning African hair braiding? Zero. Most cosmetology schools don’t even offer it. But, as far as the Board of Cosmetology is concerned, if braiders haven’t obtained a cosmetology license, society would be better off with them being unemployed.

In just the latest example of the state’s outrageous efforts to put hard-working people out of work, the Missouri Veterinary Medical Board has followed the unfortunate lead of several other states in launching a lawsuit to prevent anyone but a licensed veterinarian from working with horses’ teeth. Why is this so outrageous? Because equine dentistry is a centuries-old profession that has never been the exclusive province of veterinarians, and most veterinarians don’t have anything like the training or experience held by the very workers they are now trying to push out of the market. The board’s action to shut out competition has absolutely nothing to do with the health and safety of horses; it has everything to do with lining the pockets of the licensed veterinarians.

In each of the above examples, the governmental actions against these workers had nothing to do with their competency or the quality of the services they provided. In fact, most of the targeted workers had a broad and satisfied group of clients who were eager to continue receiving those services. The decisive factor in erecting licensure barriers was the licensing authority’s passion for blocking out competition that might force their constituents to work harder. Politicians are currently paying a lot of lip service to the idea of saving money as a means to preserve or create jobs. A great place to start would be calling off this bizarre witch hunt against hardworking citizens whose only crime is to have made customers happy without first paying off the powers that be.

Wasting Green on Going Green

Posted on by Josh Smith

If you care about going green, you should care about internalizing the costs of pollution.

If you care about sustainability, you should care about property rights.

Why do I bring this up? According to an article over at the Post-Dispatch, Jefferson City has been chosen as one of five state capitals to receive extensive attention from the Environmental Protection Agency (EPA), in the form of plans intending to make the city greener and more sustainable. The project is called “Greening America’s Capitals,” and calls for “a team of designers to produce illustrations on how targeted neighborhoods in chosen capitals can be improved,” with funding provided by taxpayers nationwide the EPA. The Show-Me Institute’s book club is currently reading a lot about public choice economics, and I could write an entire post about the dispersed costs and concentrated benefits of this particular scheme. Instead, I’ll focus on how everything that is proposed by this federal agency would be better handled by a reduction in hands-on government management.

First, the obvious (at least to me): Strong property rights lead to good stewardship. When the costs of harming things falls on those doing the harm, they tend to try to reduce the harm as much as possible. Namely, when something belongs to you alone, you tend to treat it with more care than if it belongs to someone else. Moreover, when the benefits of improving something accrue to those doing the improvement, more improvements happen. Namely, you’re more likely to work to improve your own things than someone else’s things. There are plenty of historical examples, including the dramatic improvement in crop yield and work participation among the early European settlers in America after switching from a communal system to one based on private property.

When I hear “sustainable” and “going green” I think “good environmental stewardship.” There are two components to this, the first of which is taking care to maintain or improve your own property. The second part involves externalities. For the unfamiliar, externalities are any cost or benefit that falls on someone not directly or willingly involved in an exchange. Maintaining a classic car provides a positive externality to those who enjoy seeing one driven around town but who don’t pay for its upkeep. Pollution is the classic example of a negative externality: harming people who had no say in the pollution’s production. This is a problem with no obvious solution, but (as public choice has clearly shown) a lot of bad possible solutions from the government. Ronald Coase is a Nobel Prize–winning economist who demonstrated that the problem of externalities is really a problem of transaction costs (such as the cost of information). Show me a government solution to an externality problem that doesn’t involve internalizing costs and I’ll show you the law of unintended consequences in action.

Greening America’s Capitals will not help the state of Missouri. It’s a fundamental waste that distracts from the real problems of insufficiently robust property rights and, especially, transaction costs. But these difficult technical problems will never be as broadly appealing as a visible, heart-in-the-right-place EPA program. This is not a new problem in politics.

Voter Turnout

Posted on by Dave Roland

Various commenters across the state continue to argue that Prop C’s thundering success at the Aug. 3 primary election should not be taken seriously because of low voter turnout. As I have pointed out previously on this blog, the statistics really were overwhelming, even though only 20 percent of registered voters came out to the polls. All those who continue to harp on this issue should consider that Missouri’s current Constitution was adopted in a special election held on Feb. 27, 1945. The voter turnout on that day? Only 20 percent.

But I’ve been thinking about this issue a great deal lately. It does seem quite strange that our system would permit a relatively tiny fraction of the population to pass laws that will be binding on everyone. I also find it strange that elected officials can claim their positions without having earned the explicit approval of a significant percentage of the people who will be bound by their authority. After all, most legislative bodies have a quorum requirement that ensures that there must be a critical mass of support before they can take action. Wouldn’t it make sense for this principle to be applied to all votes?

Perhaps we should consider amending the Missouri Constitution to provide that no proposition may be considered passed and no politician may be considered duly elected unless a certain percentage of registered voters actually casts ballots on that issue or candidate. If any given issue or candidate cannot motivate enough people to come to the polls to vote in their favor, perhaps the people would be better off without them. For propositions, this simply means the status quo would continue. For offices, I submit that they should remain unfilled until the people of the relevant jurisdiction have called a special election that successfully attracts the requisite number of voters. If the people themselves have not come up with a person that a truly representative percentage wants to hold that office, wouldn’t it be better to let them wait until they have settled on a well-supported candidate?

One Way to Help Former Convicts in Missouri

Posted on by David Stokes

Like many boys who were in grade school in St. Louis during the mid-1980s, I lived for the Zippo Awards on Friday night. So, even though I find “I’m just sayin'” on Channel 5 in St. Louis to be mostly annoying, I do like it when Zip Rzeppa does it (and when McGraw Milhaven hosts it, too).

Zip’s topic a few days ago was the issue of prisoners re-entering society after serving their sentences. (Thanks to Combest for the link.) This is a topic I’ve been interested in from a licensing perspective, because many licensed professions and trades forbid ex-convicts from entering. To give but one example, you can’t sell real estate in Missouri if you are an ex-convict.

Some people are attempting to change the common practices of preventing ex-prisoners from entering many professions, some of which are well suited for ex-cons. Zip thinks we should give ex-prisoners a little money when they leave the big house. He may be right, but it would be far better for Missouri and other states to make it easier for them to enter whatever profession they are best suited for, and eliminate licensing restrictions from many professions.

Note that I said “many” professions, not “every” profession. Limitations that directly relate certain crimes to certain jobs would still make sense in many instance; i.e., convicted child molesters should still be forbidden from working in schools.

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