Missouri Has Its Own Quirky Tax Rules on Grocery Sales

Bagel
Photo Credit: Audrey Spalding

In response to my recent post about the different sales tax rates on sliced and unsliced bagels in New York, a commenter correctly points out that sales taxes in Missouri are similarly complicated and unintuitive. Under Section 144.014, RSMo, Missouri assesses a reduced sales tax rate — 1.225 percent instead of 4.225 percent — for certain food products but not others.

Forbes enters the discussion:

Missouri, for example, ruled in June that a retail drug store’s self-serve frozen meals, but not its self-serve coffee, would qualify for the state’s lower sales tax rate on food. Why? Food served hot doesn’t qualify for the lower rate. The store staff brews the coffee, which customers get for themselves in Styrofoam cups. But it is left to the customer to pop the frozen lasagna out of the freezer case and into the store’s microwave.

In an apparent attempt to clarify the differences in taxation on food items in Missouri, the Department of Revenue provides some examples. (I find these examples to be more confusing than clarifying, myself.)

Taxes are difficult to follow when they are different and ambiguous. As I discussed in my previous post on the subject, these taxes are associated with high administrative and compliance costs, and that Missourians would be better off if the sales tax were low and broadly based.

Would Kansas City Residents Lose Any Sleep Over Privatizing the Water Division?

Not to just jump in and pile on, but it appears some people might lose some sleep if the city privatized the water division. Some of the employees, that is:

Kansas City officials said Wednesday that they were investigating an incident in which a man videotaped Water Services Department employees who appeared to be sleeping on the job.

Yes, I know it’s a cheap shot, but it was too easy to pass on. I will add that Kansas City did at least install water meters a long time ago.

Compare and Contrast: LRA and LCRA

I attended my first Land Clearance for Redevelopment Authority (LCRA) board meeting in Saint Louis yesterday. I couldn’t help but notice stark similarities and differences between the LCRA and the Land Reutilization Authority (LRA) board.

One stark difference is the amount of information that each board expects from the petitioners. When presenting before the LRA board, an individual has to demonstrate financial ability and provide the written endorsement of an alderperson, as contributors to Show-Me Daily have communicated previously. When presenting before the LCRA board, apparently, the presenter provides neither. He only has to cite the dollar amount that the developer is spending on the project, as well as the projected number of jobs that will be created.

As a related point of contrast, committee members of the LRA board pose probing questions to petitioners, whereas those of the LCRA members ask few, if any.

As a point of similarity, both the LRA and the LCRA promote policies that remove properties from the tax base and therefore reduce the amount of property tax revenue received by the city. Each has a different way to accomplish this, however — the LRA board denies proposals from individuals to buy properties that are withheld by the city, and the LCRA board approves proposals from private corporate developers to abate property taxes.

I encourage you to compare the number of suits in the first photo below to the number in the second photo.

To me, it begs the following question: Whom is Saint Louis City government serving: taxpaying individuals or corporate developers?

Land Clearance for Redevelopment Authority (LCRA) Meeting, August 24, 2010
DSC06107
Photo Credit: Thomas Duda

Land Reutilization Authority (LRA) Meeting, June 30, 2010
Land Reutilization Authority Commission Hearing June 30 2010
Photo Credit: Thomas Duda

Government: Ruining Everything Functional One Program at a Time

Santiago, Chile, is a city of more than 5 million people, with one of the highest standards of living in Latin America. In the latest episode of EconTalk, host Russ Roberts of George Mason University talks to Mike Munger of Duke about the city’s mass transportation system. In the middle part of the last decade, Santiago featured a flourishing system of private buses, with more than 3,000 companies offering quick and inexpensive transportation all over the city and mostly managing to turn a profit. The system was not without its flaws, however. The buses emitted a great deal of pollution, and overzealous bus drivers often caused accidents or hit pedestrians in efforts to pick up passengers before their competition.

Such problems led the government to scrap the private system in favor of a public one in 2007, and Munger explains how this led to far worse outcomes on pretty much every measure. The average commute for a mass transit rider immediately skyrocketed from 40 minutes to an hour and 40 minutes. This encouraged more people to drive or use small taxi services, feeding a vicious cycle. Furthermore, because bus drivers are paid based on how often they are on time, they have no incentive to stop for passengers at bus stops if they are running late. The extremely lengthy lines for buses routinely lead to pushing and shoving to board and fights often break out. Although the public system was specifically designed to solve safety problems in the private system, the number of wrecks actually increased because the city purchased extra long bendy buses, which require two lanes to turn, so cars frequently crash into them. Finally, the system as a whole went from running a profit of $60 million to requiring a government subsidy of $600 million — more than $100 for every resident of Santiago.

Munger argues that the problems with the private buses could have been solved relatively easily without resorting to socializing the system. A very minimal licensing requirement could ensure that the buses do not emit excess levels of pollutants, and the enforcement of property rights in private bus stops has been shown to prevent buses from driving recklessly to swipe passengers out from under the competition. Although Saint Louis and Kansas City do not have the same level of demand for bus services as Santiago, the city has shown that government ownership is not necessary for a decent mass transportation system.

Milton Friedman Celebration 2010 featuring Michael Podgursky, Susan Feigenbaum and Daniel Thornton

On July 30, 2010, the Show-Me Institute joined many other think tanks around the nation by hosting an event in celebration of the life and legacy of the influential economist Milton Friedman.

At this event, Dr. Michael Podgursky spoke of the benefits of school choice, Dr. Susan Feigenbaum spoke of the negative impacts of discrimination in a free market, and Dr. Daniel Thornton spoke of the dangers of irresponsible monetary policy. Dr. Joseph Haslag moderated, and Dr. Bonnie Wilson introduced the event.

All Businesses Are Equal, but Some Businesses Are More Equal Than Others

Many problems in public policy are government-created, and the best solution is not more government. Unfortunately and predictably, solutions involving more government will be supported by groups that are short-sighted and will benefit directly from them.

As the latest illustration of this, biodiesel producers in Missouri are calling for extending the $1-per-gallon biodiesel blender’s federal tax credit. In its Friday issue, the St. Louis Business Journal published two articles that profile a struggling biodiesel plant as it waits for extended handouts from the government.

Meanwhile, there exists a lack of demand for biodiesel in the market, and the government has responded by setting a mandate to create an artificial level of demand. From one article:

Environmental mandates that require oil companies to blend petroleum-based diesel with minimum levels of biodiesel […] have increased demand, and therefore prices, for biodiesel and helped offset the loss of the expired tax credit.

The problem with mandates and production subsidies like those for biodiesel is that the government is encouraging energy producers to invest in an infrastructure that is neither efficient nor cost effective. Residents of Missouri and other states could achieve higher levels of utility if government stayed out of the market and allowed the profit-and-loss system to allocate resources. As another positive consequence of eliminating handouts to biodiesel producers, fewer resources would be distracted from the development of other alternative energies that are perhaps more viable.

The Blogosphere Is Having an Unlicensed Conversation About Occupational Licensing!

There has been some great talk in the blogosphere about occupational licensing over the past week. Matthew Yglesias began the discussion, and Conor Friedersdorf, guest hosting at Andrew Sullivan’s Daily Dish, has joined in. I may be a few days late to the discussion, but I can ascribe that to two words: State Fair.

While some of the larger national think tanks regularly take on this issue, we here at the Show-Me Institute cover occupational licensing more than most other state-based groups. It is great to see people engaged in the conversation, and I hope they enjoy getting punched in the face as much as I enjoy throwing the punches.

There really isn’t a more accurate example of democratic failure than occupational licensing. It is public choice economics at its most concise. A small group of people stand to gain financially from a very narrow policy action, and passionately advocate for it. A large group of people stand to be harmed very marginally from that same issue and so don’t care about it enough to spend time and effort becoming informed and fighting back. Politicians measure the gains for them to be made from satisfying the small group (campaign contributions, union support, etc.) versus the fallout from harming the larger group (there’s generally no fallout), and — voilà! — an entire industry becomes regulated with a few votes and the stroke of a pen, while the only person who shows up to complain about it is some jerk like me. You grandfather in the existing practitioners (or exclude only a small portion of them), and put the screws to future practitioners and the general public, neither of whom realizes at the time that anything is going on.

The purpose of licensing is always the economic gain of those practicing the occupation to be licensed (the regulatory push never comes from the outside — always the inside), but advocates are usually smart enough not to say that. Instead, the arguments actually advanced in favor of licensing are twofold: safety and search costs. The safety argument might be legitimate for a few professions (i.e., drug testing for school bus drivers) but very quickly devolves into a love of the nanny state — unless you really believe that the threat of a bad haircut actually involves your “safety.”

The search costs argument was always wildly overstated. It assumes that we need the state to license heart surgeons, for instance, so you don’t have to check references on your own while you are having a heart attack. (This is sort of a bad example, given that I think doctors and nurses may be one field in which the benefits of licensing outweigh the costs, but stick with me.) This general argument fails in that the employer is unlikely to have hired an unqualified person in the first place (the hospital probably confirmed that the doctor graduated from medical school), and how often do people really hire someone cold? You get references for plumbers, electricians, pediatricians, etc., from family, neighbors, or friends who have used those people before, and who are willing to recommend them. License or no license, reputation and referrals are what keep people in business, or drive them out of it.

The scam artists who successfully operate in the underground economy and show up at your house to do the roofing right after the straight-line wind blows the shingles off won’t be stopped by licensing laws. Even if I thought licensing laws protected consumers by limiting scams, I still don’t favor giving the government more power over our economic lives and taking the responsibility away from individuals to make better choices by checking references, calling the Better Business Bureau, etc. Others might disagree, but the evidence that licensing improves quality and protects the public is lacking.

I could go on, but this post is long enough. It is great to see people participating in this debate. Now, as they told me during my very brief boxing career, keep your hands up. …

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