Clear Example of Tax Laws Favoring Agriculture

Posted on by David Stokes

Via John Combest (who played a terrific first base in softball on Sunday, if I may say so), the Suburban Journals has a good story about a smart property tax move by developers in St. Charles County. What exactly are the developers who have found themselves sitting on large lots of undeveloped property during this recession doing with it? They are farming the land just enough to get it taxed at the agricultural rate instead of at the commercial or residential rate. As the story details, the differences can be huge:

For example, an acre that goes for $5 a square foot and is assessed as commercial would have taxes of $4,800 for an acre. That same acre, assessed as agriculture, would have taxes of $7.68.

This is a topic I have been writing about since the beginning of this blog. Low assessment of agricultural land is one of the main reasons why each year the state transfers money (taxes) taken from suburban taxpayers to give to rural school districts.

The suburban residents, with their higher assessments and rates, support their schools at a fiscal level that has resulted in the state holding aid flat for years; the so-called “hold harmless” school districts. Many rural districts, with their lower assessments, lower rates, and agricultural property, pay less for their schools. The state makes up the difference with general taxes. Let’s be clear — rural districts can often educate their kids at a much lower expense than suburban districts, but the annual transfer of wealth from the suburbs to the rural areas is exactly the type of transfer that is often decried in other situations.

Payday Policymaking

Posted on by Abhi Sivasailam

Consider: There are more payday loan storefronts in the United States than there are McDonald’s and Starbucks outlets combined. Also consider, these payday loan storefronts are much more geographically concentrated than other types of outlets. Whereas Starbucks and McDonald’s sprawl across disparate locations with very unique compositions and characteristics of residents, payday storefronts tend to cluster densely in regions where demand for payday loans is likely to be high. What do these conditions imply about the characteristics of the payday loan market?

For starters, basic economic intuition would suggest that the payday lenders operate in a competitive marketplace. Fairly low barriers to entry (both legal and financial) into the market and the vast number of storefronts implies that individual stores face strong incentives to underprice their competitors. The result, barring collusion or market distortion, would be that prices are efficient, and not exorbitant.

The empirical evidence bears out this claim. A paper released by the FDIC Center for Financial Research used panel data from a large vendor to demonstrate that, despite the high interest rates on payday loans, the profitability of payday lenders does not statistically differ from the profitably of other financial intermediaries, like “reputable” banks. This should appeal to intuition: Payday lenders cater to risky populations that are vulnerable to financial stressors and prone to defaults. Risky customers warrant high rates to compensate for high default rates. This understanding regarding the level of market competitiveness and the condition of interest rate efficiency is crucial to understanding the policy effects of regulation in the payday loan market.

Last week, in a conversation with state Sen. Mary Still — one of Missouri’s most vocal critics of the payday lending industry and author of regulatory legislation in the General Assembly — I hoped to identify her latitude of acceptance for various payday lending policies (including deregulating the market further). I discovered that the two policy tools that are most likely to hear debate in the General Assembly are interest rate caps and providing incentives for banks to become “legitimate” vendors of payday loans. In some important ways, these approaches are troubling. If the market is already competitive and interest rates are efficient, an interest rate cap will choke the market and force lenders out — and banks shouldn’t have the ability to offer significantly cheaper rates on similar products. At any rate, revealed preferences would suggest that there is a reason banks aren’t willing to offer payday loans without incentives.

As I’ve discussed earlier, payday loans have the potential to be both helpful and harmful. Imposing interest rate caps on the market will stifle the ability of payday loans to help consumers, and incentivizing banks to offer such loans will do little to shield consumers from harm.

Metro St. Louis Approves Fiscal 2011 Budget, Making Work Harder to Find

Posted on by Thomas Duda

The Metro Board of Commissioners approved the St. Louis regional public transit agency’s Fiscal 2011 operating budget of $232.4 million in late May with the declaration that the spending plan “includes funds to restore transit services that were cut in 2009.” This comes, of course, following the passage of Proposition A by St. Louis County voters in April, which imposed “a countywide sales tax of one-half of one percent for the purpose of providing a source of funds for public transportation purposes.”

A closer look at Metro’s announcement of its Fiscal 2011 budget, however, yields the following admission (emphasis added):

In addition to restoring services eliminated for financial reasons in 2009, [Metro President and CEO Robert J.] Baer said the new sales tax revenue is committed to replacing a $5 million decline in sales tax revenue and replacing the one-time appropriation of $12 million from the state of Missouri in FY 2010. The revenue also will replace millions of dollars in federal capital funds spent on operations in FY 2010, freeing those federal funds to be used partly to acquire more buses for service restoration. The new budget also reflects $6 million in higher costs for fuel, medical costs and utilities, and $4.8 million more to provide additional services under contract with the St. Clair County Transit District in Illinois.

[…] He said that even with plans to hire 120 new drivers, mechanics and supervisors needed to restore service, the agency would operate with approximately 90 fewer employees in 2011 than it did in 2009.

So, what gives? St. Louis County voters approved a sales tax increase — which triggered a coincident sales tax increase in St. Louis City of one quarter of 1 percent — yet the Metro transit agency will provide a diminished level of service in fiscal year 2011, as compared to 2009.

Yes, the Cross County MetroLink Extension undeniably increased operating costs for the agency, but alongside this increase in fixed operating costs, net sales tax disbursements to Metro in constant dollars exhibit the following negative trends:

Net Transportation Sales Tax Disbursements to Metro in Constant (2009) Dollars
Net Transportation Sales Tax Disbursements to Metro in Constant (2009) Dollars

[I calculated the above and below charts using data from Metro’s 2009 Comprehensive Annual Financial Report and the Consumer Price Index Inflation Calculator from the U.S. Bureau of Labor Statistics website; you can review my dataset here.]


Net Proposition M Sales Tax Disbursements to Metro in Constant (2009) Dollars

Now that Proposition A is a reality, Metro will have an additional source of sales tax revenue over and above the two illustrated here. Despite the seemingly strong evidence illustrated above that sales taxes in St. Louis city and St. Louis County are not sustainable funding sources for public transportation, there are other reasons to believe that Metro will continue to face budgetary problems in the future.

The East-West Gateway Council of Governments said in its preliminary presentation on development incentives research dated Jan. 28, 2009, that:

Higher sales tax rates will suppress local sales and drive higher internet sales.

Ironically, raising sales taxes for Metro so that its commuters can “[get] to work” will necessarily reduce retail employment, further compunding the transit system’s revenue problems as fewer persons buy monthly passes.

Proposition A may very well be the clearest illustration of a “job-killing tax increase,” not only for us but for Metro as well.

Ain’t Nobody’s Business if You Do

Posted on by Christine Harbin

The Columbia Daily Tribune published an article about the opposition to SB 586, a bill on Gov. Jay Nixon’s desk that places restrictions on the erotic services industry. Although this effort is probably well-intentioned, it would have negative economic ramifications.

First, it could negatively affect 3,000 jobs statewide, according to the article. These 3,000 jobs don’t require subsidization from taxpayers, quite unlike the 600 jobs that the IBM service center has promised to create. The government should not favor certain occupations over others (i.e., computer technicians over strippers). Furthermore, these establishments provide employment for workers who are low-income and low-skilled, so restricting them would negatively affect this group. Additionally, because the bill outlaws contact between dancers and customers, such as tipping, a dancer’s income may decline.

Second, if the state government places these restrictions, the government will see a significant reduction in revenue. From the article:

[T]he Association of Club Executives […] says the note attached to this bill — $100,000 — grossly underestimates the loss in sales tax, income withholding and other costs to the state. They claim that if adult businesses are restricted as proposed, at least 60 percent of them would close, costing the state about $2.7 million in lost sales tax and $720,000 in lost state withholding taxes and would put about 1,800 people out of work.

This is another striking contrast from the aforementioned IBM service center, which will be located on tax-abated property and will therefore contribute no revenue to state coffers.

Additionally, as research analyst John Payne has previously argued, it is likely that some individuals would seek out substitutes, such as pornography and prostitution — perhaps even rape.

It would be beneficial if the government didn’t stop willing buyers and sellers from engaging in voluntary transactions in the marketplace. If a person happened to disapprove of these businesses, then he or she can choose not to patronize them and perhaps convince others to follow suit. Because this behavior does not cause physical harm to other people or their personal property, however, the government should not be involved. The scope of government should not extend to regulating the behavior of consenting adults in strip clubs, in sex stores, or in their own bedrooms.

No Radar Love in Ohio

Posted on by Martha King

The Supreme Court of Ohio ruled Wednesday that a “police officer’s unaided visual estimation of a vehicle’s speed is sufficient evidence to support a conviction for speeding in violation.”

In 2008, Mark Jenney was issued a ticket for traveling 79 mph in a 60 mph zone. At his municipal trial, the charge was revised to 70 in a 60 mph zone. Radar results were deemed inadmissible at all trial levels.

Traffic violation cases are increasingly becoming the locus of a fundamental reinterpretation of the rights of the accused, in ways that already begin to set a wider precedent for shift the burden of proof from the accuser to the accused.

Take, for example, the 2009 case of Gant Bloom in St. Louis, who fought — and won — his red-light camera ticket appeal. Representing himself, Bloom successfully argued that he could not be charged with running a red light, because the city could not prove beyond a reasonable doubt that he, rather than his girlfriend, was the driver of his BMW at the time of the incident.

The recent ruling in Ohio provides yet another reason why Missourians ought to be concerned about how traffic cases are handled, lest this nascent precedent that abrogates the rights of the accused for traffic violations be spread to other states and other areas of law.

Faith in the Free Market

Posted on by Vince Smith

A June 2 article in the St. Louis Business Journal discusses a plan to revitalize a former shopping mall and office space, as well as the former Dillard’s building and Union Pacific railroad building downtown. The plan is to convert them into multiple repurposed buildings: The Laurel, Park Pacific Apartments, The St. Louis Centre, and The One City Centre.

This initially sounds great (I am definitely in favor of a better-looking city), but after factoring in the cost of $89 million from Missouri taxpayers, the plan begins to lose its luster.

Private developers are footing the majority of the bill, but the remaining government intervention into this real estate market seems ill-advised. When an investment becomes economically viable, a private entrepreneur will usually dive in with no cost to the state. Whenever the government involves itself in a market, on the other hand, either through subsidies or special taxes, it entails some amount of dead-weight loss, but by placing some trust in reducing burdensome regulation and allowing the market to work, we can eliminate some of this wasted productivity.

If politicians had a demonstrated track record of choosing investments that paid off, there could be an argument for such targeted tax credits — but no such track record exists. If no private developer finds it worthwhile to redevelop a set of properties without receiving massive tax credits, the project is probably not an efficient way to invest our tax dollars, especially at this time when fiscal discipline is so important. The government would better serve the people of Missouri by trusting the market to do its job.

Kansas City Needs Help Collecting Taxes

Posted on by David Stokes

Yesterday’s Kansas City Star has an interesting story about tax collection problems in Kansas City. I give Councilman John Sharp credit for an honest take on the situation:

“The findings are very disturbing,” agreed Councilman John Sharp. “Until we do a better job of collecting the taxes that are owed us, we’re not really in a position to go to taxpayers and say we need to increase taxes.”

Amen to that. Taxes should be spread widely, and then collected efficiently, so they can be as low as possible for everyone. According to the article, business license fees are one of the taxes not being collected effectively, and I am confident that Kansas City’s very complicated licensing system plays a big role in that.

The city’s contract with a private, outside collection agency does not appear to be going well:

•The Revenue Division did not include performance standards or measurable outcomes in the city’s contract with a collection agency. The city in 2008 gave its collection agency $3.8 million in potential profits and earnings tax cases to pursue. But the agency collected only $151,000.

One of the advantages of property taxation over income taxation is ease of collection. Businesses close and people move out of Kansas City. I can sympathize with both the collection agency here, and the person who allegedly owes the city income taxes from a few years back who has long since moved out of Kansas City. Trying to collect that can be very hard, and I would bet that, in some cases, the money is not actually owed in the first place. But someone always owns the land, and there are simple and easily executed lien procedures for governments looking to collect back taxes on property. I am not generally inclined to root for the government, but the ease of collecting property taxes is just one more argument against the earnings tax.

Help Your Local Brick and Politician Business

Posted on by David Stokes

John Combest today links to a story out of the Mexico Ledger about the opening of a new brick factory in Mexico, Mo. There is certainly a lot of good news in the story. Who in the world complains about new factories and new jobs? I certainly don’t. But there is also something unsettling in the article — how it has become routine and accepted that private enterprises will be subject to major government involvement.

I don’t have any criticism for anything specific in the story. I don’t blame the new company for asking for aid. I don’t blame the politicians for getting involved. I’ll even admit that the deal itself (from what I can read in the story) might be a better use of taxpayer funds than many other such deals. But it is unfortunate, and bodes poorly for our economic future, that government involvement in projects like this is now so common and expected. From the article:

On Friday, Mexico City Council members unanimously approved a $1 million CDBG loan to the project that will be funded and serviced by the state’s Department of Economic Development. The loan was one of the final steps to finalizing the project.

In addition to local, state and federal grants and loans […]

The news I want to hear would report on a business that gets going without any involvement from the government. That is the man-bites-dog story that I want to read.

The Riverfront Times Nails It on Health Care

Posted on by David Stokes

The Riverfront Times gets it exactly right as to whom the recently passed health care bill will help in the short-term: the modern-day 20-something slacker. The recently passed bill contains many offensive and horrible parts, but the requirement that children be covered under their parents’ policies until they are 27 is especially so.

This one rule encompasses the worst of all worlds: an overbearing nanny state, the belief that the government has the right to dictate such rules to families and private businesses, and legislation that now makes it even easier for young people out of college to further delay adulthood.

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