Page 673 – Show-Me Institute

It’s That Time of Year Again

Posted on April 14, 2010May 5, 2026 by Christine Harbin

In a Kansas City Star article, Steve Everly reminds us that Missouri’s annual green tax holiday is coming up:

Beginning Monday, the state will offer $5.6 million in rebates to Missouri residents who buy energy-efficient clothes washers, dishwashers, furnaces, air conditioners and heat pumps.

That’s not all. The state from April 19 to 25 won’t collect its 4.225-percent sales tax on those products, plus energy-efficient refrigerators and freezers.

Contributors to Show-Me Daily have written extensively about how programs like Missouri’s green tax holiday and last year’s Cash for Clunkers program are ineffective. These are examples of government programs that provide an incentive to consumers (i.e., a rebate) to buy certain items (e.g., an appliance or a car) in an attempt to incite economic activity and change individual behavior (which will ostensibly help preserve the environment). The following is a digest of these arguments. If any Show-Me Daily readers know of additional disadvantages to these programs, please add to this post in the comments.

1. Instead of creating new economic activity, programs that offer rebates on products like appliances and cars only distort the market.

In a previous post, Charis Fischer explained that these transactions would have occurred anyway in the future, independent of a rebate in the present:

Using tax dollars to help people buy more energy-efficient machines is likely an inefficient use of funds, because purchases of these machines will become much more common within the next few years anyway, as older machines start to die. The fact that people can save money on energy costs by upgrading their appliances is already a significant incentive.

2. The intended environmental impact is negated through the construction of the program.

The subsidy incentivizes the destruction of operational appliances and the construction of new appliances to replace them. It could also be possible that having an appliance that is more fuel-efficient would encourage a person to wash more dishes and laundry than he did before. Justin Hauke posted previously that, unless each Missouri resident buys a new appliances that week, the Green Tax Holiday would have no impact on overall energy usage in the state.

3. The money that is spent in rebates could be devoted to other programs.

Caitlin Hartsell explained in an earlier post how programs like Missouri’s Green Tax Holiday and Cash for Clunkers illustrate Bastat’s broken window fallacy.

[W]hen the government uses taxpayer money to stimulate one part of the economy, this comes at the expense of those other economic sectors that will no longer benefit from some measure of either consumer spending or invested savings.

4. This cements the idea that individuals should look to the government for approval of which products and services to buy and how to behave, which should not be the role of government.

Sarah Brodsky pointed out that, by eliminating state sales tax on only those appliances that have the Energy Star designation, the government favors certain products and behaviors over others.

Getting It Right

Posted on April 13, 2010May 5, 2026 by John Payne

Yesterday, I complained that the city should not be waiving parking fees downtown on one of its busiest days of the year, but should instead raise the fees. The city is constrained, however, by the archaic technology of most of the parking meters. Well, it didn’t take long for some of my ideas to get implemented, even if it happened in a different part of the city. From the Riverfront Times:

The parking meters in Grand Center that used to shut down at 7 p.m. each night (allowing free parking to theater-goers and gallery patrons) have been dialed back to 10 p.m.
[…]
Since April 1, drivers who don’t feed the meter after 7 p.m. have been issued a warning and served with a flier alerting them to the change. The grace period ends May 1. After that, parking scofflaws will get a $10 ticket. Parking rates for the meters are 25 cents per 20 minutes.

As KSDK reporte[d] earlier this spring, Grand Center Inc. is partnering with the city in the new parking policy and will get a portion of the revenues from the meters. Grand Center Inc. wants to use that money to build a new parking garage in the district, according to the television station.
[…]
“We’re happy that some of the parking meters will allow you to park for four hours instead of 90 minutes,” says Pinmann. “That would give people enough time to see a show and stay longer.”

In January Grand Center began a $10 valet service that offers people a $5 discount if they get their ticket validated after dining at a restaurant.

Kudos to Grand Center Inc. for implementing a policy that both efficiently rations parking spaces in midtown and will allow them to improve the area. A shortage of parking spaces is not a problem that most areas in the Saint Louis region face on a regular basis, but let’s hope it becomes one — and that, when it does, area leaders will have the wisdom to charge for the spots.

Missouri: Land of Relatively Low Taxes on Beer, Wine, Spirits, Cigarettes, & Gasoline!

Posted on April 13, 2010May 5, 2026 by Christine Harbin

I used the Show-Me Institute’s newest web tool, IDEAS: Interactive Database for Economic Analysis and Synthesis, to compare the tax rates on on beer, wine, spirits, and gasoline in Missouri compared with its eight neighboring states: Arkansas, Illinois, Iowa, Kansas, Kentucky, Nebraska, Oklahoma, and Tennessee.

We see that Missouri residents enjoy lower taxes on beer, wine, spirits, cigarettes, and gasoline than those who live in neighboring states. Kentucky is the only neighboring state that has a lower tax on spirits, and it’s only 0.8 cents lower than Missouri’s. As we’ve discussed before on Show-Me Daily, this discrepancy gives non-Missouri residents an incentive to travel to Missouri to purchase these products. As a positive unintended consequence, Missouri benefits from increased tax revenue.

Note: The trend of taxation on spirits in Iowa looks wonky, and this is because Iowa’s state government directly controls the sale and distribution of distilled spirits within the state. Because they are taxed differently, it is difficult to compare spirits across states. Beginning in 2005, the graph shows an implied excise tax rate, which is calculated using a methodology that the Distilled Spirits Council of the United States (DISCUS) designed. The Iowa Alcoholic Beverages Division has an explanation on its website:

Tax on distilled spirits in Iowa is levied through a 50% mark-up on product sold through the Iowa Alcoholic Beverages Division wholesale liquor distribution system. The mark-up system was enacted with the privatization of state stores in 1987 and was originally set at 60%. The General Assembly reduced the mark-up to 50% later that year in April 1987.

I encourage our blog readers to use the IDEAS web tool to perform similar comparisons.

Legitimizing Tax Stacking a Bad Move

Posted on April 13, 2010May 5, 2026 by Caitlin Hartsell

Municipalities that employ tax stacking — levying multiple sales taxes above the state cap of 1.5 percent — may soon receive state protection. Missouri House Bill 1442 will protect municipalities, like St. Joseph and Joplin, that have already approved taxes higher than the state limit. The bill would allow them to keep any taxes already approved and would protect those cities from having to refund the relevant revenues.

Stacked taxes have been discussed at length previously here at Show-Me Daily. I agree that refunding the money that has already been acquired could be a counterproductive task. It would be difficult to redistribute previously collected sales taxes unless the affected municipalities lower sales tax rates for a specific amount of time. (Lowering the tax rate could also potentially bring in more revenue, if people take advantage of the lower rate through increased consumption. After all, raising taxes does not always increase revenue.)

At any rate, municipalities should not be allowed to keep the stacked taxes in place. The state capped municipal sales taxes at 1.5 percent for a reason: to prevent cities from raising taxes beyond a specified point. Municipalities need to find a way to use their funds more efficiently. Allowing them to keep the extra taxes without any sort of penalty sets a bad precedent for future behavior. Protecting the practice of tax stacking now only ensures that it will continue to happen in the future.

“You Keep Using That Word. I Do Not Think It Means What You Think It Means.”

Posted on April 13, 2010May 5, 2026 by Caitlin Hartsell

St. Louis Public Radio posted a piece yesterday about $54 million in stimulus funds that Missouri has received to spend on underperforming schools. One particular paragraph caught my eye (emphasis added):

The competitive bids will fund interventions into schools that are in the bottom 5 percent academically, or have graduation rates below 60 percent. But districts have to agree to one of four draconian options, including firing the principal and most of the staff, closing the school and reopening it as a charter school, closing the school and sending students elsewhere, or a model that focuses on teacher education and curriculum changes.

Last time I checked, “draconian” meant “rigorous; unusually severe or cruel.” I’m not sure I would consider “closing the school and reopening it as a charter school” or using “a model that focuses on teacher education and curriculum changes” as severe or cruel. In fact, they seem to be rather obvious solutions, especially considering these schools consistently underperform.

Show-Me Institute scholars have written extensively about charter schools, including a recent policy study highlighting the benefits of charter schools. Of the four options summarized above, charter schools provide the most promise for improvement. Although they’re not a cure-all, charter schools can inject some needed competition into the school system. Not every charter school will succeed, just as there will be public schools that do not succeed. Nevertheless, the ability to innovate — and to close failing schools — gives charter schools an advantage over traditional public schools. If a school is failing, as these are, it does not serve the children or the taxpayers to continue funding it. Schools that are not fulfilling their mission to educate their students need to be overhauled.

With this large potential influx of federal money, it would be imprudent not to require that some radical changes occur first. The four options given may seem extreme, but they are necessary to improve the schools. Keeping children in failing schools without expecting those schools to make changes that might better serve to educate them properly is the truly draconian option.

At Least They Aren’t Asking for Government Assistance (Yet?)

Posted on April 12, 2010May 5, 2026 by Christine Harbin

In an article in yesterday’s St. Louis Post-Dispatch, Bill McClellan asked his readers to “Support St. Louis’ Culinary Landmarks.” I am very supportive of people voting with their feet, and choosing to support local restaurants in favor of national chains is a great example of this. Later in the article, McClellan illustrated — probably unintentionally — why many local restaurants fail: They fail to respond to changes in the market.

I told him I’ve heard that the recession is hurting a lot of restaurants, especially the high-end places. (Al’s is high-end. My steak was $38. Jack’s veal was $35. With salads, sides and drinks, our bill was $155.)

The meal for two cost $155? No wonder there were only two other people in the restaurant!

According to the law of demand, consumers will buy more of a good when its price decreases and less of a good when its price increases. Fewer people demand a steak that’s $38 than one with a lower price.

Although a person may experience positive marginal utility when they frequent restaurants that have history and character, that value may not be enough to meet or exceed the cost of a $155 dinner for two. Furthermore, people who eat at high-end restaurants face a high opportunity cost; instead, they could pay for multiple meals at a lower-end restaurant, buy groceries and make meals for the rest of the week, or spend the money in a different way.

The demand curve for high-end restaurants in Saint Louis has shifted to the left in recent history, and this can be attributed to many reasons. Reduced patronage from businessmen is a reason that McClellan identifies in his article, and he explains that this is because Saint Louis has fewer corporate headquarters and fewer conventions than before. Additional explanations for the leftward shift in demand for high-end restaurants include: the declining population of Saint Louis, reduced levels of disposable income, and the rise of close substitutes that are less expensive (i.e., chain restaurants).

Supply and Demand for High-End Restaurant Meals in Saint Louis

As shown in the preceding graph, the leftward shift in demand places a downward pressure on the equilibrium quantity and the equilibrium price. This means that the number of high-end restaurants will be lower (i.e., some will go out of business), and it also means that the price charged by the restaurants that remain will be lower.

If a restaurant owner wants to stay in business, then he or she should be responsive to shifts in demand such as this. The restaurant owner can either exit the market, or work toward a better chance at survival by adapting — perhaps by lowering his or her prices.

Getting It Backward

Posted on April 12, 2010May 5, 2026 by John Payne

Today is the Saint Louis Cardinals’ home opener, and — like all good Saint Louisans — I am excited about the beginning of what looks to be a great season. Because Saint Louis is such a great baseball town, today will be a huge celebration downtown, which is as it should be. In an attempt to make the atmosphere even more festive, the mayor’s office declared that the parking meters near Busch Stadium will be turned off for two hours before and after the game.

Naturally, this helps those few people who are lucky enough to snag a temporarily unmetered space, but shutting off the meters is actually detrimental to everyone else involved. Parking spots are a scarce resource, and they are rarely scarcer in downtown Saint Louis than on opening day. By eliminating the fees for parking on the street, the city encourages more people to drive downtown instead of carpooling or taking mass transportation. This imposes extra costs on everyone, because travel will take longer with the extra traffic. With demand for parking skyrocketing today, the city should raise parking fees to encourage people to conserve scarce parking spaces.

Unfortunately, this solution would be extremely difficult to implement in Saint Louis for an event like opening day, because the city parking meters only allow people to pay for two hours maximum. No one is going to pay for two hours before the baseball game and then return to their car to pay for another two in the middle of the sixth inning. Until the city upgrades its parking meters, it will have to forgo the efficient allocation of parking spaces (and the concomitant revenue) during big events.

Time to Celebrate!

Posted on April 9, 2010May 5, 2026 by Charis Fischer

Today is Tax Freedom Day! That means that Americans have earned on average enough money to pay all federal, state, and local taxes for the year (Missouri’s average Tax Freedom Day was actually a few days ago, on April 4). Unfortunately, as the Show-Me Institute’s new online tool, IDEAS, shows, the tax burden on Missouri’s citizens has increased at a fairly steady rate since 1980:

This year’s Tax Freedom Day is two weeks earlier than 2007’s date, but the Tax Foundation cautions that we shouldn’t get too excited: Tax Freedom Day does not include the deficit. If Americans were required to pay for all government spending this year, they would be working until May 17 to pay all of their taxes. Unfortunately, someone will have to pay those taxes someday.

In the meantime, though, celebrate the fact that you are done working for Uncle Sam for the year.

Mizzou Students March in Support of Poverty, Unemployment, and Extreme Energy Costs

Posted on April 9, 2010May 5, 2026 by David Stokes

A group of idealistic young whippersnappers marched in Columbia to protest the campus’ use — and, by extension, the entire state’s use — of coal as an energy source. I have to wonder whether these students have any idea what the economic effects would be if Missouri, or the rest of the country, just abandoned coal use overnight.

Coal miners have it pretty tough already, but I don’t think putting tens of thousands of them out of work is going to help them or their families much. I am also willing to bet that these exact same students would be leading the protests over higher tuition if Mizzou itself (somehow) suddenly went cold turkey on coal power and started using more expensive options. Finally, I’ll rescind these comments if I find out the protesting students were advocating that Mizzou should use nuclear power instead — but somehow I doubt that anything other than thousands of windmills and solar panels would satisfy them.

Thanks to Combest for the catch.

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.