“Should Five Per Cent Appear Too Small, Be Thankful I Don’t Take It All”

Posted on by Christine Harbin

Last week, I wrote about how Missouri residents enjoy relatively low taxes on alcoholic beverages, cigarettes, and gasoline. Friday, on Prime Buzz, Steve Kraske enumerated reasons why these taxes are so low in Missouri, and why the state is unlikely to raise them in the future. Additionally, he explains that Missouri’s low taxes act as an incentive for its border states to keep their taxes low as well:

That Missouri is so reluctant to raise taxes puts added anti-tax pressure on Kansas. Convenience stores in Wyandotte and Johnson counties fear losing even more business to Missouri stores if Kansas boosts the tax again.

When you tax something, you get less of it, after all. When a state increases the tax rate on goods like alcoholic beverages, cigarettes, and gasoline, individuals will consume less of them. After a certain point, the total tax revenue generated from these products is reduced, as well.

By keeping its tax rate low relative to its neighboring states, Missouri can maximize the amount of revenue that it generates. This would help ensure that not only Missouri residents shop in-state, but that individuals located near the border in neighboring states will also shop here.

Tax increases are not cost-free for states. In addition to the cost of reduced sales tax revenue, they have a cost in terms of lost competitiveness. Fewer people and businesses will locate to high-tax states because the costs of living and doing business are higher.

“The County Will Help Bridgeton Find a Better Deal.”

Posted on by Christine Harbin

According to an article in the St. Louis Post Dispatch from Friday, St. Louis County Executive Charlie Dooley encourages the municipality of Bridgeton to reject TIF for Walmart. I commend St. Louis County for exercising fiscal restraint; for reasons that David Stokes explains in a 2008 editorial, it’s preferable that counties, not cities, allocate TIFs.

However, the following statement in the article concerns me:

[Garry Earls, Dooley’s chief of staff and chief operating officer of the county,] pledged “the county will help Bridgeton find a better deal.”

The government should not be in the business of “finding a better deal” or picking economic winners and losers. The free market does this fairly and more efficiently — and at zero cost to taxpayers. Instead of getting involved, local and county governments should allow development to happen naturally in an unrestricted market. Having general low-tax and pro-business policies is the most efficient way to attract businesses to an area and incite economic growth. Developments that use TIF are not guaranteed success, and those that are successful may have been successful independently.

If there is a sufficient level of consumer demand for the new Walmart, then the company will decide to move to the location independent of government assistance. If there is not enough demand in the area, then Walmart will decide to move elsewhere, and local governments would not have to forfeit revenues in the short term to pay for the project.

In Their Defense, Kids Do Love Explosions

Posted on by John Payne

From the Columbia Daily Tribune:

A recent demonstration by the Missouri State Highway Patrol SWAT team had students ducking for cover and later upset at least one parent.

On April 8, about 27 students — mostly high school juniors and seniors — were taking part in a Student Alliance Program course in the highway patrol hangar at the Jefferson City airport. As part of a demonstration by Troop F, a SWAT officer rolled a “flashbang” grenade under the seats of the students without their knowledge.

The grenade, a non-lethal weapon used to stun or divert the attention of criminals when tactical teams enter a building, went off, emitting a loud noise, a burst of light and smoke.

Thankfully, no one was seriously injured, but if police officers have become so desensitized to flashbangs that this can be considered normal behavior, the SWAT team is raiding far too many houses.

Via Radley Balko.

“That’s Right, and Who Might You Be?”

Posted on by David Stokes

In yesterday’s “Political Eye” column in the St. Louis American, the author welcomed the Show-Me Institute to the city of St. Louis:

A recent email sent to drive traffic to Slay’s campaign site with one of its inane polls referred blithely to “your tea party friends.” Slay’s team seems to want to send the message that government-hating right wingers are welcome here. No wonder the Show-Me Institute set up shop in the city.

There is, of course, only one legitimate reply to this, and, not surprisingly, it was said by Homer Simpson. From the fourth season, episode 14 — you’ll find the video here. The line comes at about the 0:48 mark. Definitely one of the best lines in one of the single best episodes of the best TV series ever.

Thanks to St. Louis’ own Bart Simpson for the article link.

Overall Tax Burdens and the Good Thing About Missouri’s Personal Property Tax

Posted on by David Stokes

Megan McArdle over at The Atlantic is one of my favorite economic bloggers. She has a very good post up today about the debate over the fact that quite a large number of Americans essentially pay no income taxes. The piece does a great job of considering all sides of the issue, and I fully agree with this key point she makes:

I think the real problem with the current setup is the political economy of it.  A very large percentage of our electorate has nothing at stake when they vote for new spending.  Since that spending imposes real costs on other people, and the economy at large, this is a problem.  We don’t want to end up in a situation where 65% of the population is systematically voting to take the stuff possessed by the other 35%.

Which leads me to property taxation in Missouri. Exactly in line with what McArdle writes on income taxes, the Lincoln Institute of Land Policy wrote in a study about property tax circuit breakers (which are targeted relief laws) that circuit breakers should not eliminate the entire property tax burden:

Circuit breakers can lead to overspending by local governments, because some taxpayers will vote for additional public services knowing that higher property taxes will be entirely offset by circuit breaker benefits.

Missouri has a circuit breaker, as well as another property tax relief program called the Homestead Preservation Act. But, aside from real estate taxes, Missouri also taxes personal property — which brings me to my main point. Although there might be legitimate arguments against personal property taxes (such as the double-tax issue; buying a car also entails a substantial sales tax), the main thing I like about the personal property tax is that, for many people, it gives them the necessary “skin in the game.”

This might seem silly to like a tax just because more people pay it, and perhaps it is. However, if roughly half of Americans pay no income tax, than we can assume roughly half of Missourians pay no state income tax (although, as I said earlier, it probably totals a little less than half). Certainly some of that portion own homes, but for most people even those taxes are partially hidden in monthly mortgage payments — or hidden to an even greater extent in rent payments. We all know that sales taxes are paid in bits and pieces, except when you buy very large items. But the large majority of Missourians own cars or trucks, and — unlike with real estate — you owe a tax on your car even if the bank that loaned you the money still has the title.

I really think that there is a significant number of Missourians for whom the only time they make a tax payment of any substance at all (automobile property taxes likely average around $200) is when they pay their personal property tax. Hopefully, everyone who makes this payment — which is not due on April 15 but Dec. 31 every year — they take a moment to think about tax rates and government services, and contemplate whether they believe they get what they pay for. If this tax gets a large number of Missourians to realize that they are taxing themselves when they vote on tax increases, rather than just taxing other people, the structure of this particular tax may have a beneficial silver lining.

Post-Dispatch Prefers Broken Legs Over Court Dates!

Posted on by Caitlin Hartsell

The editorial board for the St. Louis Post-Dispatch recently published a piece denouncing politicians who support payday loans. The editorial is filled with rhetoric, but doesn’t contain much economic analysis or critique of the bill’s actual provisions. I’d like to expand on the discussion here.

From the editorial:

The big losers are the vulnerable Missourians who are being ripped off with impunity by payday lenders. Republicans have let the public down. Gov. Jay Nixon, a Democrat, hasn’t been much help either.

The highly charged language of this paragraph ignores that payday loans are consensual agreements made by individuals. Payday loan customers are not forced to take these loans, but rather take them out voluntarily for any number of personal reasons.

People who apply for payday loans usually have a high risk of default, or need money immediately — otherwise, a bank would be willing and able to offer a longer-term loan at a much lower interest rate. When payday loan stores lend out money, they have to take into account the risk of that loan remaining unpaid. Because these loans are made to people who are less likely to pay them back, that higher risk is counterbalanced by a higher interest rate. If rates are lowered by force of law, many higher-risk borrowers will find themselves entirely without access to legitimate forms of credit.

(For those who read Show-Me Daily often, you know that payday loans have been a regular discussion topic for the past two years. The previous posts are well worth reading.)

The Post-Dispatch also includes an AP photo of a group of payday loan stores, which well illustrates the abundance of stores in the market. This image illustrates an important free-market principle: competition. The close proximity of the stores means that payday loan lenders need to compete for customers. If one store is charging a higher rate than warranted by customer risk factors, accounting for an individual’s ability to pay back the loan, then another lender will be willing to undercut their competitor by offering that loan at a lower rate (an ongoing process, until the “market rate” is reached). Any worry about people being “ripped off” should be abated when one factors in the idea of marketplace competition: Each store sets rates to vie for customers while balancing the risk of repayment.

The Post-Dispatch ignores the fact that some people who really need loans cannot always get those loans from a bank, but that the necessity of the money immediately outweighs the longer-term potential cost of a payday loan. Setting any sort of regulations on payday loan operations means that some people will not be able to get loans legally. That does not mean they won’t get loans at all, but they will have to use underground or black market means to obtain them. This puts high-risk borrowers in an even worse situation, because if someone can’t pay back a payday loan or a bank loan, there are legal methods to handle the situation, like bankruptcy. If someone doesn’t pay back a loan, on the other hand, the lender has little recourse other than black market violence.

Deciding to increase payday loan regulations amounts to misguided paternalism. People at the margin will still take out loans they cannot afford to pay back — but that will happen whether they get them from a payday lender or, as the present mortgage crisis has shown us, from a traditional bank. In an attempt to save consumers from themselves, such loan regulations push desperate borrowers to illegal sources. Payday loan rates should be left to market competition, not government officials.

The Possibilites and Limitations of Educational Alternatives

Posted on by John Payne

Last week, I wrote that we needed many more options in education than the traditional public school. In his latest column, Steve Chapman echoes that sentiment but cautions that no single alternative is likely to bring revolutionary change. For instance, Chapman looks at the lackluster results from the voucher program in Milwaukee:

In 1990, in one of the most innovative developments in modern American education, the Milwaukee public schools created a parental choice system. Some low-income parents got vouchers that could be used to send their children to private schools.

It was a richly promising idea. The new option would let disadvantaged kids escape wretched public schools. Competition would force public schools to improve or close. Students would learn more.

Twenty years have passed. Last week, researchers at the School Choice Demonstration Project at the University of Arkansas published their latest assessment of the results.

What did they find? Something unexpected: Kids in the program do no better than everyone else. “At this point,” said professor Patrick J. Wolf, “the voucher students are showing average rates of achievement gain similar to their public school peers.”

Although I agree with Chapman’s main point, I think he is too critical here.  Voucher students score basically the same as public school students, but the graduation rate for students receiving vouchers is 77% to 65% for students without the voucher, which is hardly insignificant. Even more striking, especially in such a lean fiscal year, voucher students attain the same level of education as their public school peers for less than half the cost — $6,400 a year for voucher students against $14,000 for public school students. In other words, the private schools are doing the same job with half the resources. Cutting costs without substantially improving educational outcomes is not worthy of a standing ovation, but it at least deserves mild applause. The same point can be made about charter schools.

That said, Chapman’s conclusion is incredibly wise:

What should we learn from these experiences? Not that nothing works, but that few if any remedies work consistently in different places with different populations. We shouldn’t expect that broad, one-size-fits-all changes imposed by the federal government—such as those offered by the Obama administration—will pay off in student performance.

From the local school district to the federal Department of Education, humility, caution, and open-mindedness are in order. Because right now, the main thing we know about improving schools is that we don’t know very much.

This is why changes in the educational system should come from the bottom up. Students, parents, and individual schools and districts should be encouraged to experiment and imitate those experiments that work. Grandiose nationwide (and even statewide) plans, on the other hand, have a tendency to ignore local and individual particulars. Ignoring those particulars all too often leads to general failure.

It’s That Time of Year Again

Posted on 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 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.

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