Page 679 – Show-Me Institute

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.

What Does the Patient Protection Act Do to the Average Missourian Today?

Posted on April 9, 2010May 5, 2026 by Stephen Feman

As we are all aware, President Barack Obama signed the Patient Protection and Affordable Care Act on March 23 (P.L.111-148). It is far-reaching, and will influence many parts of our lives for many years. The concern of this report, however, is what it will do to you today. When examined from the perspective of a single individual, its biggest immediate effect will be the requirement that every U.S. citizen and legal resident have qualifying health care insurance coverage. The new law indicates that those without coverage will have to pay a penalty. This penalty will start to take effect in 2014, and be phased in over a two-year interval. By 2016, the penalty will be the greater of $695 per year per person, up to a maximum of three times that amount ($2,085) per year per family, or 2.5 percent of a family’s household income. That is, those with an income of $27,800 per year or more will be fined an amount equal to 2.5 percent of what they report as income to the Internal Revenue Service. In addition, starting in 2016 this penalty will be increased annually by a cost-of-living adjustment.

Interestingly, exemptions will be granted for some very specific cases. The most common ones are financial hardship, religious objections, and those without coverage for less than three months. The exact level of financial hardship is spelled out in the law quite succinctly; the only people who qualify are those with incomes below the tax filing threshold (in 2009, the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).

The other side of the situation is that if you have employer-sponsored health care insurance, or pay for your own insurance, you can keep your current policy. However, the new law requires a higher minimal standard of benefits for all participants. As a result, it is expected that by 2016 all policies will cost 10 to 13 percent more than the expected future cost of a current policy extended to that year. Countering that expense will be a potential tax credit by which a family of four that has an income of less than $88,000 will receive tax credits to help pay insurance premiums and deductibles. At the same time, people at the other end of the economic spectrum will be given a new burden. Those families that report an income of more than $250,000 per year will have to pay more in the form of a Medicare payroll tax; their unearned income will be subject to an additional 3.8-percent tax.

As you know, in the past some of my colleagues advised individuals and small businesses to purchase health savings accounts (HSAs). The new law will have an immediate effect on people that took that advice. It will exclude a currently accepted practice, in which the costs of over-the-counter drugs not prescribed by a doctor were reimbursed on a tax-free basis. The law will increase the penalties for inappropriate distributions from HSAs, also; that is, for withdrawals that are not used for qualified medical expenses. But, to the best of my knowledge, none of my friends were using their HSAs for unqualified expenses.

So, what does this mean to the people of Missouri today? At this specific point in time, very little seems to be happening that has a direct immediate impact on most readers of this blog. The fines and penalties that might become associated with an independent attitude won’t kick in for another few years. But a lot more will happen in other aspects of the health care arena by that time. They say that the true art and science of economics involves an understanding of the changes that occur at the margin, and we need to look at all the little bitty changes, one at a time, to see how they fit. So far, and from this single perspective, these marginal changes are quite minimal. But this is just the beginning. Going through the health care bill section by section during the next few weeks will give us a better idea of what it is really all about.

Scholarship Cuts for Private University Students Favor Institutions, not Students

Posted on April 9, 2010May 5, 2026 by Abhi Sivasailam

Meanwhile, the General Assembly, through House Bill 1812 and Senate Bill 784, is focused on reform of the Access Missouri grant. Currently, Access Missouri is structured to award a maximum of $1,000 in aid to students enrolled in two-year Missouri public schools, $2,150 to students at four-year public schools, and $4,600 for students attending Missouri's private colleges and universities. The bills in consideration would equalize these aid amounts to a maximum of $2,850 for all students, across all participating schools.

Choking the channels of aid to private school students while continuing to lavish aid on public school students only exacerbates the inequality and inefficiency that is characteristic of how the state currently supports its students. The current level of funds that the state awards to public school students already dwarfs the pool of funds directed toward private school students. In 2009, the General Assembly appropriated roughly $808 billion for four-year public higher education institutions. This amounts to an average per-student subsidy of approximately $7,280.

On top of this, qualifying public school students enjoyed an additional $56 million of publicly funded scholarships. Meanwhile, private school students received no per-student subsidies and shared a slightly smaller total of $52 million in public scholarship funds. Those who argue in favor of equalizing Access Missouri funds are misguided when they consider only Access Missouri and ignore the state's larger funding apparatus. Put simply, moving toward greater equality in Access Missouri is also a move toward greater inequality in total state support. There is, and always has been, a large disparity of public aid distributed between public and private students. Both reform proposals increase the size of this wedge. It is imperative, then, to consider whether this wedge is justified.

In 2008, Missouri's Coordinating Board for Higher Education adopted a set of basic values to guide higher education policy in the state. First among the list of values, the board recognized that the system is focused on students, learning, and each individual's realization of his or her full educational potential. The proposed reforms to higher education funding fail to do this vision justice.

First, the reforms do not support the full realization of student potential because they fail to honor the individual interests, skills, and needs of Missouri's diverse student population. For example, no public institutions in Missouri offer a complete architectural studies program, so students with an interest in architecture must turn to private institutions. On the margin, students unable to finance a private school education without assistance will necessarily settle for public-institution programs to which they are comparatively less suited.

Second, the proposed reforms pervert the vision of a higher education funding apparatus as centered on students. Instead, the reforms elevate the importance of institutions and suggest that students who attend public institutions are somehow more deserving of the taxpayer dime than students attending private colleges and universities. This is especially disturbing when considering that students attending private institutions contribute along with their parents funds to the pool of tax dollars that finance Missouri's support for higher education. The reform bills in the legislature would only serve to more unevenly distribute the resources of this pool. Meanwhile, Nixon's proposal would restrict private students access to the pool entirely.

The governor has said, In times like these, we simply can't continue to subsidize the choice to attend a private school.â€ This seems to suggest that the institutional choices that students make should be more relevant to the amount of aid they receive than their income, ability, or interest. This view fails to recognize that it is precisely in times like these that Missouri cannot afford to abandon its principles, or its investments in higher education students regardless of the institutions they choose.

Abhi Sivasailam is an intern with the Show-Me Institute and an economics student at the University of Missouri Columbia.

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.