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Check Out the Show-Me Institute’s Newest Web Tool in Action!

Posted on April 9, 2010May 5, 2026 by Christine Harbin

In an article published today at Kansas Liberty, Holly Smith used Show-Me Institute’s newest web tool, IDEAS: Interactive Database for Economic Analysis and Synthesis, to analyze Kansas’ tax burden over time. Smith compares many fiscal figures for Kansas and other states in the Midwest. For example, she found that Kansas generated $104.3 from alcoholic beverages in 2007, which is more than its neighboring states. Missouri, in comparison, generated $32.26 million in 2007.

Using the IDEAS web tool, I restricted the selective tax rates on alcoholic beverages for Missouri and Kansas over time, and then exported this information to Excel to produce the following graphs:


Click graphs to enlarge.

Generally, residents of Missouri are taxed less on alcoholic beverages than residents of Kansas are taxed. Specifically, Missouri assesses lower tax rates on beer and spirits, but as of 2005, the state has higher tax rate on wine.

In an effort to encourage or to protest their economic and social situation, people tend to vote with their feet. This is why I included domestic net migration data for Kansas and Missouri in the second graph. The data show that Kansas has experienced negative net migration every year in the last decade (i.e., people are moving out of the state). Missouri experienced positive net migration during this period, except for 2008 (i.e., people are moving into the state).

Although these trends can be attributed to a combination of factors, it may be possible that the higher taxes on alcohol in Kansas influenced some marginal number of people to move out of the state, and the low taxes on alcohol in Missouri influenced people to move into the state.

I encourage our blog readers to play with the IDEAS web tool and determine to which states they would consider domestically migrating.

Should Nonprofits Pay Property Taxes?

Posted on April 8, 2010May 5, 2026 by David Stokes

The Post-Dispatch had an excellent article Monday about the city’s issues with such a sizable proportion of land in St. Louis being owned by nonprofit entities, and thereby exempt from property taxation. The article discusses in detail the phenomenon of payments in lieu of taxes (PILOTs), which you frequently find in St. Louis County but not very often in the city. (I believe the Cardinals are making PILOTs to the city school district in exchange for their Ballpark Village TIF.)

When I worked at the St. Louis County Council for Councilman (now judge) Kurt Odenwald, he chaired the council’s Revenue and Personnel Committee, which had as its primary role the study of tax exemption issues. You might be surprised to know that there is no hard-and-fast state law governing what gets to be exempt and what doesn’t. While it is obvious that a church or school is exempt, what about a nursing home that sets aside 5 percent of its rooms for charity cases? In cases like that, it is often up to the county in which the facility resides as to whether it is tax exempt. Sometimes, a promise by the applicant to make PILOTs that partially make up for the lost taxes can be an important factor in the county’s decision. I really remember this one example cited in the Post article:

Closer to home, Lutheran Senior Services, a nonprofit, gives Webster Groves $28,000 a year[.]

I remember it so well because when Lutheran Senior Services decided to make the first PILOTs to the city, school district, library district, and county, they didn’t know how to go about doing it, so they just mailed all the checks to Councilman Odenwald’s office. The next day, I had to hand-deliver all these substantial checks to various government officials — who were, not surprisingly, very happy to see me. (The process of making the payments was clarified the next year.)

A very important point in the story is found near the end:

He said cities that have an earnings tax typically don’t have PILOTs. Detroit and Pittsburgh are two exceptions.

I’ll point out that Pittsburgh depends primarily on its property — especially land — taxes, so tax exemption is particularly noticeable there. And I think that generally you always want to do the opposite of what Detroit does. Of course, St. Louis County has no earnings tax, so the PILOTs are more understandable there. (Do you ever notice that nobody ever expresses concerns about city residents who work in the county being free riders in the county? Why does it only come up as a defense of the earnings tax?)

My basic belief is that nonprofits generally receive the same services everyone else does, so I see nothing automatically wrong with them being required to pay some type of property tax. Although the Post article focuses on large nonprofits, I think it is the small nonprofits (the ones without their own security forces) that genuinely use government services like everyone else. But I would only really support these efforts if they entail broadening the property tax base so that the overall rate can be lowered — not as an excuse to raise additional taxes or fix a budget hole. Beyond that, I would only support something like it in St. Louis or Kansas City if the earnings tax is eliminated. But if that were to happen, I think requiring nonprofits to pay some type of property or land tax would be reasonable.

Just How Much State Money Will It Take?

Posted on April 8, 2010May 5, 2026 by Audrey Spalding

In an unexpected turn of events, Paul McKee, the developer behind a projected $8.1 billion development project in the city of Saint Louis, is facing the possibility of eminent domain. The Missouri Department of Transportation (MoDOT) has made offers for several NorthSide properties, and, unable to come to an agreement with the developer, has filed suit. A map of the properties in question is included below.

Map by Audrey Spalding.

When I spoke with Drew Gates, a spokesperson for MoDOT, he emphasized that McKee and MoDOT could likely reach an agreement, and that negations for the properties were ongoing. The suit, he said, is simply the first step of the paperwork process that MoDOT has to follow.

I have to wonder why McKee is digging in his heels in these price negotiations. After all, the state has already paid in part for these properties — and not an insignificant amount.

In late December 2009, the state of Missouri awarded NorthSide Regeneration LLC $19.6 million in tax credits under the Distressed Areas Land Assemblage Tax Credit Act. The act, the purported purpose of which is to encourage development, grants developers who purchase a large of area of land up to 50 percent of the land acquisition costs and 100 percent of the interest costs. The state’s definition of acquisition cost includes the purchase price of the land, closing and brokerage costs, and costs for environmental assessment, demolition, and maintenance.

In its DALA tax credit application, NorthSide submitted a list of properties eligible for the tax credit, along with the associated reimbursable costs (the linked document includes purchase price and interest costs, but not demolition, maintenance, brokerage, etc.). So, I checked the properties named in the MoDOT suit against the properties NorthSide claimed as eligible for partial reimbursement.

As far as I can tell, every property that MoDOT is trying to purchase was claimed for the DALA tax credit.*

Because the state awarded NorthSide the $19.6 million as a sum, instead of calculating the credit per individual property, it’s impossible to ascertain exactly how much the state has already paid for each of these properties. But the state did pay, and a good estimate for the amount paid for each individual property would be at least 50 percent of the price NorthSide claimed on its DALA tax credit application.**

When I spoke to Philip Morgan Jr., the attorney for MoDOT in this suit, he seemed to have no idea that the state had awarded tax credits for these properties. Gates, when asked whether these tax credits were a factor in the price negotiation process, paused, and said the negotiations were “based on the value of the property.”

Gates would not disclose how much MoDOT has offered for the properties. But if MoDOT and NorthSide do come to an agreement, it will be interesting to compare the price MoDOT paid to what NorthSide listed as the property purchase prices in its tax credit application. The costs NorthSide reported are as follows:

1101 O’Fallon St. — $537,000

1401 N. 11th St. — $537,000

1443 N. 10th St. — $537,000

1401 Hadley St. — $212,500

1201 Cass Ave. — $145,000

1525 N. 10th St. — $230,000

1600 and 1616 N. 11th St., 1601 and 1617 N. 10th St., and 1000 Howard St. — $135,000 (total)

1400 N. 13th St. — $537,000 (not pictured)

I am not aware whether this is a violation of the tax credit statute. However, it seems as though the state will be paying for these properties more than once.

* You can download a spreadsheet of the NorthSide properties in question here. I was unable to locate a property with parcel number 05760000308 on either Geo St. Louis or within the city assessor’s property database. Given the parcel number, which is only slightly different from that of 1401 Hadley (05760000300), I suspect the parcels are located at the same address.

** The state awarded just slightly more than 80 percent of the total amount that NorthSide requested. Given that acquisition costs other than the purchase price of a property, not to mention interest fees, can add up to a significant amount, estimating the state’s payout per property at 50 percent of the reported price seems reasonable.

Missouri and the Show-Me Institute Featured in Rich States Poor States

Posted on April 8, 2010May 5, 2026 by Christine Harbin

Dr. Arthur B. Laffer, Stephen Moore, and Jonathan Williams recently published the third edition of Rich States Poor States: ALEC-Laffer State Economic Competitiveness Index. In this edition, they devoted an entire chapter to a case study on Missouri, “The Missouri Compromise” (PDF), in which they applaud the effort to eliminate state income taxes. From the publication:

As unlikely as it may seem, this middle-aged, middle-income, Midwestern state is pushing the envelope on its way toward fundamental tax reform. […]

[A]lthough Missouri’s revenue replacement could prove difficult politically, the benefits from reform could be enormous if the process is administered well and the constitutional amendment is carefully crafted.

In their discussion, the authors cite Prof. Joseph Haslag and Abhi Sivasailam’s recent Show-Me Institute policy study, “Previous Estimates Overstate ‘Fair Tax’ Rates, Harms,” in the appendix.

Laffer, et al., also include a comparison of Missouri and Tennessee, and they provide evidence that Missouri would experience additional growth if it eliminated its personal income tax. From chapter 2:

During the past 10 years, if Missouri had just caught up with the average of the states with no income tax, the average Missouri resident’s income would be more than $12,000 higher. That is amazing. Taxes really do matter. […]

The evidence is clear: States without an income tax outperform in every conceivable fashion than their higher-taxed brethren and have more tax revenues.

Given the data at hand, it is hard to imagine any more conclusive results from a cross-section time series of states that could be obtained in favor of Missouri’s tax proposal. Like many states in our current economic climate, Missouri needs help, and from the looks of it, a switch from onerous income taxes to broad-based sales taxes is exactly what the doctor ordered.

This echoes what Jenifer Roland and Dave Roland concluded in their 2009 policy study for the Show-Me Institute, “All Caught Up: How Tax Policy May Have Allowed Tennessee to Outgrow Missouri.”

The state snapshot for Missouri contains some good news and bad news. In 2008, Missouri’s personal income per capita cumulative growth is higher than the national average, but the state experienced negative net migration for the first time in a decade. This indicates that, when voting with their feet, people are choosing to locate outside of Missouri. On the 2010 ALEC-Laffer State Competitiveness Index, where 1 is the best and 50 is the worst, Missouri has an economic performance rank of 35 and an economic outlook rank of 15.

Saint Louis: Home of the World’s Largest Laffer Curve

Posted on April 8, 2010May 5, 2026 by Christine Harbin

Finally, one attribute for which Missouri is probably most famous is its Gateway Arch in St. Louis. Admittedly, we have a special fondness for this architectural wonder: It’s the world’s largest Laffer Curve!

I hadn’t noticed it before, but it’s true!

Illustration by Christine Harbin. Photo source: Wikipedia.

A Time to Sue

Posted on April 8, 2010May 5, 2026 by Dave Roland

It is no secret that I believe Congress has no constitutional authority to mandate that citizens purchase a product they do not want. But people who are eager to see this portion of the federal health care reform law struck down would be very wise to put the brakes on the current wave of litigation.

You see, it is a bedrock principle of American law that federal courts cannot offer “advisory opinions.” In order for a federal court to resolve a legal issue, the person or organization presenting that issue to the court must demonstrate that they have suffered, are suffering, or are in immediate danger of suffering some injury. If the complainant can’t show how they are being harmed, the court rules that there is no current “case or controversy” existing between the parties and the case gets thrown out.

In the weeks since Congress adopted the new health care reform law, state officials all over the country have been trumpeting their intent to challenge the law’s constitutionality. Attorneys general, governors, and lieutenant governors in 15 (or more) states have already joined or have pledged to join federal lawsuits intended to strike down the individual health insurance mandate. But there are two big, big problems.

First, the individual mandate is not scheduled to go into effect until 2014. In other words, no one will be required to comply with the mandate for another four years. And, until someone is bound by this requirement, it will be virtually impossible to persuade a court that anyone has been sufficiently harmed by this law to create the “case or controversy” necessary for the court to address the merits of the claim. The second problem is that federal courts do not generally allow one person to assert a claim based on injury suffered by someone else (although there are a few limited exceptions to this rule). Although these state officials could file lawsuits on their own behalves, if they did not have compliant health insurance policies, it is much tougher for them to suggest persuasively that these officials have any basis for asserting the rights of individual citizens, independent of any private citizen asserting a claim against the federal law. The state officials’ claims might have a bit more substance in states that have passed a statute or constitutional amendment limiting governmental authority to interfere with citizens’ decisions regarding health insurance, but it is still a tenuous legal position unless the state is intervening on behalf of a private citizen’s lawsuit.

So, in all likelihood, these impassioned crusades to knock down the health insurance mandate will prove to be utterly worthless until the targeted provision actually takes effect. And, in the meantime, those in support of the mandate will point to the failure of these lawsuits as proof of both the mandate’s constitutionality and the general wrongheadedness of those who oppose the mandate. My advice to these well-intentioned officials is to withdraw their lawsuits for the time being, and for the next four years focus instead on addressing the mandate through the legislative process. If the mandate remains in place after the elections of 2010 and 2012 pass by, then will be the appropriate time to take this issue to the courts.

Health Care Reform Another Step in Decline of Our Economic Freedom

Posted on April 8, 2010May 5, 2026 by Rik W. Hafer

The passage and signing of the president’s massive health care reform legislation are the latest chapters in the socialization of the economy. No, this will not be a “tea party” rant about how such a change spells doom for our culture as we know it. But there are growing signs that our leftward lurch to a world of a bigger, more activist government may not in our best long-term interests.

Not a week after the health care bill’s passage, the Congressional Budget Office announced that Social Security would reach an ominous milestone: This year, Social Security will pay out more in benefits than it takes in from payroll taxes. Originally predicted to occur in 2016, the economic events of the past several years have hastened the crossing of this accounting Rubicon.

What does this imply? For one, the fund’s deficit will increase faster and be much greater than earlier projections. A few years ago, the CBO projected that the fund would run a deficit of about $50 billion in 2019. The new numbers push that estimate closer to $60 billion. The bottom line is that unless revenues are increased or payments are cut, Social Security will become insolvent earlier than the 2037 projection made several years ago. And, given the demographic characteristics of the population, that day is more likely to come even sooner.

What does Social Security have to do with health care? When we see that Social Security will become a larger budget burden in the future, it presages what we can expect from the move to socialize medicine in the United States. The problems arise from the fact that those who pass such legislation do not have the time horizon required to plan for long-term consequences.

In its rush to pass the first national medical plan Medicare and its companion Medicaid Congress sought the kind of political deals that get legislation passed but may ignore long-term economic consequences. Witness the financing difficulties that these programs face today. Some have argued that it is because of these programs that the delivery of health care has become so expensive: If the government is paying for it, why not run redundant tests?

How many times in the recent health care debate was it mentioned that failure to pass the bill (and vice versa) would have dire consequences for this fall’s election? If your time horizon is two years, should we expect someone to worry about consequences that may take decades to happen?

For those who believe that increased government involvement in their lives is a good thing, look to Great Britain. The government accounts for more than 50 percent of the economy’s gross domestic product. The economic crisis of the last few years has exposed the weaknesses of its extensive welfare system. Recipients of government services and those who administer them see no reason that services should be cut or taxes raised. As reported by the New York Times, Britain’s Chancellor of the Exchequer Alistair Darling said that “cuts in [government] spending would be wrong and dangerous.” Union leaders have averred that they will accept no cuts in pay. How, then, will increased deficits and a burgeoning government debt be financed? With weak economic recovery a likely scenario, it must be through higher taxes.

The United States is not Great Britain. Unfortunately, it does not appear that we are learning from their mistakes.

The shift to increasing the government’s presence in our daily lives seems inexorable. What makes this questionable is the revealed ineptitude of those who “run the business.” In good times, politicians spend money to curry political favor without due regard to potential risks. The multiple news stories depicting the plight of local school districts and state university systems facing shortfalls in state appropriations should give pause before we eagerly assign additional duties to the state.

The United States has long enjoyed a broad-based commonality with the British. Too bad that this will now extend to a decline in our economic freedom.

Rik W. Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.

Mr. Payne Goes to Jefferson City

Posted on April 7, 2010May 5, 2026 by John Payne

Last Wednesday, I traveled to Jefferson City in the hopes of testifying about payday lending before the House Committee on Financial Institutions. That didn’t happen, because the session on payday lending became a purely informational presentation by representatives of the industry, with no outside witnesses testifying. (We still have a couple very interesting projects on the subject that should be forthcoming shortly, however.) Still, this was my first trip to the capitol to see Missouri’s democracy in action (so to speak), and I found it extremely interesting.

No, wait … not interesting. What’s that other word? Oh yeah: tedious. I spent three hours in a hearing room with most of the time taken up by an abstruse discussion of appraiser regulation. The only people in the room who seemed to be actually animated by the subject were the interested appraisers and representatives of appraisal management companies. Most of the representatives seemed to idle the time away browsing the Internet on their laptops and phones. The rest sat there, supporting their heads with their hands and wearing the painfully bored looks of people firmly convinced they are meant for something better in life than this.

Even for all the hearing’s spectacular boredom, however, I did learn a thing or two. First, appraisal regulation is a subject far more complicated than anyone should ever want to know. The big change under discussion that night was the move to a greater reliance on appraisal management companies (AMCs) over the old-fashioned kind of appraisers. This shift has been ongoing for some time but received a big boost when the Home Valuation Code of Conduct (HVCC) essentially became the law of the land. I will spare you most of the further details (if you really must know, I recommend this article) except to say that although it does appear the HVCC is kind of a disaster, the new bill being used to rectify the problems looks like it just benefits the appraisers at the expense of AMCs and consumers.

Now, I fully admit that I am no expert in the field, but when every appraiser testifying for the bill complains that AMCs do less expensive work than appraisers, it sets off my Rent-Seeking Alarm. It sure seems to me that the appraisers are using the problems in the HVCC as a way to limit their competition and raise rates. But I could be wrong. Given the massive complexity of the regulatory code surrounding appraisals, it probably isn’t possible to know how the bill would change the system ex ante, and this presents a massive problem for regulators.

Writing about Democratic members of Congress who did not understand how tax changes in the health care bill would affect large companies, Glenn Reynolds describes this same problem:

The United States Code — containing federal statutory law — is more than 50,000 pages long and comprises 40 volumes. The Code of Federal Regulations, which indexes administrative rules, is 161,117pages long and composes226volumes.

No one on Earth understands them all, and the potential interaction among all the different rules would choke a supercomputer. This means, of course, that when Congress changes the law, it not only can’t be aware of all the real-world complications it’s producing, it can’t even understand the legal and regulatory implications of what it’s doing.

There’s good news and bad news in that. The bad news is obvious: We’re governed not just by people who do screw up constantly, but by people who can’t help but screw up constantly. So long as the government is this large and overweening, no amount of effort at securing smarter people or “better” rules will do any good: Incompetence is built into the system.

The good news is less obvious, but just as important: While we rightly fear a too-powerful government, this regulatory knowledge problem will ensure plenty of public stumbles and embarrassments, helping to remind people that those who seek to rule us really don’t know what they’re doing.

And that’s assuming the legislators actually take the time to try and understand the legislation. What’s more likely is what I witnessed last Wednesday: disinterested representatives killing time until the end of the session by checking their email and text messages. If a regulation is so complex that the regulators can’t even be bothered to understand it, it is likely to be ineffectual at best and counterproductive at worst. In regulation, less is often more.

Will Payday Loan Regulations Kill the Market?

Posted on April 7, 2010May 5, 2026 by Abhi Sivasailam

The Springfield News-Leader today features a good op-ed about current plans for regulating Missouri’s payday loan industry.

Good bit:

The FDIC found that payday loan fees were justified by the costs and risks associated with offering such loans. The FDIC also found competitive products like bounced checks carrying APRs of up to 3,500 percent.That APR calculation – designed to compare competing, long-term forms of credit – is why a 36 percent APR cap, as proposed in current Missouri legislation, would ban short- term loans in the state.

If imposed, a 36 percent rate cap would mean lenders could only charge about $1.38 per $100 borrowed. At such a low rate, lenders simply can’t cover their costs – such as rent, employee salaries and benefits.

As I’ve written before, I’m opposed to payday loan regulation because:

I view payday loan transactions as legitimate, consensual business interactions between relatively rational actors.

The empirical evidence suggests that payday loans constitute a useful service. I look, for example, to Donald Morgan and Michael Strain, who show that increased access to payday loans reduces the volume of bounced checks. I also look to Edward Lawrence and Gregory Elliehausen, who find that payday loans “satisfy a real financial need within a certain segment of the population.” As I cite these authors, I’m fully willing to concede that there is literature out there that disagrees with their claims. The reading list I composed earlier lists some of those papers. In a future blog post, I will attempt a more detailed comparison of the methodologies employed in the different studies.

If payday loans are useful, then limiting or eliminating the payday loan market will drive consumers to underground or black markets. This is not favorable, for reasons that should be self-evident.

I think the most legitimate critique of payday loans is that it disadvantages the politically weak who have, for example, little access to legal recourse. If that’s the case, the better solution would be to reform the political/legal apparatus, rather than the payday loan market. Opponents can argue that this is less feasible, and they would be correct, but if the market is driven underground, then these people would have no legal recourse anyway.

My main concern now is the third. Those who seek to regulate payday loans toe a narrow line between tempering the market and hobbling it. Unfortunately, it looks as though the proposed reforms are poised to do the latter.

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