All Census, All the Time

Posted on by Sarah Brodsky

I learned from the Census Bureau’s advertising launch today that the bureau will be the top advertiser in the United States during the next few weeks. Agency officials intend to bombard the average person with pro-census messages 42 times.

The gargantuan campaign won’t end when the census forms are released. According to the Census Project’s website, some meteorologists will be reporting local census response rates along with high temperatures and the chance of rain.

Why the sudden onslaught of publicity for something that the country has always done every 10 years? The bureau is touting its campaign as “unprecedented,” as though this year’s census were different from previous counts and required a radically new approach. I noticed that sentiment in today’s advertising kickoff, particularly when MTV Networks’ executive vice president of public affairs stated that people should participate in the 2010 Census because it will be “the most important count of their lifetimes.” This characterization is puzzling given that we’re going to conduct another census a decade from now.

One thing that I’ll admit sets this census apart is its timing: As the economy slowly pulls out of a deep recession, any large enterprise that generates employment is welcome. Still, it would be unwise to expect the census to have a big effect on the economy, even through its biggest campaign ever. I agree with MyTwoCensus.com’s prediction that the Census Bureau’s hiring won’t spur economic growth because the jobs last only six weeks. Fortunately, no one is lobbying for continuous recounts to make those jobs permanent, the way fans of tax breaks for filmmakers would like Missouri to grant tax credit after tax credit, year round.

Show-Me Institute in the Media, and Dr. Haslag on With McGraw Tomorrow

Posted on by David Stokes

We have had a rather busy week or so in the media. More important than the past, though, is the future — so everyone in St. Louis please listen in tomorrow morning during the 10 a.m. hour, when Professor Joe Haslag will be appearing with McGraw Millhaven on the Big 550, KTRS, to discuss income and earnings taxes.

Also, I appeared last night on KMOV Channel 4 in St. Louis to talk about the Show-Me Institute’s several state income tax studies that were conducted by others here. (Why did I do the interview if others did the work? Because I was the only one available at that exact time, that’s why.)

There have also been a number of stories about the earnings tax in the Kansas City Star. In the interest of brevity, I’ll just link to the one column in the Star that favorably discusses the idea of replacing the earnings tax with a land tax. Another piece takes a less glowing approach, but we appreciate the Star taking the debate seriously.

Dave Roland was quoted in the St. Louis Post-Dispatch with his thoughts about the government spending millions to retrain St. Louis auto workers for the anticipated green jobs of the future. You can probably guess how he felt about the insane proposition that the government has any idea what the jobs of the future are.

Finally, our research assistant Josh Smith did his first radio interview with the Eagle, 93.7 FM in Columbia, about the proposal to require a prescription for all sales of medicine containing pseudoephedrine. Needless to say, Josh (and I) think that proposal is wrong, to put it politely. I should clarify that it was Josh’s first radio news interview while he has been with the Show-Me Institute. He has been on the radio before. In fact, I am pretty sure he was the seventh caller when he was in fourth grade and won tickets to the New Kids on the Block Show. He is still pretty psyched about that. …

Voting With Your Feet Grocery Cart

Posted on by Christine Harbin

Fox4KC recently aired a story about how the governor’s proposal to increase the state sales tax rate will raise the cost of groceries and cause Kansas residents to shop at grocery stores in Missouri.

Differences in tax rates across states can encourage people to vote with their feet. Caitlin Hartsell has previously discussed this on this blog. Grocery stores in Missouri probably will see more Kansas residents than they did before the sales tax hike. However, there are some factual errors in the story. The differences in tax rates on groceries between Kansas and Missouri are not as stark as Fox4KC reports, and I anticipate that the marginal increase in border-hopping grocery shoppers will be much smaller than they suggest.

The following portion of the article is just plain wrong (emphasis mine):

The one percent state-wide increase would push the tax rate on groceries in some Kansas stores to nearly nine percent. Across the state line in Missouri, there is no state sales tax on groceries, and shoppers pay less than five percent tax on grocery purchases in total.

Missouri does tax groceries. This tax rate in Missouri is 1.225 percent, and certain foods (e.g., prepared foods) are taxed at the full rate of general sales tax, which is 4.225 percent. Kansas taxes groceries at the full rate of the state sales tax, which is 5.3 percent.

The other statements relating to tax rates are true; Missouri does have lower taxes on gasoline, liquor, and cigarettes than Kansas. In the (unlikely) event that anyone besides myself is interested in comparing Missouri’s tax rates with those of Kansas and Illinois, I have organized this information in the following table:

Picture 1

There are additional reasons why I believe that the marginal increase will be small. First, the number of people who will cross the state border is limited to those living very close to it. The revenue loss that results from people voting with their grocery carts is small relative to the increase in revenue from grocery shoppers in the rest of the state. Second, there are extra time and transportation costs associated with crossing the state border that serve as a disincentive to shoppers. For example, Missouri and Illinois are separated by a river, so individual may not find it worth her while to make a special trip across the bridge if she will only save $0.81 on a pack of cigarettes or 0.225 percent in grocery taxes.

More About the Licensing of Tax Preparers

Posted on by David Stokes

Jim Gallagher over at the Post-Dispatch had a nice column about the question of whether to license tax preparers, as was proposed recently by the IRS and mentioned on this blog. The best thing about this article is that it at least poses the question of how the licensing costs will affect the industry. Other recent stories about licensing that I have seen fail to even consider the idea that licensing can cause costs to rise at all. The only bad part of the column is the insulting title:

“No skills needed to be a tax preparer”

But it may be that the editors chose the title, so we can’t necessarily blame Gallagher for that.

Not surprisingly, current owners of tax preparations companies support the proposed nationwide licensing:

“It’s a great thing. It will hold accountability to tax preparers,” says Salah. “They’ll know what they’re doing. There are lots of tax preparers who are not qualified.”

Of course, it is always those who currently hold an occupation who support licensing that occupation, because it helps prevent future competition. The vast majority of licensing laws are enacted as a result of lobbying pressure from current practitioners of the occupation in question. Recent successful efforts to license interior designers and massage therapists in Missouri are examples of that phenomenon.

But at least Gallagher understands that these types of plans entail costs and harms that might not be obvious at first:

The story may be different for the bookkeeper-turned-homemaker who does tax returns on her (or his) dining room table. Some may find another way to earn money.

People who find themselves in a similar situation to this example should be allowed to do this type of work for as long as people voluntarily choose to hire them. If they do a poor job and their customers keep getting penalized as a result, people will stop hiring them. What’s more, just because you hire a tax preparer does not mean you don’t bear the responsibility of your return being accurate. I like the comment by the CPA at the end of the article:

“I am a retired CPA. It is amazing the number of people who could prepare their rather easy return choose not to. Usually their answer is I may make a mistake. The mistake that we have all made is electing people who have given us a tax law that is impossible to comply with. This is not a political statement but a fact.”

Well said.

Raw Milk Regulations Protect Commercial Milk Producers’ Business

Posted on by Sarah Brodsky

Regarding raw milk regulations, the Springfield News-Leader reports:

Most commercial dairy producers are against the unregulated sale of raw milk because they fear if anyone got sick from it, the pasteurized milk industry would suffer from the bad publicity and confusion.

Fear of bad publicity can’t fully explain why Missouri law allows farmers to sell raw milk from their farms but not from makeshift stands in parking lots. Nor does it justify other states’ stricter controls, such as Oregon’s ban on advertising raw milk. If avoiding negative publicity were the only object, it would be sufficient to keep raw milk out of grocery store aisles. There would be no need for fine distinctions between customers ordering milk ahead of time or paying for it on the spot.

In fact, commercial producers who truly hoped to prevent a public relations disaster would want raw milk to be more visible, not less. Confusion might arise if people heard that someone got sick from raw milk, but they didn’t know what raw milk was or where people got it. They might erroneously assume they were buying raw milk themselves. If raw milk were widely advertised and many people saw it available at independent stands and distribution centers, they’d understand that raw milk is not the same product as the milk they find at the store.

The plethora of raw milk regulations are more effective from the point of view of avoiding competition. When consumers can’t hear about raw milk sales because advertising is forbidden, or when there’s no convenient way to pick up raw milk because it’s sold on a distant farm, most will buy pasteurized milk at the store. Producers stand to lose from easy access to raw milk.

Follow-Up on Work Opportunities for Felons

Posted on by David Stokes

In a recent post, I commented on how I supported preventing felons from working as bail bondsman, but stated that I did think, on the whole, that we were being too restrictive about which positions that felons can work in once they serve their sentences. So, I was delighted to read that in Kansas City Councilman John Sharpe has introduced legislation changing the city’s liquor code to allow felons to work in bars. I think that this is a very positive change, and I commend Councilman Sharpe. There is no reason that felons who have done their time should not be able to serve drinks, or work in any of the other assorted jobs that are available in bars. (I, myself, used to be a barback and a bouncer — although no, I am not a felon.) I hope this change goes through, so it can give former convicts a few more opportunities to build back their lives after they serve their punishments.

I was also delighted to read the story first at Tony’s Kansas City, which is always informative and fun to read for a number of reasons — which you will discover as soon as you visit.

Political Correctness

Posted on by Sarah Brodsky

A legislator in Washington state wants to rewrite laws that characterize poor children as “disadvantaged” or “at-risk,” so that they instead read “at hope.” She thinks there’s a significant difference between those phrases:

Positive labeling is more than a gimmick or political correctness, Franklin says. She believes her idea could lead to a paradigm shift in state government and to changes in classrooms across the state.

The paradigm shift won’t happen, although political correctness is not to blame. There’s a place for political correctness; in some cases, updating legal language to be more sensitive is the right thing to do. For example, laws that were written many years ago may refer to medical conditions or physical disabilities in terms we would now consider offensive. That’s the reason behind this proposal to change the name of a Missouri agency. Racial designations are also susceptible to obsolescence, although switching to the politically correct language is not always easy, as the Census Bureau has found with the word “Negro.” (While many people take umbrage at the name, a diminishing number of people still identify with it, so removing it from forms could impair the accuracy of the Census.)

Politically correct language is useful when you want to avoid antagonizing people. However, you can’t solve a problem just by describing it with different words. Proponents of the “at hope” label argue that children respond to expectations, but the phrase wouldn’t change anyone’s expectations. People form expectations based on their experiences and on available information, not on the legal lexicon. The phrase could actually lower people’s expectations if they suppose that the state wouldn’t establish a euphemism to describe children who really had potential.

Expecting a phrase to transform education is like asking children to learn music with the “think system.” It’s an attractive idea, but it lacks a basis in reality.

IRS Commissioners Should Have to Do Their Own Taxes

Posted on by David Stokes

The Drudge Report linked to a story from The Hill about the not-surprising admission that the new IRS commissioner does not do his own taxes. I think the law should require whoever holds that job to do their own taxes. It would be like how the Federal Reserve has restrictions on stock ownership for certain board members — just a side rule that people have to abide by if they choose to accept serving in that position position. Maybe whoever heads the IRS would fight harder for tax simplification if they had to deal with their own rules.

I have always done my own taxes, even when I had a small business in the ’90s, but that will end in 2010 because my wife and I decided to go with an accountant for the first time. Our taxes are not particularly complicated, but they are not particularly easy, either, and that is as much detail as I’ll bore you with. I always liked fighting through the details as a matter of pride, but now the benefits of that hard work are losing out to the time costs as the returns get more complicated.

More disturbing in the article is this ugly nugget:

The IRS this month announced it will be scrutinizing the tax preparer industry. Shulman said the IRS is looking to set “a minimal level of competence in the preparer community.”

Terrific. Now we get federal licensing rules for one more profession. That will raise the costs of using H & R Block, etc. I’ll admit that this is one field where more people doing their own work (as in their own tax preparation) might bring the great side benefit of leading more people to be upset about the tax code, but I still don’t want that benefit caused by higher costs imposed by the IRS.

The simple fact is that a lot of people can and should be doing their own taxes. If you have one job where taxes are withheld, you can work through it without too many headaches. The head of the IRS should be one of those people.

A Rebuttal to Ray McCarty’s Rebuttal

Posted on by Christine Harbin

Ray McCarty of the Associated Industries of Missouri recently wrote an op-ed, “Film tax credit needs a real shot,” in the Springfield Business Journal as a rebuttal to my op-ed on the same subject. I realize that I have already written extensively about this, but I’d like to take this opportunity to respond to the points that McCarty made.

First, it is more than likely that the money spent by filmmakers via tax credits would have been spent anyway in the market, by private individuals. If a hotel hadn’t rented a room to a member of the film production crew, they could have rented it to somebody else. If the restaurant hadn’t seated the producers at a table, they could have given the table to another party. I think that it is fallacious to assume that, had it not been for the tax credits, these Missouri resources would have been unemployed.

McCarty writes:

Harbin also misses the fact that the movie industry is nontraditional.

Saying that something is a fact does not make it a fact. The only thing that makes an industry like filmmaking “nontraditional” is the fact that the government has intervened to such an extent that it has distorted the market. Health care is another industry that is often described as nontraditional, but as I have described previously on this blog, health care is subject to the same market mechanisms as any other industry.

McCarty also writes:

Lastly, Harbin mentions that it may be better for Missouri to leave the filmmaking to other film states “like California.” She may not know this, but California found itself weakened between 1998 and 2000. Between those years, the U.S. lost $10 billion worth of film productions to Canada, which passed film tax incentives. Southern California alone lost about 35,000 jobs due to the shift to Canada.

It makes economic sense that California would produce fewer films because it had to compete with states and other countries. Filmmakers like Jason Reitman are smart businesspeople, and they will go wherever they can get the best deal. I disagree that this refutes my statement that Missouri shouldn’t feel that it has to compete with other states for filmmaking, however.

Michigan has pursued the filmmaking industry particularly aggressively, and its state legislature is already discussing repealing the program. Missouri would be smart to specialize in producing according to its comparative advantage (i.e., in products that aren’t filmmaking), and then realize gains from trade with those states. Missourians will still be able to enjoy the benefits of the product (i.e., film), and at a much lower cost (i.e., the price an admission ticket at a movie theater vs. the price of subsidizing the production).

As another advantage of producing according to its competitive advantage, Missouri would have an opportunity to differentiate itself. Instead of producing the same products and services as other states do, Missouri could produce the goods and services that are uniquely Missourian.

Furthermore, McCarty did not dispute my argument that targeted tax credits hurt businesses in non-favored industries. By providing special advantages to a select industry, targeted tax credits force everyone else in the market to compete at a disadvantage. In a previous blog post on Show-Me Daily, Dave Roland explains this better than I do:

True economic development happens best when governments allow businesses to compete on a field that offers no special advantages to any of the players. The government does a grave disservice to its citizens when it assumes the responsibility for picking winners and losers in the market, rather than letting businesses succeed or fail on their own merit.

Another argument of mine that McCarty does not address is the one relating to the supreme opportunity cost associated with film tax credits. What else can Missouri do with this money? What is so special about the film industry, in contrast to other industries? Why doesn’t Missouri target hog farmers or economic research analysts or education or infrastructure?

Maybe in a couple of years, each state in the union will offer tax credits that are targeted to filmmakers, thereby negating the artificial comparative advantage that currently exists in states like Missouri. I can only hope.

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