Enhanced Enterprise Zone in Webster County

According to an article in The Springfield News-Leader, Webster County in Missouri is seeking designation as an Enhanced Enterprise Zone so that it can attract industry and create jobs. The article communicates that Webster County is economically depressed and that the EEZ designation will benefit the area with new businesses and jobs, but it divulges few details about how the program is constructed. The following are the few that it includes:

The discretionary program offers state tax credits, accompanied by local real property tax abatement, for businesses that meet criteria such as adding jobs. […]

Ipock said state tax credits will only be allowed for qualified businesses and are geared toward industrial development.

Businesses that are ineligible to receive the tax credits include gambling establishments, adult businesses, retail trade, educational services, religious organizations, public administrators, food and drink establishments.

I disagree that the program’s benefits should be for “qualified” businesses. This is the same as the fundamental argument against targeted tax credits, like those to filmmakers. The government should not have the authority to pick and choose which businesses can operate in its borders. These programs create inequality because they force businesses that aren’t “qualified” to compete at a comparative disadvantage. This consequently encourages corruption, because it gives businesses an incentive to solicit the government for special treatment.

Instead, Webster County should focus on creating a favorable tax environment that would benefit all businesses equally, such as reducing commercial property tax surcharges and repealing mandates. If the city of Saint Louis were toying with such an idea, I would recommend that it repeal the earnings tax instead.

I also disagree that the focus of the program should be on job creation. Public works projects, such as Enhanced Enterprise Zones, encourage nonproductive work (e.g., “work for works’ sake”). I think that Milton and Rose Friedman would agree; in Free to Choose: A Personal Statement, they write:

If all we want are jobs, we can create any number—for example, have people dig holes and then fill them up again or perform other useless tasks.

Furthermore, although the program may be successful at attracting the targeted industries, any activity that it generates will be discounted by the amount of the economic incentives that it takes to attract it. As Henry Hazlitt explains in Economics in One Lesson, spending in the private sector destroys jobs in the private sector. This is because public spending is financed by money that is taken from taxpayers, who can’t spend this money on products and services in the private sector that would generate productive economic activity.

When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built.

Quick Fixes Won’t Raise Test Scores

Charles Murray can’t be pleased with the New York City Department of Education’s plan to spend a few hundred thousand dollars on online SAT prep for public school students. Murray doesn’t believe policy can cause a significant rise in test scores, so he must view this expenditure — or any other program with a similar goal — as a waste of resources.

While I’m generally more optimistic that scores can rise, in this case I agree that student achievement is unlikely to change. A test prep course could help if students are simply unfamiliar with the test, or if they just need a little extra practice with the kind of questions that appear on it. But if low scores reflect a deeper problem, as I suspect they do for many New York students, last-minute test prep won’t make a difference.

The best course of action would be to improve schooling for younger students, years before they take college admissions exams. Then, by the time they get to high school, they won’t struggle with the math and vocabulary found in the SAT.

New York shouldn’t give up on current high school students, but it needs to help them build a stronger foundation of knowledge than what they’ll get from a course on test-taking strategies. The department could stick with the online education model, and instead of explicitly offering free test prep, it could open English or math courses similar to the St. Louis Public Schools’ virtual school. Course materials needn’t teach to the test, although students whose skills improved would do better on test day as a consequence. To preserve the college admissions focus, the department could use a practice SAT to place students into different course levels.

New York shouldn’t limit its use of online education to preparing students for one test. We want students to be prepared for the next high school course they take, and for whatever courses they take beyond high school, too.

It’s As If the Housing Bubble Never Happened!

Today, the Suburban Journals reminds us that, earlier this month, the Missouri Housing Development Commission approved an initiative that will offer property tax relief to Missouri home buyers. From the article:

Under the new program, eligible Missouri families who enter into a contract to buy a new or existing Missouri home after Jan. 1 would have their property tax for the year paid, up to $1,250. In addition, to support the creation of “green jobs” in Missouri, families would be eligible for an additional $500 in tax relief if they buy an energy-efficient home or items to make the home more energy-efficient, such as Energy Star appliances.

Home ownership — just like any other investment — involves significant risks and costs. I’m worried that Missouri could help provoke another housing crisis by encouraging home ownership amongst those who wouldn’t otherwise select it.

In an op-ed in the Springfield News-Leader, to which David Stokes previously linked, Paul Hamby presents an alternative means than government subsidies to increasing home ownership:

If the goal is to get more Missourians into housing, there is a simple proven formula for that: Good paying jobs for Missourians. A business climate to create more jobs is where the governor should be focusing. That means less government regulation, fewer taxes on small businesses and families and fewer federal mandates. When government starts meddling, fairness goes out the window.

Amateur Radio Licenses and Red Balloons

The FCC issues three classes of licenses to amateur radio operators. The Extra class — the third, and hardest class of license to earn — is a great example of a license with no public safety justification. It’s purely an exercise of government power.

Here’s how the Extra class works: If you pass a test on electronics and radio regulations that covers more advanced material than the test for the Technician and General classes, you get to communicate over portions of the radio spectrum that are off-limits to people who hold only Technician and General licenses. Nothing about those parts of the spectrum makes them need special regulation; they’ve simply been set aside as the province of elite radio amateurs.

Some amateur radio enthusiasts defend the system, saying that the Extra class encourages operators to gain expertise, and that everyone in society benefits from the resulting propagation of knowledge. This argument is similar to the rationale for the DARPA Network Challenge, which was supposed to contribute to our understanding of communications and problem-solving.

I don’t buy the argument in either case. When the government offers an incentive for learning, the people who already have the information or would have learned it anyway step up to claim the prize. This was clearly the result of the DARPA Network Challenge. The federal government offered a $40,000 prize to whoever could find 10 red balloons released around the country, and scholars at M.I.T. — who were already deeply interested in networks — organized a network, found the balloons, and won the contest. We spent $40,000 of taxpayer money (plus however much it cost to administer the contest) to discover that people at M.I.T. are smart.

So it is with the amateur radio licenses. The most motivated operators brush up on their trigonometry and take the test, while others settle for the General class and its fewer privileges. People who weren’t interested in electronics don’t suddenly become scientists when they hear about the Extra class. And even if some operators do learn facts that they wouldn’t have were it not for the exam, there are less coercive ways to achieve that goal. For instance, public libraries or community colleges could offer free classes about radio communications.

The state of Missouri doesn’t grant amateur radio licenses. But Missouri licenses many other activities, and should beware to avoid the FCC’s manner of regulating. Two pieces of advice: First, don’t issue licenses that have no bearing on the general welfare. Second, once you’ve established a licensing requirement, don’t create a license class for people who have learned more or otherwise gone the extra mile. It’s not the state’s job to give them a pat on the back, or to reward accomplishments with special privileges.

Senate Passes Health Care Reform Bill on Christmas Eve

The Senate has finally passed a health care reform bill, after months of heated debate. The $871 billion plan, according to a CNN article by Alan Silverleib, must now be merged with a $1 trillion House bill passed in November, which should provide the president with a bill to sign before his 2010 State of the Union address.

The two bills share some commonalities. From the article:

Among other things, the House and Senate have agreed to subsidize insurance for a family of four making up to roughly $88,000 annually, or 400 percent of the federal poverty level.

They also have agreed to create health insurance exchanges designed to make it easier for small businesses, the self-employed and the unemployed to pool resources and purchase less expensive coverage. Both the House plan and the Senate bill would eventually limit total out-of-pocket expenses and prevent insurance companies from denying coverage for pre-existing conditions.

Insurers would also be barred from charging higher premiums based on a person’s gender or medical history. However, both bills allow insurance companies to charge higher premiums for older customers.

Medicaid would be significantly expanded under both proposals. The House bill would extend coverage to individuals earning up to 150 percent of the poverty level, or roughly $33,000 for a family of four. The Senate plan ensures coverage to those earning up to 133 percent of the poverty level, or just over $29,000 for a family of four.

One of the issues disagreed upon most strenuously by the two bodies of Congress is how to pay for the plan:

The House package is financed through a combination of a tax surcharge on wealthy Americans and new Medicare spending reductions.

Specifically, individuals with annual incomes over $500,000 — as well as families earning more than $1 million — would face a 5.4 percent income tax surcharge.

The Senate bill also cuts Medicare by roughly $500 billion. But instead of an income tax surcharge on the wealthy, it would impose a 40 percent tax on insurance companies that provide what are called “Cadillac” health plans valued at more than $8,500 for individuals and $23,000 for families.

The article points out that the president predicts the final bill will include a little of both proposals.

Another major divide is that the House bill includes a public option, but the Senate bill does not — instead, it includes nonprofit private co-ops overseen by the government.

Both bills would penalize those who do not purchase coverage.

The House bill would impose a fine of up to 2.5 percent of an individual’s income. The Senate plan would require individuals to purchase health insurance coverage or face a fine of up to $750 or 2 percent of his or her income, whichever is greater. Both versions include a hardship exemption for poorer Americans.

Businesses would also see an even greater penalty under both plans.

As for now, we can only sit back and wait as the House and Senate fight it out for a final bill of reform, and see whether it meets with any other roadblocks.

Missouri Had Negligible Net Migration During 2008-09

This week, the Wall Street Journal and the Washington Post both published articles that analyze recent Census data on net domestic migration patterns. Both articles suppose that fewer Americans are relocating to southern and western states because of the recession and housing crisis. From the Washington Post article:

As the latest data suggest, hard times have led many people to abandon once-booming locales, and increasing numbers of others to stay put, when they cannot sell their houses or land new jobs.

Domestic migration data is interesting because it demonstrates how people “vote with their feet.” People typically move to states that have competitive environments that are more favorable, and away from states that do not.

Neither article includes statistics about Missouri specifically, so I downloaded the 2008 state population estimates and the 2008–09 “components of population change” data from the Census Bureau to find out. I computed the rate of domestic migration by dividing the net domestic migration by the population, and also the rate of total migration by dividing the total migration by the population. (Note: The articles use total population change, which is a different figure.)

Screen shot 2009-12-24 at 10.11.59 AM

For Missouri, the rate of domestic migration was 0.00 percent. How anticlimactic. This means that the number of people who moved from Missouri to other states during 2008–09 was equal to the the number of people who did the opposite. However, when we account for international migration, the rate of total migration is 0.10 percent. Compared to other states, Missouri has the 17th-lowest rate of total migration.

Data recently released by United Van Lines confirms the statement that the percentage of moves into and out of Missouri are about equal. Missouri was listed as seventh on the list of the most balanced states — its percentage of inbound shipments is 54.0, and its percentage of outbound shipments is 46.

If it weren’t for the fact that the number of births (80,865) exceeded the number of deaths (55,449) during this period, Missouri wouldn’t have grown at all.

Maintaining a constant population size has a benefit, though — Missouri won’t lose congressional seats.

Missouri’s Unemployment Compensation Problem

The Washington Post recently published an article that describes how states’ unemployment compensation funds are running dry in the recession. When a state has more unemployment claims than it can pay, it borrows the difference from the federal government. In all, 25 states — including Missouri — have already borrowed to make their payments, $24 billion in total.

If unemployment continues to rise in the near future, then Missouri will have to borrow even more money from the federal government in order to extend benefits. According to preliminary data from the Bureau of Labor Statistics, the seasonably adjusted unemployment rate for Missouri in November 2009 is 9.5 percent, which is an increase over recent months.

What can a cash-strapped state like Missouri do? From the article:

State unemployment-compensation funds are separated from general budgets, so when there is a shortfall, only two primary solutions are typically considered — either cut the benefit or raise the payroll tax.

Talk about being between a rock and a hard place. Although I hesitate to encourage cutting benefits, I think that that raising the payroll tax would be a particularly bad idea. Raising the payroll tax would raise the cost of labor, causing employers to stop hiring and/or further shed employees. When you tax something, you get less of it, after all. The state would have to find a way to support an ever-increasing unemployment population with an ever-decreasing employment base.

I also want to point out that employers pay more in unemployment taxes in Missouri than they do in most other states. Missouri employers already have to pay 3.510 percent of payroll in state unemployment taxes. For those in the construction-related industries, the rate is 3.600 percent. (According to the article, the average tax across states is about 0.6 percent.)

Individual Health Insurance Mandate Would Violate Constitutional Liberties

 

Among the elements of the health bill currently being considered by Congress is a requirement that every adult would have to obtain health insurance coverage or face large fines. Legal scholars have been debating whether the U.S. Supreme Court would find such a requirement to be constitutional.

Why are so many Americans uninsured in the first place? It is true that, for many of us, insurance is just unaffordable. But many more voluntarily choose to forgo health insurance. Some follow religions that prohibit the use of modern medicine. Others prefer nontraditional treatments. Still others are confident enough in their propensity for health that they are willing to risk the costs of illness or injury in order to direct their money to concerns they believe to be more pressing. And there are some who, recognizing that most people pay insurance companies far more than they are ever likely to need for their own treatment costs, prefer to self-insure by creating their own health fund.

So, does the U.S. Constitution protect these citizens who might object to the health insurance mandate? Possibly. The Supreme Court has previously recognized that the Constitution protects citizens’ rights to associate with others of their choosing, to enter into contracts, to make their own decisions regarding whether or not to receive health care, and, of course, their right to privacy. The court has also recognized that a constitutional right to do something implies a complementary right not to be forced to do that same thing — the freedom of speech, for example, means that the government may not compel you to speak.

For America’s voluntarily uninsured, a congressional directive to purchase health insurance would mean not only sacrificing a huge amount of money, but also potentially their convictions, personal autonomy, and privacy — all for services they do not want, and in some cases may be prohibited from using. This sort of mandate would clearly violate some, if not all, of the constitutional rights listed above, although the Supreme Court might decide that congressional interest in passing the mandate justifies the infringement of those rights.

Certain lawmakers are trying to give Missourians an additional layer of protection. Recognizing that state constitutions are permitted to afford liberties beyond those secured under the U.S. Constitution, half of the state Senate has already agreed to cosponsor Senate Joint Resolution 25, which would amend the Missouri Constitution to specify that citizens have a right to decide for themselves whether they will participate in any health care system.

Under this amendment, government officials would also be denied the authority to prevent citizens from offering or accepting direct payment for health care services, and they would not be permitted to substantially limit the purchase or sale of health insurance in private health care systems. While it is not certain that the Supreme Court would allow state constitutional protections to override a federal statute, this effort could be a useful step toward securing those individual freedoms that ought to be the American birthright.

Dave Roland is a constitutional law expert and a policy analyst with the Show-Me Institute, a Missouri-based think tank.

 

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