Yes, Mayor Jones, the Earnings Tax Really Does Hinder Economic Growth

Posted on by David Stokes

The St. Louis Business Journal had an excellent article last week on the present state of the St. Louis City earnings tax. I encourage you to read it all.

My purpose here is simply to respond to one statement in the article by St. Louis’s Mayor Jones:

“I urge those who want to eliminate the earnings tax to show me their plan to replace it, their pro forma on these so-called ‘fiscal cliffs,’ and why cities with much higher earnings tax rates continue to grow,” Jones said in a statement.

I would like to remind people that, as for a plan to replace the earnings tax, the PFM Group out of Philadelphia has provided St. Louis with multiple, enormous reports on fiscal options for the city. Having read these studies, I assure you they go into great detail on these topics. If the city and its leaders aren’t serious about considering and incorporating these recommendations, among others, that’s on the city.

Do some cities with earnings taxes continue to grow? Of course they can. Some cities, like, say, New York City, have qualities and advantages that help them overcome the harms of local income taxes and continue to grow nevertheless. That shouldn’t surprise anyone, but it doesn’t mean local earnings (also known as income or wage) taxes don’t harm cities. Nobody is saying that a city can’t grow if it has an earnings tax. The claim—backed up by evidence—is that they would grow faster without one.

You don’t have to take our word for it (but you should). In Triumph of the City, Harvard economist Ed Glaeser states: “The indirect effect of a local income tax is to encourage richer citizens and businesses to leave.” He cited this study, in which the authors determined that, among other findings, “We estimate that between 1971 and 2001 Philadelphia lost 172,889 jobs because of the increase in city wage tax rates.” (Similar effects were found for New York City.)

It’s one thing to say the city is not in a position to immediately drop the earnings tax in one fell swoop. That’s a defensible position. It’s another to deny that it harms economic growth. That’s not defensible. The worst part, though, is watching the city enact legislation and pass constant tax subsidies that make it more dependent on the earnings tax, instead of trying to be less dependent on it over time. The city has chosen to put itself in this position, and that is regrettable.

Another Opportunity to Learn

Posted on by Elias Tsapelas

Trying to lure Hollywood productions to Missouri with tax incentives was always a fool’s errand, but a new report from Georgia reminds us just how foolish it truly is.

For those who don’t remember, last year, Missouri’s general assembly made the unfortunate decision to revive the state’s film tax credit program. After the program sat dormant for a decade due to prior poor performance, and despite the wealth of evidence from across the country showing that the program is a bad investment, our elected officials were somehow convinced that the program would work better this time.

While it’s still too early to evaluate the performance of Missouri’s revived film credit, a recently completed audit in the state of Georgia can offer some insight into what Missouri should expect. Unsurprisingly, the results show that the return on investment (ROI) for Georgia taxpayers is less than $0.20. This means that for each tax dollar devoted toward the program, at least 80 cents are lost.

If you have been following this issue for a while, these findings aren’t surprising, as they are in line with much of the past research on the topic. Study after study shows film tax credits are a ridiculously bad investment of state taxpayer dollars. Prior to our state shuttering the program, the Missouri Department of Economic Development found the program’s ROI to be a paltry $0.15. Previous Peach State audits found the ROI to be even lower—around $0.10. Louisiana’s program wasn’t much better, with an ROI of $0.15. And Pennsylvania (Missouri’s entertainment industry tax credit is modeled on the Pennsylvania program) found its film subsidies produced an ROI of only $0.13.

Of course, these aren’t the only metrics where the tax credit program fails to perform. In state after state, the film tax credit falls short of the jobs and economic activity promised. According to a 2019 study that compared film tax credit data from across the country, the author found the incentives have no meaningful effect on employment or wages and suggested the “incentives are generally ineffective at creating industry clusters or inspiring economic development.” Nevertheless, the majority of states keep giving out these subsidies.

At this point, I’m not sure how many more audits or studies need to be published before policymakers will be convinced that a film tax credit program isn’t worth having. But if there’s one thing Missouri lawmakers ought to learn from Georgia (besides that our state’s program should be ended again), it’s that frequent audits of these costly tax incentives are a good thing. Further efforts to improve transparency on Missouri’s numerous tax credit programs should be encouraged.

“Did You Get My Cheez Wiz, Boy?”

Posted on by David Stokes

Early in the classic film The Blues Brothers, Elwood takes his recently paroled brother, Jake, back to his Chicago apartment. It’s a small room next to the “L” tracks, with kitchen and bathroom facilities shared with the other tenants. (I guess Elwood has his own toaster oven, but that’s hardly a kitchen.) Anyway, it’s the type of affordable room for rent that used to be common in American cities. Now, however, housing arrangements like that are illegal almost everywhere (with a few exceptions). St. Louis, Kansas City, and other Missouri towns should legalize them again. (Check out this example ordinance from the St. Louis County suburb of St. John which defines “rooming house,” or a “boarding house,” and clearly states no new ones are allowed in the city after 1963.)

This topic is in the news now because of a lawsuit against a St. Louis landlord illegally renting out very cheap homes to struggling people in St. Louis. This post is not a defense of that landlord. Many of the places she was renting were condemned, had no utilities, or had other problems. The court system will presumably deal with those issues.

But it is worth noting that these cheap homes—some of which did have utilities and were suitable for habitation, even if just barely—were being used for inexpensive shelter by previously homeless people. That’s a good thing. Have you noticed how cold it has been lately?

Yes, landlords should keep their buildings up to code, and things such as working utilities and sanitation systems are all properly part of various building codes. However, zoning laws almost everywhere (including in much of the City of St. Louis) require apartments to be rented out whole, meaning every unit must have its own kitchen, bathroom, etc. Obviously, that is how most people want to live. But we made it illegal in much of the country to have a cheaper option, like Elwood Blues had, to live in a large building where you rent by the room and share other facilities with the other tenants. The elimination of the housing market option for these types of facilities is one of the reasons for the increased homeless population in our country.

Nobody is saying rooming houses like these are nice (I also saw Taxi Driver). But they are an affordable option that some people will choose that is far better than being homeless. I am not suggesting that boarding house–type facilities should be allowed everywhere. But blanket zoning prohibitions against them in Missouri cities are harmful and should be repealed.

Education Spending: Where Does the Money Go?

Posted on by James V. Shuls

As the 2024 legislative session gets underway, we will undoubtedly hear more about teacher pay in Missouri. A key question we should be asking is this—where does all the money go?

Using data from the National Center for Education Statistics (Table 211.50 and Table 236.55), I calculated how many students it took to pay for the average teacher’s salary. I calculated this by dividing the average salary by per–pupil operating expenditures. In 1960, it took 13.3 students to generate the equivalent amount of money as a teacher’s salary. That number dropped steadily over time. By 2000, it was 5.7, and in 2020 it was just 4.4 students.

You read that right: fewer than five students in a class is enough to cover a teacher’s salary today.

So where does all that money go? Ben Scafidi, an economist at Kennesaw State University, has some ideas. He noted that from 1950 to 2015, the number of administrators and other staff has increased by 709% nationally. In that same time period, the number of students went up 100% and the number of teachers went up 243%.

In more recent years, the number of students in Missouri has been declining. Yet the number of teachers is going up.

There is a very simple way to increase teacher pay, and it does not require any legislation. School districts can make different staffing decisions—hire fewer administrators and free up dollars to pay teachers more.

Free Bus Fare, Still a Bad Idea

Posted on by Patrick Tuohey

Almost exactly four years ago, I wrote in this space that the move in Kansas City to reduce bus fare to zero was a bad idea—or at the very least ill-considered and not supported by substantive research. I argued the same in a guest commentary to The Kansas City Star:

Good policies go beyond good intentions. They serve a public need with as few negative consequences as is possible. Our national experience with large-scale, fare-free transit has been a bumpy ride. Kansas City needs to consider all the options and trade-offs before adopting such a significant policy change.

Unfortunately, those concerns were not heeded. At the time, the Kansas City Area Transit Authority (KCATA) CEO Robbie Makinen argued weakly, “Just because nobody else is doing it, that’s not a reason for us not to do it. What’s wrong with trying it? What’s the worst thing that happens? It doesn’t work, and Robbie gets fired.”

Now in 2024, after years of offering free bus service, the KCATA is wrestling with a $10 million gap in its operating budget. The service used COVID relief money to cover its operating losses, but those funds will run out by 2025.

As a result of the budget shortfalls, the new CEO has asked the transit authority’s board for permission to study reinstating fares to cover the shortfall. (The previous CEO cited above did seemingly get fired in July 2022.) One of the current KCATA board members, Michael Shaw, is at least asking the right questions, according to the Star:

“Have we done the homework and figured out what we need to do, what other resources and strategies are in place, before we say this is the policy decision that needs to be made?” Shaw said. “I don’t think we should look at solutions in silos. They have to be looked at collectively and I don’t think we’ve done that homework at this juncture.”

The chairwoman of the board, Melissa Bynum, pointed out what we already know: “Zero fare is not free – period. Somebody pays for it.”

The CEO of the KCATA should be congratulated for seeking such a study. Board members Shaw and Bynum are right to urge diligence and to point out that the money must come from somewhere.

Had the previous KCATA leadership wrestled with these questions a few years ago, the organization may not be in this mess now.

Land Banks: A Bad Idea Back for the 2024 Session

Posted on by David Stokes

The state legislature in Missouri is again considering legislation to dramatically expand the authority to institute land banks to municipalities across the state (the state legislature must approve all new land banks in Missouri).

The state legislature should reject this legislation. If such legislation is enacted, counties and municipalities should reject the establishment of land banks. 

On January 17, Show-Me Institute Director of Municipal Policy David Stokes submits testimony to the Missouri Senate Emerging Issues Committee regarding expansion of Missouri’s land bank program. Click here to read the full testimony.

One of the Biggest Problems Facing Schools in 2024 with Nat Malkus

Posted on by Susan Pendergrass

Susan Pendergrass speaks with AEI’s Nat Malkus about the problem of chronic absenteeism in America’s schools following the COVID-19 pandemic.

Listen on Apple Podcasts 

Listen on SoundCloud

Nat Malkus is a senior fellow and the deputy director of education policy at the American Enterprise Institute (AEI), where he specializes in empirical research on K–12 schooling. He is a national expert on a range of educational issues that affect students across the country—including Career and Technical Education, school choice, Advanced Placement, standardized testing, and how the nation’s schools responded to the COVID-19 pandemic.

Produced by Show-Me Opportunity

Royals Officially Probably Staying in Jackson County

Posted on by Patrick Ishmael

With loyalty like this, who needs wins? After flirting for a new stadium with suitors like Clay County and even (reportedly) Kansas, the cellar-dwelling Kansas City Royals appear ready to settle down. Congratulations Jackson County! It looks like the Royals will probably stay with you—if you pay them for the next half century, location TBD:

The Kansas City Royals and Kansas City Chiefs released a joint statement Friday to stay in Jackson County, pending voters’ approval of a sales tax extension.

The statement comes amid the Royals’ plans to build a new $2 billion ballpark district as they look at locations in both Jackson County and Clay County.

The teams said Friday they are committed to staying in Jackson County — and provid[ing] over $200 million in economic benefits — if voters approve a 40-year extension of the 3/8th-cent sales tax in April.

The sales tax extension will help the Chiefs renovate Arrowhead Stadium at the Truman Sports Complex and assist with the Royals’ new stadium in downtown Kansas City.

It wasn’t news that the Chiefs planned to stay put. Driven in part by the Royals’ public relations disaster, the Chiefs had confirmed months ago they indeed intend to remain at Arrowhead (despite flirting with Kansas two years ago), and it was clear the football team was only waiting on the baseball team to make its decision. The Chiefs’ involvement at this juncture also puts a more popular brand in front. Frankly, the baseball team is probably better off with Chiefs superstar and Royals co-owner Patrick Mahomes leading the final charge to the ballot box rather than majority owner John Sherman, who’s helmed the Royals’ push to this point. I’m sure Sherman would agree.

Will taxpayers accept this rose? It won’t come for free. Now that the Royals have decided on Jackson County as their first choice, it will now (likely) be up to voters to decide in April whether to continue subsidizing not one, but two sports teams into 2071—that is, nearly to the 22nd century. Where will that baseball stadium be? Unlikely at its current site, where the taxpayer-financed and recently upgraded Kauffman Stadium seems destined for the wrecking ball. At least two new Jackson County sites are in contention, and a final site announcement may be weeks or months away, if it comes before the vote at all. In the meantime, we wait.

In the interest of balance, I will say that the Royals’ behavior—though misguided and wrongheaded—is consistent with the behavior of countless other private businesses, in and outside the professional sports industry, when it comes to tax incentives and public financial support. The Royals want something for free, regardless of whether they’re owed it. That’s their prerogative, and it’s up to taxpayers to finally say, “No, our tax dollars should go to legitimate public services and not to a private entertainment operation.”

But odds are that Jackson County taxpayers won’t say no—they’ll likely approve the tax extension for the Royals’ (and Chiefs’) benefit, even as other notable local challenges, like murder, remain unaddressed. Taxpayers can do better. I hope they do.

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