Page 748 – Show-Me Institute

New Study Compares Tax Systems in Missouri, Tennessee

Posted on August 10, 2009May 5, 2026 by Eric D. Dixon

A few of you may not have noticed that late last week, we released a brand-new case study on our main website, “All Caught Up: How Tax Policy May Have Allowed Tennessee to Outgrow Missouri,” by Jenifer Zeigler Roland, the Show-Me Institute’s director of publications, and Dave Roland, one of the institute’s policy analysts.

The study finds that although Missouri was once the unquestionable leader in terms of population and GDP, Tennessee gradually caught up throughout the 1900s in almost every economic metric. Although many factors certainly contribute to Tennesse’s growth and Missouri’s relative stagnation, one of the most illuminating pieces of data is that Missouri levies a state income tax on its citizens, while Tennessee does not.

Empirical research shows that tax policy has a marginal but significant effect on how people choose where to live — voting with their feet to minimize their tax burdens. Economic growth tends to flow to areas with lower tax burdens, and although Tennessee has a higher sales tax than Missouri does, its overall tax burden is unquestionably lower. If Missourians want their state to once again become an economic powerhouse, they should encourage a sensible tax policy that’s both low and consistent, and that eliminates as much dead-weight loss as possible. That means thinking hard about eliminating Missouri’s state income tax.

Read the entire case study here.

Thoughts on Liberating Learning: Technology on All Fronts

Posted on August 10, 2009May 5, 2026 by Sarah Brodsky

In this chapter of Liberating Learning, the authors introduce some applications of technology that they believe will transform U.S. public education. The central examples are: an online charter school, charter schools that incorporate a few hours of computer use into the traditional school day, and computer programs that track student achievement and predict state test results.

Each of these examples has made its mark on a tiny segment of the education market. We’ll have to wait to see which of them will change public schooling more broadly. I expect online charter schools like the one discussed in this chapter, as well as online schools run by states and traditional districts, to have the greatest effect on the education market as a whole.

Here’s why: Online schools give parents a choice, and they potentially compete with all the public schools in a wide area. That means they affect many students besides the ones who actually take classes. It’s like when a new brick-and-mortar charter school comes to town, and the neighboring schools have to work harder to retain students. The difference is that an online school could attract students from across a whole state, so it provides instant competition in every district.

Using computers more effectively within a traditional school is beneficial for the students already enrolled, but it does little for the rest of the market. The authors of Liberating Learning expect other schools to respond as parents demand accountability, but unless parents can make a credible threat that they’ll leave, schools have little reason to respond to their demands.

Despite Admirable Goal, Autism Bill Ill-Conceived

Posted on August 7, 2009May 5, 2026 by Josh Smith

The Post-Dispatch has the latest about Gov. Jay Nixon’s struggle to ensure medical coverage for all Missouri children who have autism. I have selected a truly arcane method of judging his argument; in it, I’ll praise his intentions and convictions, while drawing critical attention to the reasonableness of the proposal itself.

The ancient Greeks divided argumentation into three criteria: “ethos,” the ethical credibility of the speaker; “pathos,” the emotional appeal of the speaker; and “logos,” the logic of the speaker’s argument. In this case, Nixon’s ethos is admirable — he wants to help these children and their families. To determine his pathos regarding this matter, look no further than this report about his level of conviction. However, as far as sober logic is concerned, his proposal is ill-conceived.

It goes like this: Autism among children is on the rise, and the treatment is prohibitively expensive. Many families can’t afford the treatment or the insurance coverage that would pay for it, but if we force insurance companies to cover all autistic children, the cost of the treatment would be spread among all the insurance company’s premium paying customers.

The economic logic of this is dubious at best. It externalizes the cost of what should be an internal transaction, forcing many people to pay for something that they will see no benefit from. The plight of autistic children is very sad, and my heart goes out to the families affected by it, but it is unreasonable to make the paternalistic decision to reallocate the money of those who buy insurance. Deadweight loss would inevitably result in such a scenario, and, like other subsidies — especially those for issues that can be so emotionally moving — the question quickly becomes, “Why pay for this treatment and not that one?” A compelling emotional argument can be made in favor of subsidizing all manner of medical care, but someone has to pay the resulting bill.

Criticism is not particularly useful without a proposed alternative. I submit that there are many people right here in Missouri — not just insurance customers — that would be willing to part with a modest amount of money in order to ensure that those who can’t get autism coverage because they can’t afford it are provided for. I would rather see a voluntary system, be it a charity campaign, or a checkbox on your state income tax form or license plate renewal application, etc., with wording along these lines: “Would you like to contribute 1, 5, or 10 dollars to provide help for poor autistic children?” The people who contribute to such a fund would not necessarily be the people who buy insurance, but this would eliminate the deadweight loss.

Sarah Brodsky has been a prolific writer about the topic of mandatory autism coverage, with a great op-ed and several blog posts, all of which are worth reading.

Ridiculous Lawsuit Over Assessments in Jackson County

Posted on August 7, 2009May 5, 2026 by David Stokes

Talk about having your cake and eating it, too. School districts loved it when property values skyrocketed throughout this decade along with their budgets. But now that values of fallen, KCTV reports that several school districts around Kansas City have filed suit to prevent the county assessor from lowering property values. These people are living in an alternate universe. The state Constitution already protects the taxing districts by allowing them to roll up their tax rates to a revenue-neutral level in the rare years like this when property values decline. Is that good enough for them?

Of course not. Yesterday’s Post-Dispatch documented how teachers throughout St. Louis are getting their standard pay raises despite the economy, and the districts just assume that taxpayers will pick up the slack even as many of them have seen declines in their own income. At least the schools in St. Louis have, so far, followed the law and not filed a lawsuit.

When you base a tax system on property values, as we do in Missouri, you have to take the good with the bad. Sometimes, but not often, values will go down. For the school districts to sue in order to force the use of last year’s assessments — which everybody knows are no longer accurate — is the absolute height of bureaucratic arrogance.

How about this for an example of a typical made-up PR claim, from the KCTV story, in which the people filing the lawsuit to make taxpayers pay more actually claim to be protecting homeowners:

The source [from one of the public school districts] said the problem for homeowners is if they go to sell their home, most buyers will not go over the county’s assessed value, so sellers could get much less then what their home is worth.

I think many home purchasers don’t even know the assessed value of a home when they buy it. Most of them certainly don’t care. The idea that they won’t go over the assessed value is ridiculous. People generally know just the market value of a home, and that the current market values are lower than they were in the past.

Who Are the Missourians Without Health Care Insurance?

Posted on August 6, 2009May 5, 2026 by Stephen Feman

In the ongoing health care discussion, few have looked at who the people are without health care insurance. In Missouri, most people have some form of employer-sponsored health care insurance program, while those who are elderly have Medicare, and the indigent have Medicaid. Then who are these people without health care insurance that everyone is talking about?

To answer that question, Missouri initiated a survey in 2004 and found 463,000 citizens without any form of health care insurance, about 8.4 percent of the state population. At that time the largest demographic group consisted of people between 19 and 24 years old, because 20.1 percent of them had no health care insurance. The survey’s statistical analysis found that the minority distribution among those without health care insurance was similar to the proportions within the state. That is, no specific group had an excess, and all groups were represented equally.

In 2004, the largest economic division without health care insurance (20.9 percent of all those without health care insurance) consisted of families with incomes between 134 percent and 150 percent of the federal poverty level (FPL). Interestingly, 30 percent of the uninsured population was made of families in which at least one family member worked. In those families, the workers were either self-employed or worked less than 40 hours per week.

Many changes have occurred since then. The onset of this recession was associated with job losses, and some jobs had their benefits reduced. Data from the run-up to the recession exists, but information more recent than 2007 is not available. Nevertheless, during the interval from 2004 through 2007, the number of Missourians without health care insurance increased from 463,000 to 744,030 people, or from 8.4 to 12.6 percent of the population. By 2007, about 82 percent of the people that were health care uninsured were members of families in which at least one member had a job.

Many people in 2007 did not purchase health care insurance. This was seen in 2004, also. That year, 20.4 percent of the health care uninsured population had incomes greater than 200 percent of the FPL. Some had incomes that would have permitted them to purchase health care insurance, but they did not. In fact, in 2004, 9.0 percent of the adults without health care insurance qualified to join existing programs at no personal cost, but did not complete the applications. Since then, the uninsured population segment that could afford health care insurance has grown. By 2007, 33.0 percent of Missouri’s health care uninsured population had incomes greater than 200 percent of the FPL — about 245,530 individuals.

What is the danger to Missouri? Studies show the health care uninsured are unlikely to have regular medical care, so their problems are identified late and cost more to treat. The result is an increase in Missouri health care expenditures, because when those without health care insurance run out of funds, the state pays for their care. Is this what is in store for Missouri?

Reining in Medicaid

Posted on August 6, 2009May 5, 2026 by Caitlin Hartsell

An article in the Springfield News-Leader reports that the number of people within Missouri’s Medicaid program has risen 5 percent during the last year. Given the current economic situation, more people are qualifying for Medicaid.

Legislators have suggested provisions to further expand Medicaid. From an article on Kaiser Health News:

Currently, many low-income adults are not eligible for Medicaid, but they could be if Congress decides to “make income alone the determinant of Medicaid coverage. Under the health reform bill now being considered by the House, all non-elderly people earning at or below 133% of poverty — about $14,400 for an individual, and $29,300 for a family of four — would be eligible.” The House bill would have the federal government “pick up the entire cost of those newly covered under Medicaid — $438 billion over 10 years,” while a Senate finance draft version “would have the feds paying the additional cost for only five years, after which the states would have to pick up their typical share of existing Medicaid costs, which averages over 40%” (Tumulty, 7/21).

As Show-Me Institute intern Abhi Sivasailam said in an earlier blog entry, economist Arthur Laffer recently published an op-ed in the Wall Street Journal about the proposed federal health care reform. The main cause of out-of-control spending in the existing health care system has been the “health-care wedge,” the distance that a patient/consumer has from the actual cost of a procedure. Medicaid exacerbates this wedge by completely separating the patient from any responsibility. The payment structure of Medicaid (which compensates for a lesser amount than some procedures cost) encourages doctors to order more tests than necessary in order to recoup costs. This cycle only raises taxpayer expenses and the cost of health care in general.

Regarding Medicaid, Missouri has relatively low expenditures compared to the rest of the country. Missouri spent $6.6 billion on Medicaid in 2007, approximately 2.06 percent of what the United States spent that year. During the past 10 years, Medicaid spending in Missouri has grown at a slower rate than the national average, but it is still growing. Every dollar that Missouri spends sees some percentage of a match (based on a varying multiplier rate) from the federal government. In 2008, the federal government paid for 62.4 percent of Medicaid’s cost; in 2009, that percentage has jumped to 71.2. This creates an even larger wedge for states that have less of a responsibility for each enrolled individual, but are making payment decisions. Some other states have already (or almost) run out of money to pay for Medicaid, including New Hampshire, Georgia, Illinois, and Mississipi. With compensation decreasing to a point lower than procedural cost, more doctors are refusing to accept new Medicaid and Medicare patients. It is apparent that Medicaid is not working, and Medicare is set to run out of money by 2017. Expanding Medicaid and creating a similar public option are not workable solutions.

One way to decrease the size of the “health-care wedge” is by encouraging the use of health savings accounts (HSAs), something that the Show-Me Institute has written about, and that Arthur Laffer writes about in his op-ed:

A patient-centered health-care reform begins with individual ownership of insurance policies and leverages Health Savings Accounts, a low-premium, high-deductible alternative to traditional insurance that includes a tax-advantaged savings account. It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into a simple voucher for low-income individuals to purchase their own insurance.

Health care vouchers and HSAs may be the best ways to fix the growing health care problem, and to rein in Medicaid before it becomes even more unsustainable than it already is.

Laffer on Health Care

Posted on August 6, 2009May 5, 2026 by Abhi Sivasailam

Economist Art Laffer has recently released a study and published an op-ed in the Wall Street Journal evaluating the needs, prospects, and viability of health care reform proposals.

Laffer agrees with reformists that the cost inflation of health care is unsustainable. He contends, however, that the plans currently on the table neglect the true source of these costs — the “health-care wedge” between the actual costs of providing care and the costs incurred by a patient. Laffer writes:

When the government spends money on health care, the patient does not. The patient is then separated from the transaction in the sense that costs are no longer his concern. And when the patient doesn’t care about costs, only those who want higher costs—like doctors and drug companies—care.

Laffer’s research suggests that $1 trillion in government health care subsidies will thus do nothing to control costs, and will even serve to accelerate cost inflation. He proposes reform based on modifying the structure of incentives by encouraging personal responsibility:

A patient-centered health-care reform begins with individual ownership of insurance policies and leverages Health Savings Accounts, a low-premium, high-deductible alternative to traditional insurance that includes a tax-advantaged savings account. It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into a simple voucher for low-income individuals to purchase their own insurance. And it reduces the cost of medical procedures by reforming tort liability laws.

As I see it, the national health care debate is centered on three core values: cost, access, and quality. By focusing purely on expanding access to health care, we fail to honor our commitments to restraining cost and maintaining quality. It may be better, then, to look for proven tools that focus on cost reduction as a means to expanding access. This means not only considering the aforementioned proposals, but also pursuing continued deregulation of primary care, encouraging the health services sector to move away from fee-per-service incentive structures, and lowering the education and opportunity costs incurred by health care professionals.

Stay tuned for Laffer’s Missouri-specific health care report for the Show-Me Institute.

Is This the Beginning of the End for “Free”?

Posted on August 6, 2009May 5, 2026 by David Stokes

A little-known website, Drudge Report, links to a few stories this morning with the same theme: Businesses in this economy are going to stop giving their products away. First of all, apparently NewsCorp is going to start charging for all of its news in the near future — online, and everything. I have no idea whether this will be good for its profit margin or condemn it to online irrelevancy. (We subscribe to the Wall Street Journal here at work, so I guess it won’t affect us too much.)

Somewhat more interesting is the decision by some coffee shops to force people who sit there all day to actually buy something. I have never had a cup of coffee, so I have not spent too much time in coffee shops. Nonetheless, during the little time I have spent in them, I have always been amazed at the people sitting there using the resources without paying anything (or paying barely anything). When I had my own small business in the ’90s, I tried not to do anything for free. I often gave extremely large discounts in certain situations (mostly for multiple legal papers being served at the same address), but I didn’t ever want to do anything for free. I certainly understand why some coffee shop owners no longer think its cute to have people taking up seats for hours without paying for anything.

This issue hits home because one of our favorite places to go after work here at the Show-Me Institute is C.J. Muggs in Clayton, where they set out excellent free appetizers during happy hour. They more than make back this loss from beer drinkers, but not everyone who works at the institute drinks alcohol. So, I wonder whether Muggs makes any money on the people who go there, buy a soda (they always pay for something), and then eat the free food? I have to guess that they make enough money off the beer drinkers to more than make up for a few people who just get a soda. But, if Muggs were to take away the free food, we would be really screwed.

Interstate Rail Project Would Bring High-Speed Spending

Posted on August 6, 2009May 5, 2026 by Randal O'Toole

On June 17, the Federal Railroad Administration (FRA) asked states for proposals for spending the $8 billion of stimulus money that Congress allocated to high-speed rail. Which raises a question: Would you pay $1,000 so that someone — probably not you — can ride high-speed trains less than 60 miles per year? That’s what the FRA’s high-speed rail plan is going to cost: at least $90 billion, or $1,000 for every federal income taxpayer in the country.

That’s only the beginning. Count on adding $400 for cost overruns. Taxpayers will also have to cover operating losses: Amtrak currently loses $28 to $84 per passenger in most of its short-distance corridors.

The FRA plan also has huge gaps, such as Dallas to Houston, Jacksonville to Orlando, and the entire Rocky Mountains. Once states start building high-speed rail, expect local politicians to demand these gaps be filled at your expense. And don’t be surprised when the government asks for billions more in 30 years to rebuild what will then be a worn-out system.

What would we get for all this money? Unless you live in California or Florida, don’t expect superfast bullet trains. In Missouri and most of the rest of the country, the FRA is merely proposing to boost the top speeds of Amtrak trains from 79 miles per hour to 110 mph. A top speed of 110 mph means average speeds of only 60–70 mph, which is hardly revolutionary. Many American railroads were running trains that fast 70 years ago.

The pro-rail Center for Clean Air Policy predicts that, if the FRA’s system is completely built, it will carry Americans 20.6 billion passenger miles per year in 2025. That sounds like a lot, but, given predicted population growth, it is just 58 miles per person.

Missouri’s portion of the plan will cost at least $875 million, or nearly $150 for every Missouri resident, plus tens of millions more per year in operating subsidies. For that, the average Missourian will take a round trip on the train only once every six years. Most of the rest of your $1,000 will go to California, which wants to you to help pay for a costly bullet train. Even this train will do little to relieve congestion or save energy; mainly, it will just fatten the wallets of rail contractors.

Who will ride these trains? We can get an idea by comparing fares between New York and Washington, D.C. As of this writing, $99 will get you from Washington to New York in two hours and 50 minutes on Amtrak’s high-speed train, while $49 pays for a moderate-speed train ride that takes three hours and 15 minutes. Meanwhile, relatively unsubsidized and energy-efficient buses cost $20 for a four-hour-and-15-minute trip with leather seats and free Wi-Fi. Airfares start at $119 for a one-hour flight.

Who would pay five times the price to save less than 90 minutes? Those wealthy enough to value their time that highly would pay the extra $20 to take the plane. The train’s only advantage is for people going from downtown to downtown. Who works downtown? Bankers, lawyers, government officials, and other high-income people who hardly need subsidized transportation. Not only will you pay $1,000 for someone else to ride the train, but that someone probably earns more than you.

Nor is high-speed rail good for the environment. The Department of Energy says that, in intercity travel, automobiles are as energy-efficient as Amtrak, and that boosting Amtrak trains to higher speeds will make them less energy efficient and more polluting than driving.

An expensive rail system used mainly by a wealthy elite is not change we can believe in. Missouri should use its share of rail stimulus funds for safety improvements such as grade crossings, not for new trains that will obligate taxpayers to pay billions of dollars in additional subsidies.

Randal O’Toole is a senior fellow at the Cato Institute, and author of the Show-Me Institute study “Review of Kansas City Transit Plans.”

[Editor’s note: A portion of the sixth paragraph of this op-ed originally read, “the average Missourian will take a round trip on the train only once every 12 years.” The correct figure for Missouri is “once every six years.” We have corrected this in the interest of accuracy, and apologize for the oversight.]

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