One Small Step for Capitalism

Posted on by Sarah Brodsky

Here’s something to celebrate on the Fourth of July. For the first time ever, North Korea’s state television station has broadcast a beer commercial. (Under normal circumstances, North Korean state programming eschews advertising in favor of documentaries about communist dictators.)

Not surprisingly, given Kim Jong Il’s opposition to free markets, the advertisement is vague on details like price:

It was unclear how much the beer cost and how many North Koreans could afford it. The country is among the poorest in the world, with an average per capita income of $1,065 in 2008, according to the South’s central bank.

If you have to ask, you can’t afford it.

Keeping Out Competition

Posted on by Sarah Brodsky

Did you know that you can be denied a law license if you have too many outstanding student loans? Look at this quote from the New York Times:

“Applicant has not made any substantial payments on the loans,” the judges wrote in a terse decision and an unusual rejection of the committee’s recommendation.

According to these New York judges, you’re supposed to borrow money for law school and pay off the loans before you begin working as a lawyer. Only afterward will you be admitted to the bar. Never mind that people can pay off loans far more easily once they’re practicing lawyers — or that this policy gives a huge advantage to wealthy law students.

Many students with debt have become lawyers, of course, which makes this story appear to be an outrageous anomaly. And I expect that all the scrutiny from the press will lead to a reversal of the decision.

That doesn’t mean we should rest assured if this man succeeds in his quest to practice law. Occupational licensure prevents people from earning a living if they don’t meet arbitrary requirements; it’s had that pernicious effect all along. This particular case is unusual because one man was held to a higher standard than other applicants. When licensing requirements bar people from professions for falling a little bit short of the standards, which happens all the time, it doesn’t make the news.

Judge Rejects Eminent Domain Ballot Summary

Posted on by Caitlin Hartsell

Earlier this week, a judge struck down a ballot summary prepared by Missouri’s secretary of state for an initiative that aims to limit eminent domain in the state Constitution. He called the summary “insufficient and unfair” because, according to the judge, it implies that these property rights are not already protected in the Missouri Constitution.

At the same time, the judge rejected many of the claims filed by opponents of the two amendments:

The Missouri Municipal League, which opposes the amendments, raised numerous legal challenges to both but prevailed on only one claim against one of the measures.

[Judge] Callahan struck down a portion of Carnahan’s summary that said the amendment would restrict eminent domain by “requiring that any taking of property be necessary for a public use and that landowners receive just compensation.”

While this slows the petition process, the measure’s sponsoring group, the Missouri Citizens for Property Rights, is optimistic about the proposal with the suggested change.  The group hopes to establish two new constitutional amendments:

The combined intent is to prevent a person’s home, business or other private property from being condemned for another private development, such as a shopping center.

Such condemnations often take the form of specious designations of “blight” being ascribed to houses like the Kelo house (which was under dispute in the Kelo v. New London Supreme Court case) in order to make way for private development.

For more about eminent domain, read the extensive policy writings and work by Show-Me institute staff on the topic.

Breaking Down Barriers to Charter Funding

Posted on by Abhi Sivasailam

The Kansas City Star reports that some charter schools in Missouri have emerged victorious from the latest round of litigious bouts with the Kansas City public school district.

Since passage of a 2005 law with provisions for direct funding of charter schools, the Kansas City school district has fought a battle against what it sees as an unfunded mandate. Prior to the law, charter schools in the area were funded indirectly. The money trickled down from the state to public school districts, and then finally to charter schools. The 2005 law streamlined this process, allowing states to dip from the pool of revenue typically reserved for district schools and fund charter schools directly:

District schools receive local tax dollars, but charter schools do not, said Khris Heisinger, attorney for the Missouri Charter Public School Association, which is named in the lawsuit. […]

“They want to spend all the local money and get the same state money they had been getting,” Heisinger said of the school district.

It is conceivable that this policy could help district schools as well.  Faced with a shrunken revenue pool, Kansas City schools will be forced to focus on what works, and cut out what doesn’t. Regardless, the recent Cole County court ruling in favor of charter schools and the streamlined funding process is a positive step forward in compensating for the disparity of available resources between district and charter schools.

Earnings Tax Burden Is Too Heavy

Posted on by Abhi Sivasailam

In a recent article for the St. Louis Beacon, the Show-Me Institute’s vice president Joseph Haslag and intern Alex Schulte explore the ways in which the earnings tax is failing St. Louis and Kansas City. It is indeed odd that two of the state’s largest cities face relative worsening and weakening of their economies, irrespective of the boom and bust cycles that the nation at large faces. Both cities are burdened with shrinking populations and falling total personal incomes.

As increasingly effective technological gains continue to erode the comparative advantage of doing business in these cities (location, transportation, centralization, etc.), the existing incentive structure is tipping the scales toward suburbs and other states. Haslag and Schulte write:

According to our calculations, ending the tax would reverse St. Louis’ current negative growth rate. If St. Louis were to eliminate its earnings tax, our projections indicate that during the next 25 years, the cumulative discounted income gains would be $1.5 billion. If Kansas City were to do the same, its cumulative discounted income increase would be even more substantial, totaling an additional $3.2 billion in personal income for the next generation.

It is becoming clear that the 1-percent earnings tax contributes to a burden that is far from modest. Shifting to an alternate mode of raising city revenue would be better for citizens, and for restoring the vitality of cities that should be a source of pride for Missouri.

For other Show-Me discussions of the earnings tax, see:

Let Them Pay Taxes!

Posted on by Caitlin Hartsell

The Springfield News-Leader reported today on the task force created to address the pension deficit in Springfield. The pension plan for the police and fire fighters has a $200 million deficit that is expected to grow by $20–50 million by next year. The task force recognizes that it “had promised benefits it could not afford.” The only solution to this debt currently under consideration by the task force is an additional sales tax between 1/4 and 1 cent.

The article mentions that “the group previously has united behind proposals to restructure the pension fund board and move new police and fire employees to the state LAGERS retirement system.” The pension plan needs to be restructured, but this might not be the best method for doing so. The Show-Me Institute’s executive vice president, Joseph Haslag, has written about the issue recently, offering his idea for a comprehensive means of eradicating the problem, by restructuring the defined-benefit plan over time into a defined-contribution plan. This would create a system of portable benefits that lacks the budgetary pitfalls Springfield currently faces. Instead, the task force is trying to patch up the immediate budget deficit without really addressing the flaws of the program that led to the city’s problematic situation in the first place.

The public already rejected a ballot measure in February that proposed adding a 1-cent sales tax for this same purpose. Instituting such a tax now would contravene the public’s expressed wishes. Although the article reports that a 6/8 or 7/8 cent sales taxes increase “might be more palatable” to some, even these increases would be unwise during the current economic downturn. The most viable solutions for Springfield’s task force don’t require taxpayers to bail them out.

The Future of Highway Funding

Posted on by Abhi Sivasailam

The Kansas City Star reports on the increasing support for a plan to scrap and replace the fuel tax. The article cites rising public concern that the current revenue stream for highway and transportation projects, structured around fuel taxes, is unsustainable.

In recent years, public highway funds have been shriveling. In response to concerns about environmental impact and personal budget costs, the public’s automobile preferences are slowly and surely shifting toward increasingly efficient cars with higher gas mileages, or cars that bypass gasoline fuel altogether. Is implementation of a mileage tax the best way to confront these trends?

On the state level, Oregon has experimented with this idea, with some degree of success and enthusiasm by the trial participants. Adam Stein of Grist explains how the system worked:

A small GPS receiver in participants’ cars tracked miles driven. When participants went to the gas station to fill up, a wireless scanner at the pump detected the GPS receiver and recorded the car’s current mileage, which was then sent to a central database to determine miles driven since the last payment. No specific location data was transmitted. The payment system at the gas station applied either the standard gas tax (for cars that didn’t have a GPS system) or the mileage tax (for participating cars). The experiment was designed to be revenue neutral, so fees were about the same in either case.

The Oregon experiment produced high satisfaction (91 percent of participants preferred the system to a fuel tax), and curbed both congestion and average driving times.

On the national level, Transportation Secretary Ray Lahood is a vocal supporter of phasing in a mileage tax system, a view which has been shot down by the Obama administration.

Problems abound with mileage tax systems, including — but certainly not limited to — high compliance costs (imagine retrofitting thousands of old cars with GPS transmitters!), interference of privacy rights, and ineffective distortion of driving behavior. Further, as economist Mike Moffatt notes, by removing incentives for purchasing fuel-efficient cars, mileage taxes feature all of the drawbacks of the fuel tax (regressive, decreasing travel, increasing prices of transported goods), while sharing none of its virtues. His solution? Make up for lost revenue by raising the fuel tax even higher.

In Missouri, revenues have been facing downward pressure for the past few years and have been falling at an average rate of 3 percent. The state’s highway budget is hobbling on, despite inflows of stimulus money. Missouri needs to act. Should Missouri join the ranks of other states like Ohio, Pennsylvania, Florida, Colorado, North Carolina, Oregon, Idaho, and Minnesota by experimenting with a mileage tax system? Should we raise fuel taxes? Should we stand by and do nothing, allow the system to die, and replace it with a private one? Your thoughts, please!

Puppy Mills Are Terrible, But Is Licensing the Solution?

Posted on by David Stokes

The attorney general’s office has recently announced a crackdown of sorts on unlicensed dog breeders in Missouri, commonly referred to as puppy mill operators. Combest has linked to a number of the stories.

This is a tough call. I love dogs, but I dislike licensure, and the question is whether the benefit of regulation in this case would outweigh the government intrusion into private commerce. It very well might. I don’t want to be seen for one second as defending puppy mills, which can be a heartbreaking industry. We have a dog, Marleigh, which: a) I adopted from the APA (a shelter here in St. Louis) about 10 years ago; and, b) was named by me years before that book or movie came out, I swear.

The argument for licensure of dog breeders is pretty simple: You have to have licensure so inspectors know who to check up on, to ensure they are following health and safety standards. It’s the same argument used to justify licensure for a lot of other industries, but because we are dealing with living creatures in this case, the intervention has more validity to me than it does for most other occupations.

Licensing and the current crackdown are probably valid in this case. There are certainly far worse examples of occupational licensing in our state, where the real goal is to limit competition. But I still think that the most important thing that the people of Missourians can do to reduce the prevalence of puppy mills would be to stop buying dogs from breeders and start getting them from shelters. If we all did that, the solution would solve itself without the heavy hand of government.

What Does the Earnings Tax Cost Saint Louis and Kansas City?

Posted on by Joseph Haslag

Missouri’s two largest cities are shrinking relative to the rest of the United States. The city of Saint Louis is shrinking, period.  From 2000 to 2007, total personal income in Saint Louis averaged a whopping 2.1-percent annual decline when adjusted for inflation.  Taking a longer view, from 1990 to 2007, the U.S. Census Bureau reported that Saint Louis experienced a drop in total personal income — despite the fact that the 1990s were one of the most prosperous economic eras in American history. Even during normal or positive economic climates, Saint Louis seems to have some defect inhibiting its growth.

A similar, though slightly less dire, tale could be told of Missouri’s other economic giant, Kansas City. Since 2000, Kansas City has also recorded declines in personal income. The first eight years of this decade there have been just as bad as the situation in Saint Louis, with Kansas City having suffered a 2.3-percent average yearly drop in real personal income. However, the city capitalized on the prosperity of the 1990s slightly more than did its cross-state rival. Going back to 1990, Kansas City has treaded water, experiencing anemic income growth during America’s so-called “Great Moderation.” For comparison purposes, personal income increased nationwide at an average rate of 2.3 percent per year between 1990 and 2007.

Though neither city can completely attribute its woes to one bad policy, they share a common element: Both cities have implemented a 1-percent earnings tax. Under the prevailing school of thought, an additional 1-percent tax assessed on those working or living within city limits is insignificant. Indeed, proponents rationalize, the rate is low enough that it could not possibly harm a city economy. Both Saint Louis and Kansas City also have infrastructure advantage over the suburbs; all roads lead to the central business district. But technological gains are rendering infrastructure advantages obsolete. As technology and transit become cheaper, the earnings tax may actually be shifting the advantage toward suburban or even out-of-state areas. Springfield, the state’s third-largest city and one that does not employ an earnings tax, has seen much lower rates of economic suburban migration and substantially higher rates of personal income growth than either Kansas City or Saint Louis.

What would a future without the earnings tax look like for Kansas City and Saint Louis? We tried to answer this question by estimating the growth rate for each city if the tax were eliminated. According to our calculations, ending the tax would reverse Saint Louis’ current negative growth rate. If Saint Louis were to eliminate its earnings tax, our projections indicate that during the next 25 years, the cumulative discounted income gains would be $1.5 billion. If Kansas City were to do the same, its cumulative discounted income increase would be even more substantial, totaling $3.2 billion additional dollars in additional personal income for the next generation.

Missouri’s two largest urban areas are in danger of ceding their economic tax base to other parts of the state, and to Illinois and Kansas. If current trends continue, development and entrepreneurial activity will increasingly eschew locations within the city limits of both Saint Louis and Kansas City. Instead, they will opt for sites farther from the urban core, but that offer tax advantages to workers and entrepreneurs.

Armed with measures of the lost potential in each city, it is time to implement tax policies that will raise the living standards in Missouri’s urban core. Important questions remain: Most importantly, how does one replace the revenues from the earnings tax? Future studies will explore solutions. Let us begin, however, with a simple agreement: Ending distortionary policies like the earnings tax is certainly a step in the right direction.

Joseph Haslag is executive vice president of the Show-Me Institute, a Missouri-based think tank, and a professor in economics at the University of Missouri–Columbia. Alex Schulte is an intern at the Show-Me Institute.

 

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging