All-Star Earnings Taxes

Posted on by David Stokes

Sunday’s Post-Dispatch had a good article about a planned attempt by the St. Louis  city collector’s office to apply the city’s 1-percent earnings tax to the baseball all-stars playing in St. Louis next week. (For which, by the way, I am lucky enough to have a ticket.)

One of the Show-Me Institute’s very first articles was about the lunacy of “jock taxes” like this. The city intends to tax 1 percent of the earnings of every player who earns an all-star bonus. So, for example, Albert Pujols would owe $500. (Although because Albert lives in Missouri, and plays full-time in the city, he might not be the best example.)

According to the article, there is a strong argument to be made against taxing the bonuses, and at least one city that has a “jock tax” recently chose not to tax all-star bonuses for that reason:

That’s the stance taken in Pittsburgh, which hosted the All-Star game in 2006. Pittsburgh has a 3 percent “usage fee” on the salaries of visiting athletes and entertainers, but officials ruled the bonuses were performance incentives, not pay for actually appearing in the All-Star game.

In other words, it wasn’t earned in Pittsburgh, and it can’t be taxed there, said Tim O’Donnell, with the Pittsburgh Finance Department. “Put it this way: To get selected, you’d better be playing good beforehand,” O’Donnell said.

I would love to see a player challenge this attempt and put a dent in earnings tax collections. The city of St. Louis should not be expending time and effort to collect 1 percent from everyone who sets foot in the city. (Trial lawyers who office outside the city, but benefit from city venues, are another story. They should pay a 20-percent tax on those cases — and I am only half-joking.)

Everything Tim wrote four years ago stands up perfectly in this case, and I encourage you to read his article.

One a related note, the economic benefits that come from hosting the all-star game are going to be terrific for the city, and I can’t wait to be a part of it.

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.

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