Tax Incentive Goose, Meet Subsidy Gander

Posted on by David Stokes

The insantiy of Missouri’s tax incentive system is slowly becoming more apparent, though I have no confidence that, in this case, realization will lead to corrections. According to an article in Missouri Lawyer’s Weekly, the city of Saint Louis recently raised the issue of tax incentives at a board meeting of the East-West Gateway Council of Governments. (Unfortunately, we can’t link to the article, because it is subsciption-based — so you’ll have to trust us on the language.) From the article:

Slay spoke about the decision and questioned whether tax breaks and credits should be given for projects that end up attracting jobs from another Missouri city in the same region at a July 30 meeting of the East-West Gateway Council of Governments board.

The exact cause of the discussion was the move by the Armstrong Teasdale law firm from downtown to Clayton, to a development project being built with enormous subsidies by the state, county, and Clayton. But the issue is much bigger than one corporate relocation, as troubling as the move is for the downtown area. Examples in which tax money is used to help companies move from one Missouri city to another are numerous. Clayton, itself, was victimized by this game a few years ago when tax incentives helped Smutfit-Stone move its headquarters to Creve Coeur. And it seems peculiar for the city of Saint Louis to be complaining about tax incentives offered by Clayton when Saint Louis recently came very close to luring Centene to move downtown, thereby leaving Clayton, by offering significant tax incentives.

The solution is to stop handing out tax incentives entirely — no exceptions. “But, David, that would put Missouri at a disadvantage when competing with other states,” say the economic development officials. Perhaps, but if we created an overall business environment better than other states, then we would offset that. We could lower the state corporate income tax, eliminate the payroll tax in Saint Louis city, reduce occupational licensing even further, and more. We already passed tort reform, and that has been a great success. The key is to stop allowing tax dollars to be used when a government decides it wants a certain business in a certain place, rather than allowing markets to make those decisions. We have written extensively about this here at the Show-Me Institute.

Not every local government plays this game, but most do. If the city of Saint Louis really wanted to, they could follow the lead of Saint Charles County and refuse to use TIFs and other tax abatements. It is indeed insane that Sunset Hills gives tax incentives for businesses to leave Crestwood, but it happens all the time — and the city of Saint Louis has done it, too. You need to be against it when it favors you, as well as when it hurts you.

Charitable Tax Credits Provide Constructive Alternative to Prop. 1

Posted on by Calvin Harris II

 

This November, Saint Louis County constituents will vote on a new annual tax of one-quarter of a cent (1 cent on every $4.00) to fund programs supporting the mental health and well-being of area youth. The estimated $40 million that would be collected after the passing of Proposition 1 would create a steady stream of funding for emergency shelters, transitional living programs for older youth, outpatient substance abuse treatment, and services to teen mothers. A Saint Louis County needs assessment concluded that the availability and funding of children’s programs should be increased, and while taxation may seem like a logical means to reach this end, there are other options.

Many surrounding counties, such as Lincoln, Saint Charles, and Jefferson — not to mention Saint Louis city — have already passed such measures to fund child and youth programs. Although Saint Louis County has more than three times the youth population of those adjacent counties, this would be the perfect time for the state to exercise other options to solve the issues at hand. Missouri could follow the lead of Michigan, Arizona, and North Carolina — states that have expanded tax credits to non-profit organizations and allowed communities to invest in their children by increasing charitable tax credits. These types of tax credits would revive volunteerism by reminding people that providing for the mental health and well-being of children is the responsibility of individuals in their local communities.

Charitable tax credit programs usually share three goals: increased charitable giving; letting taxpayers determine the effectiveness of charitable services; and supporting programs that address local community needs. Currently, individual taxpayers who itemize deductions on their federal income tax returns are entitled to reduce their taxable incomes by the amount of charitable contributions they’ve made, up to a certain limit. Additionally, at least a dozen states offer tax credits for contributions to certain qualifying charitable organizations that perform public functions. For example, Michigan offers tax credits for homeless shelters, food banks, and contributions to community foundations. Although only a small fraction of the Michigan population claims them, the total value of these credits exceeds $40 million annually.

Back in 2006, Gov. Matt Blunt announced that two Saint Louis not-for-profit organizations — The National Council on Alcoholism and Drug Abuse, and Voices for Children — would be eligible to receive state tax credits to help fund programs aimed at preventing substance abuse and violence among at-risk youth. In this circumstance, private-sector donors could receive tax credits valued at up to 50 percent of contributions to approved projects.  Furthermore, those credits could be applied to the donors’ Missouri tax bills. Also during 2006, Gov. Blunt announced that Kansas City taxpayers could potentially receive tax savings of up to 50 percent of their charitable contributions to the Big Brothers Big Sisters program — which did, in fact, see a sharp rise in donations and charitable giving.  There is no reason why this could not work for other programs in Saint Louis County and across the state.

Another drawback of Proposition 1 is that it would increase government bureaucracy in order to distribute money to existing programs. This makes the giving process less direct and less efficient. Missouri should instead give private-sector charities a chance, by giving taxpayers a choice. Expanding charitable tax credits would give citizens the ability to fund groups that they think are effective. Harnessing this distributed knowledge is a more efficient way to identify organizations that do good work, and shift resources in their direction.

At the end of the day, the question is, “If the government taxes less, will you give more?” Studies have shown that when government spending increases, charitable giving declines. Instead of leaving worthwhile groups to be limited by inadequate funding, charitable tax credits provide an alternative, establishing positive incentives and cultivating a culture of giving. This would expose even more people to the intangible rewards that come from giving to and supporting their own neighborhoods. It really does take a community to raise a child, and no government bureaucracy can substitute for that.

Calvin Harris II is an intern at the Show-Me Institute, a Missouri-based think tank. He is currently pursuing a master’s degree in public policy at the Heller School for Social Policy and Management at Brandeis University.

 

Hatfields and McCoys

Posted on by Calvin Harris II

Here’s a quick question: Does St. Louis city honor St. Louis County licenses?

Under Missouri law, each county must impose its own business or occupational licenses. In other words, business licenses issued by one political subdivision are not recognized within another political subdivision. According to the the City of St. Louis License Collector Office FAQ, the only license issued in one county that is recognized by the other 113 counties in Missouri is an auctioneer’s license. The only reciprocal agreement between St. Louis city and St. Louis County involves taxicab and tow truck licensing.

This is not my idea of a free market. Let’s play fair, you guys. Wow, maybe we should use tax dollars to build a big fence between St. Louis city and the rest of St. Louis County.

Spring 2009 Internship Applications Now Being Accepted!

Posted on by Eric D. Dixon

The Show-Me Institute today announced its spring internship program. For those interested in applying, the internship will run from early January through late April or mid-May, and will be based at the Show-Me Institute’s Clayton office near Saint Louis. Applications are due on November 14.

Our spring 2007 intern, Steve Bernstetter, wrote a great blog entry about what it’s like to be an intern here. I’d also like to quote a few paragraphs from a farewell letter written by one of our summer 2008 interns, Dan Grana:

I began the summer by attacking an ineffectual bill that will impose nominal regulatory burdens on textbook producers starting this school year. Although the issue is relatively minor and the legislative action I criticized succeeded, I found immense satisfaction in combating the absurd economics used by students, like me, to justify a mistake. Scholars of regulation repeatedly note that massive damages come in incremental steps. The Show-Me Institute takes this truism to heart, and I appreciate its support of my opinions regarding one particular issue that is especially relevant to me.

I will end the summer by researching different formulations of state education budgets and the taxes that they come from. I understand that this information will be used in an exciting paper […] on Missouri’s educational funding. This project has familiarized me with research methods and policy issues I would not have otherwise encountered. I am certain that this knowledge will prove valuable in my remaining years of economics education, where I will increasingly be asked to raise original ideas in assignments, and beyond. I can only hope that I’ve been as helpful to this project as it has been to me.

During the time between these two endeavors, I’ve found satisfaction in blogging about diverse issues and helping around the office. For what it’s worth, even the most stereotypically inglorious intern duties have provided a newfound understanding of the practical necessities behind a successful office’s operation.

Perhaps more than anything, I’ve benefited from the Show-Me Institute’s exceptional staff. In addition to being extremely friendly, the members of this organization have been great educators. By talking with them about a variety of topics, I’ve gained an understanding of different political philosophies that draw on the same respect for economic freedom.

If you’re a college student who would like to have a similar experience conducting real research and making a difference in the world of Missouri public policy, apply today! If you know a college student who might fit that description, be sure to spread the word.

This Blog Post Has Not Been Approved by the General Assembly

Posted on by Sarah Brodsky

This story in the Post-Dispatch reminds me of the official state animals and desserts that Missouri schoolchildren have been shepherding through the General Assembly lately.

At first glance, it may seem unrelated. The article I link to reports on the case of a proposed “Choose Life” license plate, which was rejected by legislators. The Alliance Defense Fund argues that rejecting the plate violated free speech, while the state maintains that it has veto power over messages on plates.

I don’t know enough about the legal considerations here to comment on which side is right. But I immediately thought of the official invertebrates, because that’s another issue on which the state arbitrarily endorses certain positions. The case was made for crayfish; now crayfish are “official.” Crayfish generally stay out of controversy, so it was easy to get them approved. Lawmakers are understandably a bit more hesitant to place their stamp of approval on a message about abortion.

We could avoid this problem altogether if we said, “Enough is enough.” No official animals, and no official messages on license plates. If people want to promote the “Choose Life” message, they can display bumper stickers. Fans of crayfish, ice cream, and whatever else can decorate their cars to reflect their preferences. The General Assembly doesn’t need to be involved.

Two Million Minutes

Posted on by Dave Roland

The Post-Dispatch’s education blog pointed out today that tomorrow night, Principia College will be screening Two Million Minutes, a documentary by one of its graduates. The film is the first of several that will compare how education is addressed in China, India, and the United States.

I went to the film’s website and found that they have a set of seven short exams available to see how you would fare on a typical high school evaluation in India. While a few of the questions could reasonably elude American test takers (particularly where they focus on Southeast Asia or a distinctly non-American turn of English phrasing), I found that most of the questions, while quite difficult, fell in the range of topics covered in my high school and college education. I encourage anyone interested to give the exams a try and (if you’re not embarrassed), report your results in the comments below. In the meantime, I’ll try to attend the film screening tomorrow night and offer an assessment next week.

Future of Missouri Higher Education

Posted on by Calvin Harris II

Education is one of the most important issues facing our country, and the Show-Me State in particular. Missouri’s higher education system is currently ranked 47th in the country when it comes to funding. As a poor graduate student, I can not help but think about some of my peers who are swamped with loads of debt. It gives me nightmares! This November, both gubernatorial candidates of Missouri are offering slightly different solutions for funding colleges and universities in Missouri.

Jay Nixon’s Missouri Promise plan would expand the A+ Schools Program so that all Missouri high school students who meet the performance requirements are eligible to use an A+ scholarship to attend a technical school or community college. The students who participate in the A+ program would also be able to sign the “Missouri Promise,” a deal that allows them to use a new scholarship to earn a four-year degree after completion of their two-year degree. The Missouri Promise scholarship would be contingent on earning at least a 3.0 GPA, completing 50 hours of community service, and staying out of trouble.

Kenny Hulshof would increase needs-based scholarships and establish the Missouri Prosperity Initiative, a public-private partnership that would increase funding for biotechnology, math, chemistry, and engineering. According to Hulshof’s campaign information, “State contributions will be leveraged by requiring a 2-to-1 match from businesses and philanthropic interests.” The program would also fund an endowment to “help attract world-class researchers to Missouri,” and would peg Missouri’s spending on higher education to the rate of inflation plus two percent. This would all be subject to an annual “Missouri Higher Education Accountability and Performance Report.”

First and foremost, both plans tackle the issues of funding/student loan debt while allowing for a college education to be more accessible. I do like the Missouri Promise provision pushing civic engagement by making students complete 50 community service hours. While a two-year college degree is almost equivalent to a high school degree in our current fast paced society, there are a few students that might not have had the proper training to jump right in to a major four-year institution. So those two years at a community college might provide the right stepping stone to allow targeted students to get on track for a higher degree. I also enjoy the Missouri Prosperity Initiative’s plan to increasing funding for mathematics, chemistry, and engineering. All of these areas are going to play a major role in creating new businesses in a world dominated by technology. Finding ways to increase giving, and making funding recipients accountable is also a plus.

I could continue to go on about the pros, and then list the cons, but I would like see what you all have to say about it. …

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