Mother Government Is Our Provider and Our Caregiver

Posted on by David Stokes

An op-ed by Amy Blouin of the Missouri Budget Project has been making the rounds. Combest linked to it in the St. Joseph News-Press a few weeks ago, and the St. Louis Business Journal ran it last Friday, although we can’t link to their version. Her op-ed deserves a careful review.

It begins with her driving her children somewhere and them complaining about taxes from the back seat. Really? Is this believable? Young children riding in the back of a car complaining about sales taxes, giving their mom an opportunity to explain the importance of taxation? I don’t buy it, and so I’m calling b/s on the opening premise of the article. (As my infant grows, if he ever out-of-the-blue says to me, "Dad, I look forward to one day receiving a license from the government to work in whatever occupation I choose," thus giving me an opportunity to tell him about the harm occupational licensure does, then I shall retract my call of b/s and offer a full apology.)

She then lists the many important things taxes do:

Taxes pay for the fireman who one day might carry your spouse to safety; the public school teacher who spent extra time teaching your child algebra; the road that transports your business’ products to customers […]

All of these are, of course, completely true. The fun is in what she leaves out. Taxes also pay for the unnecessary city employee who does nothing all day, but is some committeeperson’s brother so they keep him on the payroll. Taxes pay for subsidized giveaways to developers and professional sports teams that don’t need or deserve them. Taxes pay for the transfer programs that are one day going to bankrupt this country. Taxes paid for the welfare state and Great Society that cured poverty created a cycle of dependency and didn’t reduce poverty rates, despite spending enormous amounts of money.

She then considers the low-tax nature of Missouri:

Missouri is already one of the lowest tax states in the nation, ranking 40-something in nearly every category. As a result, our services have slipped dramatically.

She gives no evidence of which services have slipped, but I have to be fair here — op-ed word limits are tight. There are two assumptions that underlie everything she writes. First, that it is the proper role of government to solve every problem and provide every service (health care, poverty, retirement money, cheap higher education, etc.), and second — and just as important — that the government does a good job in providing these services.

She then gets specific as to the low-tax nature of Missouri, but not as to why this is a problem:

Missouri now ranks 46th lowest for state and local spending per capita; 44th lowest for K-12 education spending; 46th lowest for higher education spending, causing tuition at public universities to skyrocket; and we have one of the lowest eligibility levels for health care for working parents in the nation, resulting in a 15 percent increase in the number of uninsured in the last year alone.

I personally think it is a good thing that we have a strict eligibility level for state-provided health care. That makes it more clear to me that the people who need it the most are the ones receiving it. Just because someone out there may have a need, it does not follow that the government must provide that need. I also fail to see why tuition at our universities can’t rise in order to pay for the eduction of the people who will benefit from it. It is still far lower than the costs at most private universities. As for the rise in the uninsured (at least she gives factual evidence here), there are innovative ways for that to be addressed that don’t involve government benevolence and control.

I could go on, but blog posts — like op-eds — have size limits or people would just stop reading, which most of you likely already have. She sums up her point with this:

What Missouri leaders should instead focus efforts on is not how to reduce taxes, but how to create a tax structure that is both equitable and adequate to meet our needs.

Creat a tax structure that is both equitable and adequate? I couldn’t agree more.

Some Positive (and Not-So-Positive) News for Missouri Homeowners

Posted on by Justin Hauke

Forbes Magazine has ranked Kansas City fifth in its “Best Cities for Home Sellers” list.

This is good news for Kansas Citians, who have been largely spared from the harshest wrath of the current housing “correction.” Saint Louis residents haven’t fared nearly as well, with the latest housing price index indicating year-over-year price declines of 5.2 percent. In fact, Forbes lists Saint Louis as number 4 in its “Riskiest Real Estate Markets” list.

Leading Kansas City on Forbes’ list were San Jose, Calif., San Francisco, Calif., Salt Lake City, Utah, and Austin, Texas.

The Missouri Health Transformation Act: Everything AND the Kitchen Sink

Posted on by Justin Hauke

The Missouri Health Transformation Act of 2008 (SB1283), which would implement several state health care reforms, has passed the Missouri Senate and is now headed toward House approval.

This bill is a perfect example of bureaucracy at its finest. Considering the amount of administrative minutiae in this bill, I’d be surprised if anyone in the Senate other than the bill’s sponsor actually read it.

So what exactly will be “transformed” under the new bill? I’ve spent the better part of the past hour trying to figure that out. Apparently, one “transformation” would be the creation of a new Department of Redundancy Department, which would consist of the existing members of the current state health care agencies. Apparently, this new body is supposed to “coordinate health policy collaboration” across the state by issuing “official state recognition” to employers that promote “healthy workplaces.” The new cabinet also hopes to express its approval of “telehealth” — health advice provided over the phone.

But if that’s not enough, the bill would contain a litany of additional health care “fixes,” such as providing tax credits to private homeowners who modify their homes to be “accessible” (no description of what that means), providing a $400,000 grant to create a “website,” and a $350,000 grant “to be used for the establishment of a study to assess the feasibility of [health] pilot projects in the greater St. Charles area.”

I just don’t understand who this bill is supposed to appeal to. The provisions it would implement are mostly superficial or redundant. The one bright spot is the creation of a state income tax deduction equal to the premium paid by taxpayers for high deductible health care plans purchased through a health savings account. But that benefit seems superfluous when the bill simultaneously expands the Missouri Consolidated Health Care Plan coverage to include benefits such as marriage counseling at the taxpayers’ expense. Considering the degree to which MCHCP is currently underfunded (stay tuned for the future release of our study about Missouri public pensions), this seems like shooting yourself in the foot.

The only thing this bill might “transform” is creating a greater conviction that an expanded role for government management of health care would be a huge mistake.

St. Louis County’s New Tax Commission Is Welcome Gift to Bloggers

Posted on by David Stokes

It looks like I am not going to have any trouble finding things to blog about as long as this new commission is in operation. St. Louis County has put together an ad-hoc committee to look at potential new revenue enhancements — or "taxes," in regular speak. The Post-Dispatch has the story here. This is not automatically a bad thing. "But Dave, you stupid commie pinko, new taxes are always a bad thing!" you might say to me, and indeed new taxes are usually a bad thing. But there are several reasons why I have faith in this commission and am not reflexively opposed to its very existence. Those reasons are:

  • First and foremost, Skip Mange is in charge of it. Skip is truly one of my favorite people. He was a great county councilman and a dedicated public servant. His engineering background will come out here. He is going to have to see a genuine need, hard facts, and a legitimate purpose before he supports any new taxes. (That is just my belief; he didn’t tell me that.) Skip certainly struck a note of temperance with his quote in the article:

Skip Mange, a Republican and former County Council member, is chairman of the commission. He said that supporters of the tax proposals "need to know which are not viable. They should not anticipate that all of them are politically available."

  • The fact is that St. Louis County does have a great deal of room under its bonding authority at present. My initial opinion here is that if something has to be done (and the Family Court Building really does suck), then issuing bonds and extending — but not increasing — the property tax to pay off the bonds is the best way to do it.
  • Finally, and very importantly, thanks to the Hancock Amendment no tax increase of any size will go forward without a vote of the people of St. Louis County. As the article states, several of these proposals have already been voted down. I am confident that the voters will make a good decision again regarding whatever this commission decides to support, if anything.

Lower Tax Rates More Efficient Than Tax Credits

Posted on by Joseph Haslag

Tax credits are a hot topic in the Missouri Legislature. Fans of these instruments assert that tax credits are necessary for Missouri to compete with other states and to signal that we are “open for business.” Such devotion to helping the state grow is admirable. Fans, however, are not experts. A careful review of the evidence and some basic economics helps us understand why these herculean efforts are misguided. When asking whether Missouri can stay open for business while avoiding the pitfalls of the tax credit, the answer is unambiguously yes.

Missouri state government is expected to redeem about $500 million in tax credits during the fiscal year that ends June 30, 2008. Net general revenue is roughly $8 billion. The static picture is straightforward; for every dollar of tax credits redeemed, there is one less dollar in the general revenue fund. When economic development is concerned, tax credit fans argue that the bigger picture is much more complicated — that tax credits induce businesses to form or expand, thus adding tax base for general revenues.

Tax credits and tax rates are tools used to determine the amount of money available for the General Assembly to spend. Both operate on the dollars collected into the general revenue fund. Holding everything else constant, tax credits reduce the amount of money available to spend. A reduction in the tax rate would accomplish the same change in money available to the state. In other words, there is an equivalence between tax credits and tax rates in the sense that each can affect the amount of general revenue funds collected. To reduce general revenue funds, one can use only tax credits, use only tax rates, or use some combination of the two. In terms of lowering the tax bill, each is equally capable. So, Missouri can signal that it is open for business by increasing tax credits or decreasing tax rates.

The next question is whether one tool is better than the other. The answer is yes. Tax credits are targeted reductions in tax bills. For example, tax credits specify that actions a, b, and c are necessary to receive the credit. For the largest source of Missouri revenue, tax rates apply to people’s income. People who cannot perform actions a, b, and c are excluded from receiving the credit, but everyone who pays the individual income tax would realize lower tax bills if the tax rate were reduced. From an equity viewpoint, the tax rate is preferred to the tax credit.

From an economist’s viewpoint, though, efficiency is a more powerful argument than equity. Which tool has a bigger bang for the buck in terms of its effects on economic growth? It is in trying to answer this question that tax credit fans confuse identifiable actions with the engines of economic growth.

Sure, a big plant is easy to see, and it is easy to count the number of jobs and the tax collected from the workers at the plant. Looking at it that way, one might conclude that the economic development tax credit “causes” that plant and improves the larger state economy.

Economic growth is more subtle than the big plant. Every day, people solve problems that lower the costs of doing business. It is difficult to point to anyone and say that person has the same effect as the big plant. Size notwithstanding, however, the accumulated effects of these little changes show up in productivity growth, which is much more meaningful for a state economy than a big plant. Some of this has to do with simple compounding: Even small differences in the growth rate translate into big differences in living standards after a generation or so. But some also has to do with the tax credits actually finding their way to the absolute “best” candidates.

One little mistake, such as picking the second-best instead of the best plant, can also affect the state economy for years to come. With a universe of potential candidates, it is hard to imagine that the state could ever find the best without real competition among the candidates.

Here is where tax rates matter again. Higher tax rates reduce the incentive to perform all these little actions that translate into faster productivity growth. If I have the choice of being more productive in a state with a lower tax rate, holding everything else constant, if I can keep more of the gains I created I will move to the state with the lower tax rate. I am not suggesting there is a giant sucking sound out of Missouri. I am saying that these decisions go on every day, and the evidence suggests that states with lower tax rates grow faster, on average, than states with higher tax rates.

Overall, economic growth is fascinating to study. It is not easy. However, one policy decision is easy after you accept the economic facts: If you want to lower people’s tax bills, the tax rate is a more equitable and more powerful tool than tax credits to stimulate a state’s economic growth. Admittedly, the tax credit is easier to show off, but I hope our legislators are not in this for the show.

Can Missouri unilaterally disarm in the tax-credit competition? Once one understands a little about economic growth, it most certainly should unilaterally disarm for the welfare of its citizens.

Joseph Haslag is a professor in the Economics Department at the University of Missouri-Columbia, and executive vice president of the Show-Me Institute.

 

Should College Be Free?

Posted on by Sarah Brodsky

Jay Nixon wants college to be free. Here he explains why:

"I firmly believe a college education is key to achieving a dream," he said. "Tuition at state colleges is skyrocketing and middle-class families are getting squeezed by outrageous tuition fees."

And here are a few reasons to oppose the plan:

1. College is expensive, but most of the eventual gains go to the student, in the form of higher wages and greater appreciation of the finer things in life, like philosophy. (At least, according to my philosophy professors.) So it makes sense for the student to bear the cost. We should give people opportunities to borrow for college and help out low-income students who couldn’t attend otherwise. But there’s no need to do away with tuition for all middle-income students.

2. College is essential to achieve many dreams. However, there are other "keys" to dreams, like winning the Nobel prize, owning an expensive car, or finding the perfect spouse. The state of Missouri can’t subsidize everybody’s dreams.

3. Last but not least: When you subsidize an industry, it loses the incentive to improve and innovate.

A Fantastic Example

Posted on by Dave Roland

The Post-Dispatch has a story today that I really hope garners a lot of attention. A private organization, the Today and Tomorrow Educational Foundation, has collected $12 million to help hundreds of economically disadvantaged students get a better education. The Foundation will award scholarships to roughly 600 children in St. Louis families whose household income qualifies them for the federal free- and reduced-price meals program, allowing them to choose from among 34 private schools for their educational needs.

This kind of charitable effort represents the best in our society. The children who will benefit are currently being failed not only by a school system that lost its accreditation, but by the surrounding public school districts who are refusing to admit students from the city (at the request of St. Louis Public Schools). Where bureaucracy and petty politics are exacerbating the plight of these children, the generosity of private individuals is making an effort to fill the gap and meet at least a small part of the need that exists in this city.

It is also important to note that this sort of private charity is precisely what would be fostered by a tuition tax credit scholarship program. Under such a program, the state would recognize and promote the pro-social behavior represented by such charitable donations, offering limited tax relief for those who contribute to the educational welfare of children in their communities. The availability of such a credit would be especially beneficial, because it would make more people liable to donate to similar foundations and it would allow them to give more than they would otherwise be able to give. As we have remarked before, a tuition tax credit scholarship would be an excellent way for the state to encourage private citizens to invest in the success of their communities’ children.

True Step Forward for Free Markets in Missouri

Posted on by David Stokes

Regular readers may readily recall my writings about utilities. So it is with some surprise that I was not more aware of efforts in the general assembly to deregulate telecom prices in rural Missouri. Then again, I am pleased to report that my job is NOT to sit over the computer and memorize every single bill that gets introduced. So with that happy shrug, let’s get to the point.

The Springfield News-Leader (link via Combest) has the story of a bill passed yesterday that will substantially reduce the regulation requirements for rural telecom companies. I must say that I find parts of this bill to be quaint. The telephone industry seems to be the MOST competitive industry out there. Have you ever noticed that they have these companies that sell these portable and wireless phones that occasionally advertise on TV? Do you remember when Sprint and MCI literally sent checks to people in order to get them to switch their long-distance providers back in the ’90s? Come to think of it, do you remember long-distance charges? Anyway, I think for most people the assumption is that there is plenty of competition in the telecom industry. But apparently there isn’t in some rural parts of Missouri. Isn’t that just adorable?

So when thinking of ways to increase competition, our legislators actually have decided, and I assume the governor will agree, to reduce regulations and price controls. This is exciting and admirable. The concern a few have is that rates will not rise in areas that don’t yet have competition, but if the history of capitalism proves anything, you can be assured that higher rates, and the potential for more profit, along with less regulation, will bring more competition into those areas and ultimately improve access to new services. And by "new," I mean the Internet. I shall gladly point out that this bill passed with substantial majorities and bipartisan support in both houses. All of our legislators deserve to be commended. The Kansas City Star has a story on it here. As one representative I know has an excellent understanding of free markets says:

“This bill is about access for rural Missouri,” said Rep. Charlie Schlottach, an Owensville Republican.

Indeed, it is.

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