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Rothstein: School Improvement Has Been Hunky-Dory

Posted on April 10, 2008May 5, 2026 by Sarah Brodsky

This month’s topic at Cato Unbound is "Can the Schools Be Fixed?" and it kicks off with an essay by Richard Rothstein. Rothstein is from the Economic Policy Institute, and it shows; he seems to be more concerned with barriers to unionization than with the education system. According to him, the public schools are getting better and don’t need to be changed drastically. He argues that we are so alarmed about test scores that we don’t pay enough attention to labor policies that would have a greater effect on our economy.

Rothstein is right that we shouldn’t look to Asian countries, panic, and try whatever last-ditch effort comes to mind. But he’s wrong when he claims the education system doesn’t need major reform. He rests his contention on the rise in NAEP scores, particularly in math, over the past 35 years. But as Michael Strong points out in his reaction essay, the gains have gone to elementary- and middle-schoolers. That’s better than nothing, but not good enough; nobody hires a fourth-grader. And we shouldn’t conclude that there’s no education crisis just because the schools were once even worse. Students’ inability to identify key cultural references and facts, and their poor performance relative to other countries, show that school quality is way below what it should be.

The United States has enjoyed spectacular economic growth despite the mediocre school system. Rothstein takes that as evidence that schools don’t matter for growth. But economists who study the relationship between education and growth have found that schooling does matter. In this article in Education Next, the authors first consider the effects of time spent in school on growth across countries, then find that math and science test scores have an even larger effect:

When we performed the analysis again, this time also including the average test-score performance of a country in our model, we found that countries with higher test scores experienced far higher growth rates. If one country’s test-score performance was 0.5 standard deviations higher than another country during the 1960s?a little less than the current difference in the scores between such top-performing countries as Finland and Hong Kong and the United States?the first country’s growth rate was, on average, one full percentage point higher annually over the following 40-year period than the second country’s growth rate.

The U.S., with high growth rates and low test scores, has been an exception. We shouldn’t count on being an exception forever. Our free institutions and stable rule of law have given us a head start over many countries. As their institutions catch up to ours, academic achievement is going to matter more.

So improving education is a worthwhile issue to ponder. I’m looking forward to reading the plans for improvement in the upcoming essays.

2 and 2 Always Makes a 5

Posted on April 10, 2008May 5, 2026 by Justin Hauke

Adding insult to injury:

Research suggests that most Americans have extremely low levels of financial literacy. The Jump$tart Coalition for Financial Literacy tests 12th graders every two years by asking them practical money questions and consistently records an average score of 50 to 55 percent. Other research shows that about 3 in 4 workers don’t know how much money they need to save for a comfortable retirement, and only about half of respondents in one study were able to correctly answer two simple questions about interest rates and inflation.

These statistics pain me deeply, because financial literacy is as important as traditional literacy in today’s world of self-directed retirement accounts, preference for debt financing, and increasingly complicated investment vehicles.

Of course, we need schools to teach "read’n, ‘rit’n, and ‘rithmetic" first …

New Tax Estimator Compares Rates Throughout Missouri

Posted on April 9, 2008May 5, 2026 by Eric D. Dixon

Today, the Show-Me Institute released a new interactive tax estimator, "Show-Me: The Taxes." Here’s more:

Nobody likes to pay taxes, but no matter where you live or work, some level of taxation is a certainty. Not all locations are the same, though. Sometimes, moving just a few miles down the road may have a significant effect on how much of your own money you get to keep. Unfortunately, though, most people don’t have the resources to compare tax rates for cities and counties throughout the state.

You might well wonder: How much am I paying in taxes? Are my property taxes comparable to the Missouri average? How much tax am I paying on my purchases at the grocery store? Does where I live affect my overall tax burden?

Wouldn’t it be nice if there were a way to quickly receive answers to these and other Missouri tax-related questions?

The Show-Me Institute’s Missouri Tax Estimator can help. We’ve collected tax rates from cities and counties across the state to help Missourians better understand the taxes they pay.

The estimator is an interactive Microsoft Excel worksheet, with its macros digitally signed for your protection. It calculates your expected tax burden based on the information you provide, then allows you to change a variable or two in a comparison column, to see how your bottom line might change if you, say, moved to a different town or paid down some debt. It’s both informative and fun — check it out, and tell your friends!

“Viva St. Charles” Doesn’t Have the Same Bite … Yet

Posted on April 9, 2008May 5, 2026 by Nicholas Loyal

I’ve wanted to blog about this for a while, but the opportunity never really presented itself as well as I would have liked. While this is ordinarily not the kind of problem that would hurt my hypothalamus, the end of my time here at the Show-Me Institute is drawing nigh and I feel like articles such as this one are going to have to be my gateway.

As reported in the above-linked article from the Post-Dispatch, Missouri casinos are yet again attempting to repeal the state’s unique $500-every-two-hours loss limit. However, instead of trying to get the issue repealed through legislative means (as they try to do almost every fall, only leading to the same ineffective result) the casinos, led by Pinnacle Entertainment (operators of the new Lumiere Place development on the St. Louis riverfront and a forthcoming development in south St. Louis) and Ameristar Casinos are collecting signatures outside of their gaming floors in an attempt to put the issue in front of voters on the November ballot through the initiative process. In regard to this story, I have three comments:

1. Loss limits are ridiculous. Missouri is the only state with operating casinos that has one, and it provides a direct incentive for citizens of the state’s two largest metropolitian areas to cross state lines to bet bigger elsewhere (Illinois has a large gambling infrastructure, while Kansas is in the process of wooing casinos from such big players as the Las Vegas Sands and Harrah’s). While there may be limited evidence that a loss limit decreases tourism, is definitely doesn’t help put Missouri on the map as a gaming destination (after all, if the poorest county in the nation can be turned into a tourist destination, I think that big-time gaming might have a little bit of an effect). For a state to allow gambling … but only so much gambling … is a moral conundrum that confuses me to this day, and should be remedied at some point in the future.

2. That being said, offering the petition under the title of the "Schools First Initiative" is not the way that I would suggest going about getting this issue on the ballot. Yes, it is a good thing that tax dollars raised from gambling losses go toward education, but much like everything else on a casino floor, this seems a little too deceptive for my taste. If you want this on the ballot, title it "Repeal the Loss Limit." This would, effectively, be the perfect initiative. If enough support can come from patrons of these casinos to put an issue that they honestly understand in front of the Missouri public, so be it. That’s what the process is for. Granted, with that title, it would probably lose pretty handily, but I’d lay the odds at 7-1 — and you can take the action if you want it.

3. If I ran the casinos, I wouldn’t be treating this as a fight for school funding, but as a fight to protect the privacy of casino patrons. In Missouri, before you enter a gaming floor, you must first sign up for The Card. Usually these cards have fun names like "Privileges Plus," "Star Awards," or "Total Rewards," and I suppose if you sit in front of a slot machine for long enough you’ll get a free trip to the buffet from them, but all they really exist to do is to track your losses. Cards must be presented to enter the casino, to purchase chips, and to make any bet. While privacy has never really been extended very far at casinos (thanks to the Eye in the Sky) lines to sign up for these cards can be massive, and they represent yet another way that your entertainment choices are being restricted.

Will loss limits ever be repealed? Who knows. But gambling in Missouri isn’t going away, and if we’re going to endure all of the problems that casinos bring to a region, we might as well not restrict ourselves from the benefits as well.

Strikes and Gutters in Kansas City Election Results

Posted on April 9, 2008May 5, 2026 by David Stokes

It was probably a little premature and St. Louis-centric for me to call the Franklin County Charter victory the highlight of yesterday’s elections in Missouri with so much being voted on in Kansas City. Great as it was, they had some big issues on the table in KC, so let’s dive right into the Star’s coverage:

Votes approved the extension of the 3/8-cent sales tax to support the bus system — and, more importantly, codified that the tax go to the bus system rather than being diverted to light rail, as has been attempted. The Show-Me Institute has written extensively on this issue. Kansas City has a good bus system, and KCATA is moving toward expanded use of bus?rapid transit, which has worked well where it has been tried. Expanding the use of BRT was one of the central points of Randal O’Toole’s study for us. The passage of the tax extension, and its limitation to buses, will go a long way to making sure KCATA provides transit for the people who need it in a cost-effective manner.

Voters also approved a $1,000 per license fee on payday loan establishments to "reimburse" the city for the cost of regulating the businesses. This is just absurd, and will only increase the costs and interest rates of small loans for people who depend on these establishments for credit. Justin has covered this issue for the Show-Me Institute with great skill, so I will refer you to his comments.

Finally, in a move that will get libertarian blood boiling, voters approved a ban on smoking in public places, including bars and restaurants, in Kansas City. I shall leave it to my colleagues (who I am pretty sure spend far less time in bars than I do) to tell you why this is so horrible. I, myself, have several work trips to Kansas City planned in the coming months and I look forward to spending even more money in bars during those trips now that I won’t have to be bothered by the disgusting smoke. But, heh, I never said I was a libertarian. …

Charter Reform Victory In Franklin County

Posted on April 9, 2008May 5, 2026 by David Stokes

This was the highlight of last night’s local elections in Missouri. Now the hard work begins for the people of Franklin County as they work together to come up with a charter for their community. My own thoughts on the issue were published a few months back in the Washington Missourian.

Lest We Think 1 Percent Is Small

Posted on April 9, 2008May 5, 2026 by Justin Hauke

Everyone knows that April’s showers bring May’s flowers. Unfortunately, it also brings Missourians’ tax bills. This year, individuals, businesses, and nonprofits will spend an estimated six billion hours complying with state and federal income taxes, according to research by The Tax Foundation. On April 15, Missourians will cough up more than $6 billion in state income taxes alone. If you happen to live in one of the thousands of households subject to the earnings tax this year, though, your bill will be even higher.

The earnings tax is a 1-percent tax levied on wages, salaries, and other earnings from all work performed in Saint Louis or Kansas City. Businesses and self-employed individuals pay an equivalent tax on net profits that averages near $1,500 per year. And in Kansas City, employers contribute an additional 0.5-percent match on their employees’ earnings. Missouri’s statutes authorize any city with more than 70,000 inhabitants to impose such a tax, yet to date only Saint Louis and Kansas City have actually elected to do so. In both cities, the individual earnings tax accounts for approximately 30 percent of general revenues.

Earnings taxes are not unique — about 25 percent of the nation’s largest cities collect them — but they have become increasingly rare in recent decades. One reason for their decline is that earnings taxes are particularly damaging to cities with significant suburban populations and small urban cores, such as Saint Louis and Kansas City, because they encourage businesses and residents to relocate out of town. Because suburban districts offer a similar range of cultural and employment opportunities as the city itself, households and businesses have little incentive to pay higher taxes solely for the benefit of a city street address.

This is true even in Missouri, where the earnings tax is relatively low in comparison to cities in other states. For example, defenders of the earnings tax often point to the fact that the 1-percent tax is lower than the 2-percent national average. In fact, among cities that levy earnings taxes, only Indianapolis has a lower rate, at 0.7 percent. And both Saint Louis and Kansas City have much lower rates than Philadelphia, which imposes a whopping 4.54-percent tax on city earnings. While these figures are comparatively promising, they mask the impact that earnings taxes have on total household wealth.

For example, consider a Missouri household with an adjusted gross income of $35,000, which is near the 2007 state median. The members of such a household would pay an additional $350 in income taxes each year simply by living or working in Saint Louis or Kansas City. While $350 may not seem like much at first glance, it has a dramatic impact when aggregated over 30 to 40 years of earnings.

Imagine that those in the above household chose to live and work in a suburb, rather than directly in Saint Louis or Kansas City. Presumably, the cost of living and employment opportunities would be similar to those that exist within the city itself. Sales and property tax rates in Missouri’s suburban districts are also similar to those that are levied in Kansas City and Saint Louis, on average. But by living in the suburbs, members of the household would no longer be subject to an annual earnings tax.

If members of this household chose to save the extra $350 they would keep each year in lower taxes, rather than spending it on increased annual consumption, their total household wealth during the following 40 years would be more than $80,000 higher than if they had paid the earnings tax each year. In other words, simply by choosing to live and work a couple miles down the road, the household’s earners would garner more than an additional $80,000 during the course of their careers.

If $80,000 still doesn’t seem like a big enough number to deter urban growth, consider a few facts. If 80,000 $1 bills were lined up end to end, they would cover the entire length of downtown Saint Louis and Kansas City, combined. That same number of $1 bills could cover the perimeter of Forest Park — nearly six miles — one and a half times. It would take most joggers nearly an hour and a half to run the length of their foregone earnings tax wealth. So much for the insignificance of one percent!

Taxes are a necessary part of urban living, but it’s important that cities adopt tax policies that encourage growth rather than driving it out of town. Earnings taxes can significantly impact a household’s lifetime earnings. In many cases, residents have chosen to “vote with their feet,” relocating to suburbs and lower tax rates. In fact, to help illustrate the incentives that varying tax rates provide, the Show-Me Institute recently released an estimator that helps Missourians compare their relative tax burdens across the state.

While Saint Louis’ and Kansas City’s metropolitan areas have continued to grow over the years, their urban cores have stagnated. Is the earnings tax really so insignificant?

Justin P. Hauke is a policy analyst at the Show-Me Institute and a graduate student at Washington University’s Olin Business School.

Be Careful Where You Live – It Might Cost You More Than You Think

Posted on April 9, 2008May 5, 2026 by Justin Hauke

Everyone knows that April’s showers bring May’s flowers. Unfortunately, it also brings Missourians’ tax bills. This year, individuals, businesses, and nonprofits will spend an estimated six billion hours complying with local, state and federal income taxes, according to research by The Tax Foundation. On April 15, Missourians will cough up more than $4 billion in net state income taxes alone. But the size of your slice of the Missouri tax pie will depend significantly on where you happen to live.

Many people assume that state and local taxes don’t vary much throughout Missouri. For statewide taxes, this is certainly true. But local taxes — particularly property and sales taxes — vary considerably from one city to the next. Missouri sales tax rates range from 4.7 percent to nearly 9 percent across the state. The disparity in local property taxes is even more dramatic, with rates differing by more than $2 per $100 of assessed property value in some parts of Saint Louis County. For a home worth $150,000, this difference would translate into an annual tax difference of about $1,000.

This suggests that sometimes moving just a few miles down the road may have a significant effect on how much of your own money you get to keep. Unfortunately, though, most people don’t have the resources to compare tax rates for cities and counties throughout the state. That’s why the Show-Me Institute created “Show-Me: The Taxes,” an easy-to-use tax estimator that provides Missourians with the ability to compare taxes as they make decisions about their finances, lifestyle, and places to live and work.

How do the differences actually impact household wallets? More than you might think.

Consider, for example, four hypothetical Missouri households: a single 25-year-old college graduate, a married couple with two young children, a single working mother with one child, and a recently retired couple living on a fixed income. By plugging these households into our estimator, we were able to compare the taxes they might expect to pay in cities across the state — assuming their financial situations would not otherwise change.

The results were surprising. For example, a 25-year-old with an annual salary of $30,000, modest student loan debt, and a shared two-bedroom apartment would pay approximately $275 less in taxes each year by moving from Saint Louis city to a nearby suburb (in this example, Maplewood). If we consider the impact of this annual tax savings over the course of a career, however, the numbers are even more remarkable. For example, investing that $275 each year and earning the historical market return could generate more than $70,000 in additional income by retirement at age 65.

The same was true for the other households we considered. A young family could save more than $700 in taxes each year by moving from Kansas City to Grain Valley — also in Jackson County. A single mother could finance more than half of her child’s tuition at the University of Missouri simply by moving a few miles down the road and saving the amount she would no longer pay in taxes each year.

Retirement provides the most dramatic illustration of the differences in local taxes. We found that a relatively low-income retired couple could save more than $1,100 in taxes each year by living in Cape Girardeau instead of Kansas City. Investing this annual tax savings in low-risk securities such as rolling certificates of deposit or annuities would increase the household’s monthly cash flow by nearly $100. This extra money could be used to help defray the cost of prescription drugs and other medical expenses, or to help finance a grandchild’s education.

Of course, the amount one saves in taxes is not the only way to measure quality of life. Clearly, there are benefits to retiring in a city where there are people you know and love, and high tax cities may offer intangible benefits that are difficult to quantify. But it’s important that Missourians be able to weigh these options when deciding where to live.

Nobody likes to pay taxes, but no matter where you live or work, some level of taxation is a certainty. Not all locations are the same, though. Small differences in tax rates can have dramatic effects on household wealth. In many cases, such differences may be enough to encourage citizens to “vote with their feet,” relocating to cities with lower tax burdens. The Show-Me Institute’s tax estimator can help Missourians quantify these benefits, so they can make informed living decisions. Are small tax differences really so insignificant?