Big Brother Is Watching You

Posted on by Justin Hauke

Here’s an example of one of those hot-button “libertarian” issues.

In 2005, Congress passed the “Real ID Act” as an addendum to an appropriations bill, for the Iraq war and tsunami relief. The “Real ID” Act set national standards for the data that is included on state driver’s licenses, and required states to build and share databases containing licensees’ personal information.

Libertarians find such identifying requirements to be a blatant violation of privacy rights, and a very dangerous precedent (not to mention a fiscal burden to the states).

Rep. Jim Guest (R-Kingwood) has succeeded in suspending the Missouri provision — at least temporarily. It prohibits the state Department of Revenue from amending its procedures to comply with the Real ID Act. It further prohibits the department from collecting, storing, or sharing additional personal data mandated by the act.

I, for one, would like to be free to move around the country without a constant border check and ID scan. If I wanted those, I would have moved to Russia back in the mid-80s … when I was like two years old.

Politicking

Posted on by Justin Hauke

How’s this for politics? I recently blogged about merit pay legislation under consideration in the General Assembly. Somebody had the great idea of attaching the Special Needs Tax Credit bill to the teacher pay bill — which is a pretty brilliant idea, in my opinion. If the teachers’ unions support increased teacher pay (with no merit pay, of course … that would just be too crazy for us to pay good teachers what they deserve), and the school choice advocates support tax credits for autistic children, why not combine both provisions?

It turns out, though, that that was the deal-breaker.

From the Post-Dispatch’s coverage:

When the scholarship program was inserted into the teacher pay bill last week, two large teacher groups dropped their support for it. A lobbyist for the Missouri National Education Association said his group was "passionately opposed."

What a shock.

Who are the teachers’ unions looking out for? The teachers, the students, or their own institutional power? The unions decided that they would rather prevent teachers — the people they reportedly represent — from earning pay raises so that they could ensure that no infinitesimal limit to their power could take root in a tax credit bill designed to help autistic children who aren’t being served by the public schools.

I’m sorry, students and teachers of Missouri, that there are people out there working so hard to prevent improvements in the state’s education system.

On Tax Credits and Economic Development, or: What SB 1234 Does Poorly

Posted on by Joseph Haslag

Senate Bill 1234 is currently rolling through the Senate. It expands the enterprise enhancement zone, and by identifying “mega-projects” that consist of capital investment of at least $300 million over an eight-year span, it is intended to create more than 1,000 jobs that pay higher-than-county-average wages. Under the new law, mega-projects would receive tax credits applied to the project’s wage bill over 22 years. Proponents tout the bill as a tool to spur economic development.

In a March 25 article, the Kansas City Star reported that Bombardier Aerospace is considering land near Kansas City International Airport for a possible $375 million aircraft assembly plant that would eventually employ 2,100 people. According to Missouri’s Department of Economic Development (DED), up to 5,200 additional related jobs would be attracted. (More on the DED estimate of spillover jobs later.)

These two events are related. Bombardier’s qualification as a mega-project would make it eligible for a tax credit applied to its workers’ wages for the next 22 years — not exceeding 80 percent of the wages for the first three years and up to 25 percent for years nine through 22 after the project is initiated.

Bombardier Aerospace is a welcome addition to Missouri. But because tax credits — reductions to taxes collected by the Department of Revenue — are involved, it is worth asking two questions: Is this a good deal for Missouri taxpayers? Is this the best deal for Missouri taxpayers? I analyze the impact on Missouri’s revenue two ways: In one case, I accept DED’s measure of spillover jobs, and in the other case focus on just the additions from Bombardier alone. In both cases, I find that Missouri tax receipts will suffer a shortfall.

I will start by examining the question on the deal for Missouri and its taxpayers. Assuming the plant is fully operational in 2014, I have computed the present value of the tax credits that would be received by Bombardier Aerospace, assuming that it used the maximum eligible value of credits and found that the tax credits total $377 million. In other words, Missouri would see $377 million fewer dollars collected by its Department of Revenue if Bombardier took advantage of the enhanced enterprise zone tax credit.

Obviously, Missouri economy — its tax base — would expand. Suppose that the Department of Economic Development is right and that 7,300 jobs would be added, in the form of Bombardier Aerospace workers and other jobs, also taking into account the additional Gross Domestic Product within Missouri’s borders from the plant and equipment income — so-called “capital income.” I use the state historical average for Missouri — that is, 3.8 cents of each dollar of state GDP becomes Net General Revenue collected by Missouri’s Department of Revenue. As such, I have considered individual income, sales taxes, liquor taxes, etc. Given the expanded state GDP, the present value of taxes collected would be $355 million. Thus, even granting the Department of Economic Development’s opaque measure of related job creation, the Bombardier Aerospace project would cost Missouri taxpayers about $22 million.

One big problem with this analysis is that the DED’s measure of related job creation is the output of a discredited economic model. Typically, this model exhibits a multiplier of between 2 and 2.5, meaning that every job attracted into the state generates an additional 2 to 2.5 spillover jobs. Note that in the absence of these unidentified spillover jobs, the cost to Missouri taxpayers rises from $22 million to $110 million. The multiplier approach, if correct, would support widespread government hiring; the Missouri economy could magically expand with each new government hire at least with the range of several thousand workers. Markets do not work this way, however, and the DED unfortunately does not have the resources to update its economic model. Missouri taxpayers should not have to pay for such backward thinking.

There is an escape clause, though. The enhanced enterprise zone law permits the mega-project to make commission payments to the state. The idea is that these payments would offset the state’s “excess” tax credits, so that the costs to Missouri taxpayers would be, on balance, zero. The commission payment feature is a little worrisome insofar as the payment plan is not very specific.

Now, for the second question: Is this the best deal for Missouri taxpayers? We have no way of knowing. The value of the tax credits was not offered to every possible business venture. Instead, lawmakers and unelected officials in the DED are choosing recipients for us. In the marketplaces for ideas and business projects, people operating in their own best interest vet lots of options, and eventually buyers and sellers of the projects pass economic judgment. In this case, though, taxpayer money is being spent on a single project, vetted only by elected officials and bureaucrats.

Perhaps our elected officials can do just as well as those whose livelihood depends on careful analysis. I would prefer for officials and bureaucrats to stay out of the vetting process, despite their good intentions. I appreciate their effort to do something for the Missouri economy, but I urge them to stay out of the business of trying to pick winners and instead consider policies aimed at leveling the playing field for all Missourians. If they want to hand out tax breaks, they should give them to all of us — not just a mega-project.

Joseph Haslag is a professor in the EcoSenate Bill 1234 is currently rolling through the Senate. It expands the enterprise enhancement zone, and by identifying “mega-projects” that consist of capital investment of at least $300 million over an eight-year span, it is intended to create more than 1,000 jobs that pay higher-than-county-average wages. Under the new law, mega-projects would receive tax credits applied to the project’s wage bill over 22 years. Proponents tout the bill as a tool to spur economic development.

In a March 25 article, the Kansas City Star reported that Bombardier Aerospace is considering land near Kansas City International Airport for a possible $375 million aircraft assembly plant that would eventually employ 2,100 people. According to Missouri’s Department of Economic Development (DED), up to 5,200 additional related jobs would be attracted. (More on the DED estimate of spillover jobs later.)

These two events are related. Bombardier’s qualification as a mega-project would make it eligible for a tax credit applied to its workers’ wages for the next 22 years — not exceeding 80 percent of the wages for the first three years and up to 25 percent for years nine through 22 after the project is initiated.

Bombardier Aerospace is a welcome addition to Missouri. But because tax credits — reductions to taxes collected by the Department of Revenue — are involved, it is worth asking two questions: Is this a good deal for Missouri taxpayers? Is this the best deal for Missouri taxpayers? I analyze the impact on Missouri’s revenue two ways: In one case, I accept DED’s measure of spillover jobs, and in the other case focus on just the additions from Bombardier alone. In both cases, I find that Missouri tax receipts will suffer a shortfall.

I will start by examining the question on the deal for Missouri and its taxpayers. Assuming the plant is fully operational in 2014, I have computed the present value of the tax credits that would be received by Bombardier Aerospace, assuming that it used the maximum eligible value of credits and found that the tax credits total $377 million. In other words, Missouri would see $377 million fewer dollars collected by its Department of Revenue if Bombardier took advantage of the enhanced enterprise zone tax credit.

Obviously, Missouri economy — its tax base — would expand. Suppose that the Department of Economic Development is right and that 7,300 jobs would be added, in the form of Bombardier Aerospace workers and other jobs, also taking into account the additional Gross Domestic Product within Missouri’s borders from the plant and equipment income — so-called “capital income.” I use the state historical average for Missouri — that is, 3.8 cents of each dollar of state GDP becomes Net General Revenue collected by Missouri’s Department of Revenue. As such, I have considered individual income, sales taxes, liquor taxes, etc. Given the expanded state GDP, the present value of taxes collected would be $355 million. Thus, even granting the Department of Economic Development’s opaque measure of related job creation, the Bombardier Aerospace project would cost Missouri taxpayers about $22 million.

One big problem with this analysis is that the DED’s measure of related job creation is the output of a discredited economic model. Typically, this model exhibits a multiplier of between 2 and 2.5, meaning that every job attracted into the state generates an additional 2 to 2.5 spillover jobs. Note that in the absence of these unidentified spillover jobs, the cost to Missouri taxpayers rises from $22 million to $110 million. The multiplier approach, if correct, would support widespread government hiring; the Missouri economy could magically expand with each new government hire at least with the range of several thousand workers. Markets do not work this way, however, and the DED unfortunately does not have the resources to update its economic model. Missouri taxpayers should not have to pay for such backward thinking.

There is an escape clause, though. The enhanced enterprise zone law permits the mega-project to make commission payments to the state. The idea is that these payments would offset the state’s “excess” tax credits, so that the costs to Missouri taxpayers would be, on balance, zero. The commission payment feature is a little worrisome insofar as the payment plan is not very specific.

Now, for the second question: Is this the best deal for Missouri taxpayers? We have no way of knowing. The value of the tax credits was not offered to every possible business venture. Instead, lawmakers and unelected officials in the DED are choosing recipients for us. In the marketplaces for ideas and business projects, people operating in their own best interest vet lots of options, and eventually buyers and sellers of the projects pass economic judgment. In this case, though, taxpayer money is being spent on a single project, vetted only by elected officials and bureaucrats.

Perhaps our elected officials can do just as well as those whose livelihood depends on careful analysis. I would prefer for officials and bureaucrats to stay out of the vetting process, despite their good intentions. I appreciate their effort to do something for the Missouri economy, but I urge them to stay out of the business of trying to pick winners and instead consider policies aimed at leveling the playing field for all Missourians. If they want to hand out tax breaks, they should give them to all of us — not just a mega-project.

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

 

Sick Day Payouts Are Sickening

Posted on by David Stokes

Last weekend, the St. Louis Post-Dispatch had a terrific, in-depth article about the practice of paying employees of the city of St. Louis for unused sick time upon retirement. I highly recommend the entire piece, by Jake Wagman and Kevin Crowe. This issue has been news before — I remember Charlie Brennan discussing it in depth when Marie Jeffries got an $81,000 payout for her unused sick time when she retired in 2003. The Post sums up the issue nicely near the opening:

Under a system virtually extinct in corporate America — and increasingly harder to find in government — St. Louis city employees can bank all sick days they don’t take and exchange them for lump sum payments and a higher pension upon retirement.

Sick days are not vacation days. You use them if you’re sick, and you should not be rewarded for merely not being ill. I realize that people have been using sick days as vacation days since the practice of time-off work was first instituted during the reign of Charlemagne, but that’s not the point. It is actually preferable to use them inappropriately, in my opinion, than to get paid extra for them when you retire. Let’s not delude ourselves that government workers (which I used to be — and this really applies to officials at every level, not just St. Louis city) work so hard that a co-worker can’t rather easily cover for them when they are out. Not to mention that giving incentives for sick people to come to work is not good for the overall health of a community or workplace, as this report discusses. So a city employee with the flu comes to work anyway in order to preserve their sick days for later payout, and ends up giving the flu to healthy people and screwing the taxpayers at the same time. Priceless. Or, more accurately, quite expensive.

P.S. — There is no actual evidence that Charlemagne invented sick leave.

Rothstein: School Improvement Has Been Hunky-Dory

Posted on 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 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 …

More Education Problems

Posted on by Justin Hauke

Dave Roland and I testified in Jefferson City today in regard to HB 2458, popularly known as the “Children’s Education Freedom Act.” Our comments were consistent with previous comments we’ve made on behalf of tuition tax credit programs.

The members of the bipartisan committee were largely in agreement about the need for immediacy of action in regard to educational reform. But my favorite comment of the day came from Rep. Leonard Hughes (D?Kansas City), who offered a particularly insightful analogy during the cross-examination after a representative of the Missouri State Teacher’s Association testified in opposition to the bill. Here is my own paraphrase of his comments:

What happens when you take your car into the shop? Do you go a week without a car, hoping that it might be fixed, or do you rent a car temporarily so that you can still get around? You get a rental car, right?

Our public schools need to be fixed. Rather than forcing our children to remain in failing schools waiting for them to be fixed, we should offer them “rental car” alternatives such as a tuition tax credit might offer.

It was very well said. I haven’t done it nearly enough justice here.

New Tax Estimator Compares Rates Throughout Missouri

Posted on 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 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.

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