Taxes Go Up Incrementally; Why Shouldn’t They Go Down Incrementally?

Posted on by David Stokes

Let me start by saying that I love the St. Louis Business-Journal and read it every week. It plays a great role in our community and does it very well. They are also generous to SMI, carrying our op-eds at times — including today — which we greatly appreciate.

That said, I have to strongly and respectfully disagree with their editorial today. I can’t link to it, because it’s not available on-line, so you’ll just have to trust me on the quotes. In short, they commend the St. Louis County Council for NOT lowering the tax rate by 2 cents, as was proposed by Councilman Greg Quinn. They state that it demonstrated political courage NOT to lower taxes, dismissing the notion of saving homeowners $7.60 per year, on average. They write:

Hefty increases in property taxes throughout the county have fueled a taxpayer revolt. If the council decides to dramatically reduce property taxes, the action should come as part of a studied budget plan that would include new sources of revenue to balance the monies raised by property tax.

So if you are going to cut property taxes, make certain that you raise other taxes, to keep overall tax revenue the same — even if the property tax increases are the result of reassessment, which (and this is the key) are not supposed to raise taxes. The editorial buys into the popular government notion that everything government does is so important that it should never reduce services, or even just hold back the growth rate of services.

It is not "pandering," as the editorial says, to slightly roll back property tax rates for citizens. As the title of this post says, taxes rise incrementally (a slight sales tax increase for fireman pensions here, a property tax increase from reassessment there, a business license fee hike tomorrow) so why shouldn’t they decrease incrementally? Especially when they result from reassessment, which — I repeat — is NOT supposed to result in a tax increase.

St. Louis County government is not legally required to roll back its rate, which is far enough below the authorized cap. The fact that the rate is low is a good thing, but it is really just a loophole in the law. It does not mean they should treat assessment increases as a windfall every year, dismissing a moral obligation to roll back rates. A small rollback says to taxpayers that the county understands the reassessment tax increases people face, and is going to address the issue responsibly — not just take all the new tax money and spend it.

It is not politically courageous to refuse to lower tax rates. St. Louis County has an obligation to lead by example, demonstrating to the many other nearby taxing districts that a rollback after reassessment is the right thing to do, even if it’s not required.

Missouri Cities: Top Places to Educate Kids?

Posted on by Sarah Brodsky

St. Louis has won an unlikely honor. Forbes ranks the area as number nine in its list of the top places to educate a child.

Huh? Where were they when the takeover of the St. Louis public schools made national news? Or when suburban districts refused to accept city students? There are some better public schools in the suburbs, and several good private schools in the area, but it still seems like they need to qualify this. Maybe: "Top Places to Educate Your Kids — If You’re Rich Enough to Afford the Best Real Estate or Private School Tuition."

The only category in which St. Louis gets a low grade is "Library Popularity," in which it earns a C+. That just doesn’t seem like the one category in which the education system here needs the most work.

There are a few comments challenging the article, but they’re not about St. Louis. They’re debating whether Columbia deserves its award: number 19.

Lock Box Strategery

Posted on by Justin Hauke

To the bemoaners of “tax cuts for the rich,” a new Congressional Budget Office report shatters some popular perceptions on which income groups have benefited the most from federal tax reform (see Table 1A).

The report finds that the average effective federal tax rate (this rate includes all federal taxes, not just income taxes) in 2005 was 20.5 percent of income, compared to the 1979-2005 average of 21.6 percent. Although all Americans are paying lower taxes today than they have historically, what’s really interesting is that the tax reduction for lower income quintiles is significantly greater than that of higher income quintiles. The numbers below (the computation idea was stolen from Greg Mankiw’s blog) demonstrate this fact. The first number is the 2005 effective tax rate. Numbers in parentheses are average tax rates from 1979-2005.

All households: 20.5 (21.6)

Lowest quintile: 4.3 (7.2)
Second quintile: 9.9 (13.2)
Middle quintile: 14.2 (17.1)
Fourth quintile: 17.4 (20.1)
Highest quintile: 25.5 (26.1)

Top 10 percent: 27.4 (27.6)
Top 5 percent: 28.9 (29.0)
Top 1 percent: 31.2 (31.7)

Amazing how that works out, isn’t it? The lowest income quintile has seen their federal income tax burden drop from 7.2 percent of their earnings to 4.3 percent, while the highest income quintile’s income tax burden has only dropped from 26.1 percent to 25.5 percent.

To me, the most important thing these numbers highlight is how effectively governments can hide tax burdens. So much emphasis is put on the income tax because it’s the only tax for which we have to spend hours filling out forms in order to comply with it each year. But what we forget about are the umpteen taxes on the things we use every day (our utilities, our gasoline, our food, our clothes, etc.), which we don’t even think about.

Too bad these are probably the lowest taxes Americans will see for a LONG time. Makes that whole "Roth IRA" thing sound like a good idea. …

An Awesome Idea

Posted on by Sarah Brodsky

It’s because of stories like this (thanks, Edspresso!) that I’m happy and optimistic. It’s about a public school in Houston that combats the dropout problem by offering students flexible school hours. Students can take courses in the evenings to make up for the time they’re out of school during the day. A Texas state representative explains why the regular school day just isn’t for everyone:

State Rep. Scott Hochberg, who proposed the bill, said he hopes it encourages districts to offer evening or weekend classes for students who must work to support their families and cannot attend school during the conventional 8 a.m. to 3 p.m. day.

"For anybody who has to work, that schedule just doesn’t work," the Houston Democrat said. "We were forcing kids to give up the possibility of completing their high school education and going on to any higher education."

I’m not familiar with any public schools that do this in Missouri, but at least one private school, Dayspring, offers homeschoolers opportunities to attend classes part-time. And many public GED courses in the St. Louis area are taught in the evening. If you can teach GED preparation in the evening, why not teach regular high school courses then, too? That could prevent students from dropping out, so they won’t need to take the GED.

Teachers’ Test Scores Going Up

Posted on by Sarah Brodsky

There’s good news in this article on teacher quality:

The average SAT verbal scores of prospective teachers passing the Praxis tests to teach English, science, social studies, math and art from 2002 to 2005 were higher than those of prospective teachers in the mid-1990s — and were also higher than the average SAT scores for all college graduates, the report said.

I wonder how much of this improvement has to do with alternative teacher certification, which allows people who majored in subjects other than education, and who may have work experience in other fields, to become teachers. (Statistics on the growing numbers of teachers who have completed alternative routes are available at www.teach-now.org.) Under alternative certification, a retired scientist could teach a high school biology course or a history professor could teach AP Government without having to go back to college for an undergraduate education degree.

The article notes that the SAT scores of potential elementary school and physical education teachers are still below the average for college graduates. For physical education, I don’t think we need to care. Teaching kids about basketball and teamwork just doesn’t require a lot of complex reasoning. But maybe we still have work to do at the elementary level.

Good Time for Criminals to Sell Old, Crappy Guns in Order to Buy Better Guns

Posted on by David Stokes

There are few things as worthless as a gun buyback program. Here is the article on this weekend’s one-day exercise in giving people taxpayer money to purchase new guns. After the "tremendous" success of the 1991 St. Louis City Police Department gun buyback, as the Post-Dispatch puts it:

The 1991 cache was a huge success — but it was based on a 30-day program. The 2007 effort is one day only.

We are going to do it again. It was such as success in 1991 that the City of St. Louis became one of the safest cities in America in 1992 and has remained so ever since. Oh, wait — check that — it has consistently been one of the murder capitals of America since right about that time. …

I got rid of an old shotgun a few months back, and now I feel like a moron. I should have held onto it and sold it to the city police for $50. That’s $50 more than I got for it.

These programs are like the forced sterilization programs in India in the 1970s. If I recall correctly from history class, the government ordered every family to have at least one male be sterilized in an effort to control population growth. Not surprisingly, a lot of 80-year-old grandpas showed up for their vasectomies. A gun buyback program is exactly the same. If someone has an old gun lying around, this is a good time to git rid of it. Check out this study for evidence. (Sorry, but I can only link to the summary. You have to pay for the whole thing.)

Economist Glen Whitman writes on this subject:

Consider the case of gun buy-back programs. These programs aim to reduce the number of guns on the streets by having authorities buy them up. Cities with gun buy-back programs tout their success by announcing the number of guns purchased. It’s possible, however, that people will bring guns to town just for the purpose of selling them?after all, if the city paid less than the market price, gun owners would sell their guns privately. The real question is not how many guns are purchased, but how many guns remain on the street. And this is setting aside the difficult question of whether reducing the number of guns actually reduces violent crime. Since criminals presumably have the greatest need for guns?their livelihoods depend on them?they are probably the least likely to sell them.

Or you can read this article, which originally appeared in the Chicago Tribune.

I know somebody who reads this is going to think to themself, "But if it just saves one life it is worth it." And, yes, that is an impossible argument to refute, and saving one life is wonderful. But you will never know whether the program saves one life — you just have the data which tells you it is totally ineffective and a waste of money. But it makes people feel good and provides good PR, so if you have a crappy gun lying around and would like to get $50 toward a better one, this is your opportunity.

Board of Education Makes the Right Call

Posted on by Dave Roland

Janese Heavin at the Columbia Daily Tribune reports that the Columbia Board of Education has wisely decided not to channel any more taxpayer money into a lawsuit that tries to force Missourians to foot the bill for more than $1 billion in additional educational funding.

Ever since Judge Callahan handed down his thorough, well-reasoned rejection of the claims brought in CEE v. Missouri, school districts all over the state have been declining to add to the more than $4 million of taxpayers’ money that has already been spent in pursuit of this case. As Board Vice-President Darin Preis said regarding the judge’s
written opinion, "[I]t makes sense to me. It doesn’t look like we have
a good case."

Thus, despite last-minute pleading from one of the attorneys who had been absorbing much of the money spent on the case (and who stands to collect much, much more if the suit continues), Columbia now happily joins a growing list of school districts in agreeing that Judge Callahan’s decision was correct.

New Study Questions Missouri’s Individual Income Tax

Posted on by Eric D. Dixon

I’ve been remiss. I already post less frequently on this blog than I should, but last week I neglected to mention here the release of a new study by R.W. Hafer, "Should Missouri Eliminate the Individual Income Tax?" I got wrapped up in the release of the study to the press, and posting everything online at our primary website, and simply forgot to include the blog in our study release.

So, for those of you who get your Show-Me Institute news from this blog alone, please check out the study. It takes a particularly valuable look at how an income tax distorts labor markets, leading to lower employment levels and dead-weight economic loss. While the study keep a tight focus, stopping short of prescribing a specific alternative to an income tax, it acts as an important piece in the mosaic of economic analyses that we’re building here at the Show-Me Institute.

Also be sure to listen to Missourinet’s brief interview with economist Joe Haslag, of the University of Missouri-Columbia. Haslag is now the Show-Me Institute’s director of research, and his comments are perceptive as always.

The Odds of Education Reform

Posted on by Sarah Brodsky

There are lots of ideas out there about how to improve education. Some are wackier than others. This article in the New York Times reports on some students and a professor at Harvard who think kids should be encouraged to play poker starting in sixth grade. A student explains the benefits:

“I see poker as one tool to develop the kind of cognitive abilities that a lot of people don’t seem to be developing on their own, whether because those skills aren’t taught effectively in school or because they’re not learning it from their parents,” Mr. Woods said. So many of his Harvard Law classmates were or had been serious poker players, he said, “that I had to wonder what role poker played in all of us getting here.”

How does poker achieve this success, you might ask? The poker advocates note that the game is "probablility-based" and "requires risk assessment" (a fancy way of saying it’s a form of gambling). Don’t get me wrong — I have no problem with teachers occaisonally using games of chance to demonstrate math concepts — but these claims about poker sound far-fetched. I think Mr. Woods is confusing correlation and causation. I too knew lots of people in college who played poker, but I doubt it had much effect on their SATs. Poker is popular right now with young, upper-class people who go to private universities like Harvard. Thirty years ago it was bridge. Those games don’t cause students to do well. They’re just an indication of socio-economic status.

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