David Stokes, Elias Tsapelas, and Avery Frank join Zach Lawhorn to discuss the start of the second half of the legislative session, the tax cut bill moving through the House, upcoming ballot items, the status of the open enrollment bill, and more.
Produced by Show-Me Opportunity
It’s said that the definition of insanity is doing the same thing over and over again and expecting different results.
Missouri’s economy has lagged much of country over the past decade. And for more than twenty years, Missouri has been a national leader in awarding tax credits for private gain in the name of “economic development.” If issuing tax credits were a good way to spur growth, our state would have one of the fastest-growing economies in the country. But it’s not, so we don’t.
Unfortunately, despite years of evidence that economic development tax credits don’t work, state policymakers appear to be doubling down on this wrongheaded approach. After more than a decade dormant, Missouri’s film tax credit is on the path to returning. The Senate approved a bill rebooting the program, and a House committee recently voted out a separate measure including the credit. All of this for a program that was so bad our elected officials got rid of it in 2013.
Countless reports, studies, and audits reached the same conclusion: the program is a horrible investment. It serves too narrow of an industry to help grow a state’s economy. Much of the credit’s benefit goes to out-of-state companies and workers. And further, the tax credits do not generate sufficient tax revenues to justify the subsidy. While it is true that many other states currently offer some form of film subsidy, that is not an excuse for Missouri to rejoin this race to the bottom.
As we enter the second half of this year’s legislative session, there’s still time for our elected officials to reverse course. It’s understandable that policymakers would be interested in finding policies that would help get Missouri’s economy back on the right track, but government picking winners and losers isn’t the way to do that.
In fact, turning around Missouri’s economy doesn’t have to be as difficult as our elected officials are making it seem. If taxes are too high for the film industry to consider Missouri, instead of subsidizing Hollywood, policymakers should focus on lowering the tax burden for all Missourians. At the very least, our elected officials need to stop advancing policies that we already know don’t work. Bringing back the film tax credit is not just a bad idea—it’s an insane one.
Earlier this year, Show-Me Institute analysts testified on both House Bills 816 and 660, back when they were still separate corporate income tax proposals. Since then, the bills have been combined and amended, and that combined bill was just passed in the House. The bill is now on track to head to the Senate in the coming days. Per a Missouri Independent story:
The bill would cut the top rate on personal income taxes, cut the corporate income tax rate in half and exempt Social Security payments from taxation. State Rep. Dirk Deaton, R-Noel, said the bill would promote economic growth, noting that future tax cuts included in the bill only take effect when triggered by revenue growth.
“This is really just limiting the growth of government,” Deaton said. . . .
The bill would accelerate a tax cut approved in September that will reduce state revenues by almost $800 million annually when fully implemented. The corporate tax cut would be the second in less than five years.
House Speaker Dean Plocher, R-Des Peres, made a corporate tax cut a top priority for the chamber as the session opened.
For the individual income tax, the rate would drop from 4.95% to 4.5% immediately, eventually dropping to 4.05% after a series of triggers. The corporate income tax would drop from 4% to 2%, and then to 0% after a series of triggers. The exemption for all social security income would be immediate.
I’ve pushed for reductions and eliminations of the individual and corporate income taxes for years, so it should come as no surprise that this plan is music to my ears. Income taxes are the most destructive taxes from the perspective of growth, and among them, corporate income taxes are the most destructive of them all. Reducing both with the intent of eventual elimination is sound policy.
Further, while the targeted social security carve out is understandable, eliminating taxation for certain groups of people can make the overall objective of reducing and eliminating a tax for everyone more difficult over time, with fewer and fewer people carrying the cost of government. This concern applies to an even greater degree to corporate handouts like economic development tax credits, such as the one for film studios being debated this session. Fortunately, economic development tax credits aren’t involved in this bill, at least not yet.
Thankfully, the scope of HB 816 and 606’s “targeted” tax policy is limited; the bulk is solid in principle and practice. We’ll keep you posted on the bill’s progress.
On March 21, 2023, the Show-Me Institute hosted a virtual event with Senator Jim Talent and Heritage Foundation’s James Jay Carafano. They discussed rising tensions between the United States and China, the ongoing Russian invasion of Ukraine, the possibility of conflict over Taiwan, and more. Watch a recording of the event here.
It may surprise you to know that cities in Missouri depend more on sales taxes and less on property taxes than almost any other state. I think there should be more balance in that equation. From the Institute’s paper on Missouri’s 20 largest cities:
Relying heavily on sales and use taxes may not be the best way to ensure reliable, stable revenue streams. Property taxes tend to provide a more stable revenue stream.
The City of Ashland in Boone County has a sales tax proposal on the April ballot. Typically, new sales tax proposals tend to be something like a quarter-cent for parks or a half-cent for transportation. But the Ashland sales tax proposal is for an additional one percent general sales tax on top of the existing one percent general sales tax. Ashland is proposing to use the new revenues for roads and police. This new tax, if approved by voters, would put the new Ashland sales tax rate at 3.5 %, which, as far as I can tell, would be the highest municipal sales tax rate in Missouri. It would be higher than Joplin’s sales tax rate, which at 3.125% is the highest rate for any large Missouri city. (We need to leave the City of St. Louis out of this because it is an independent city so there are no county sales taxes to consider.)
Ashland’s own promotional materials for the sales tax (which are clearly not just informational but actively promoting it) directly state:
Data show that an estimated 60 to 70% of sales tax revenue generated within the City of Ashland is paid by those that do not reside in Ashland. This sales tax increase will have the largest impact on those that do not live in Ashland. (emphasis added)
This continues the trend of many cities thinking they are smart by taxing “the other person,” even though plenty of other cities and counties are trying to do the same thing. You think your residents are getting a good deal by taxing those outsiders, but your residents are getting jobbed in the same way by the other cities and counties around them. This practice is at its most extreme with traffic ticket revenues. (The adoption of use taxes is the opposite of this—use taxes imposes sales taxes on residents of the community.)
Ashland has a relatively low property tax rate, which will be decreased further if the sales tax passes. This just further increases Ashland’s reliance on taxing shoppers and outsiders instead of people directly paying for the municipal services they use. Residents make smarter decisions about what municipal services they want when they are the ones paying for them, not when they can outsource the cost of running their municipality to non-voters. This is true with the earnings tax in St. Louis and Kansas City, and it is true with outlandishly high sales taxes in Joplin, Hazelwood, and Ashland.
I recognize that people in Ashland are not trapped. Residents and visitors may choose to shop in Columbia or Jefferson City if local sales taxes are too high. But that doesn’t mean it is good public policy to increase the sales tax rate as much as you can. The purpose of government is not to maximize revenue just for the sake of it.
I don’t claim to know for certain what “too high” is for sales taxes, but watching Ashland try to pass another general sales tax on top of the state, county, and local sales taxes the residents already pay makes me think that Ashland is almost certainly above it. Sales taxes have an important role in funding state and local governments, but Ashland city officials are taking things too far with their latest proposal.
Susan Pendergrass speaks with Adam Peshek about the universal ESA programs, accountability of how funds are spent, how we can incentive improvement in education, and more.
Adam Peshek is Senior Director and Senior Fellow at Stand Together Trust, where he focuses on education policy. Prior to joining STT, Peshek spent eight years in leadership positions with ExcelinEd, including managing policy director. In this role, Peshek provided strategic support to state leaders interested in developing and implementing policies that expanded educational options for children. He also served as vice president of advocacy, directing the organization’s advocacy efforts with governors, state legislatures and departments of education, and other stakeholders.
Produced By Show-Me Opportunity
Several years ago, I made an interesting discovery—I had been blocked by the Missouri Department of Elementary and Secondary Education (DESE) on Twitter. A DESE representative assured me it was an accident, but it was interesting that the blocking came soon after I had been critical of DESE. I don’t recall the specific issue at the time; it may have been my opposition to Common Core. The exact issue is a moot point. Over the years, my Show-Me Institute colleagues and I have been critical of DESE on any number of issues.
To name just a few:
I’ll add another criticism here. The structure of DESE is such that the buck never seems to stop anywhere. The commissioner serves at the pleasure of the state board of education. The state board of education members serve staggered terms, so that a single governor may hold little sway over the board. As such, the governor, the board, and the commissioner escape being held accountable in any meaningful way.
Yet, it is one thing to criticize DESE for failing to perform the duties it should be performing. It is another thing entirely to suggest DESE should not exist at all.
There seems to be a growing chorus of voices on social media calling for the abolition of DESE. It is hard to tell if there is really a movement here or simply the continuous ramblings of a few active Twitter users. Nevertheless, it is a question that deserves consideration—should DESE exist?
Conservatives have long argued that the federal department of education should be abolished. The argument for this is easy to follow—there is no provision for education in the constitution. Thus, it is a state issue.
What is the argument at the state level? It must be that education is a local issue and not a state issue. Here is where the DESE destroyers are wrong. The Missouri Constitution makes it clear that the responsibility to provide an education lies with the state:
A general diffusion of knowledge and intelligence being essential to the preservation of the rights and liberties of the people, the general assembly shall establish and maintain free public schools for the gratuitous instruction of all persons in this state within ages not in excess of twenty-one years as prescribed by law. (IX Section 1(a))
Moreover, the constitution requires the state to spend 25 percent of general revenue on public education.
With clear constitutional authority and a sizeable budget dedicated to education, the state has need of an agency whose purpose is to distribute funds and assess the diffusion of knowledge. The state has need of an agency such as DESE.
While DESE could do so many things better than it does, there clearly is a role for DESE. Therefore, we should (1) do a better job of defining the proper role and responsibilities of DESE, (2) do a better job of holding DESE accountable for meeting those obligations, and (3) find ways to improve the overall structure of DESE so we can actually tell where the buck stops.
I welcome conversations that focus on these things.
Kansas City officials have repealed the changes to the earnings tax refund system they made last year. Last year’s changes made it much more complicated and expensive to claim a refund for work done by nonresidents outside of Kansas City, such as people working from home part of the time. Kudos to the mayor and city council for approving these changes and going back to the old system, which had been working well.
This is a good time to remind people that the City of St. Louis is the opposite case—city government continues to do everything wrong when it comes to the earnings tax. Efforts are underway in Jefferson City to clarify that St. Louis and (presumably) Kansas City cannot tax remote work—as St. Louis continues to do unapologetically—and instead must institute a reasonable process to refund earnings taxes withheld for work nonresidents perform outside of the cities.
What should such a process entail? First, I think employer statements indicating the percentage of time a nonresident has worked outside city limits during a year should be treated as prima facia evidence of that fact. Obviously, there should be penalties for fraudulent filings. Beyond that, if a refund is denied there should be an impartial hearing process by the collector of revenue available at the city level if taxpayers request one. If after such an administrative hearing, the refund is still denied, then taxpayers should have the right (but not the requirement) to file a lawsuit in circuit court. In court, the judge should not be required to assume the city’s prior denial is correct. In other words, taxpayers should have the right to a trial de novo on the merits of their refund claims. Finally, people making claims should be able to recoup court costs and lawyer fees if they are victorious. Since the average amount of a refund claim for any one person would be relatively small, I think few cases would go this far, but cities should be financially responsible if they improperly deny people their legitimate refunds.
Kansas City was not, then was, and now is not again denying legitimate refunds. Kansas City has a fair process posted online. The government of the City of St. Louis has been abusing the process all along and is finally being told by courts it needs to give refunds. Because of the city’s obstinance, it is also necessary to clarify that class action suits are authorized in these instances, as filing a suit against St. Louis for a few hundred dollars is not something most people are going to do, which is exactly what city officials appear to be counting on. The abuse of taxpayers in the City of St. Louis needs to stop, and it needs to stop now.
Public schools serve all students. This idea leads to one of the most common criticisms of school choice programs—that these programs only serve a select group of students. I believe this criticism stems from an honest desire to ensure every child gets a good education. Yet, this attack on school choice programs falls short. It is a red herring and distracts from the true issues at hand. Moreover, it elevates one value over others that we hold as a society, such as diversity and pluralism.
When critics of school choice levy this claim of exclusion against private schools, they forget a few important details. First, it is not historically true that public schools served all people. Black Americans, Native Americans, students with special needs, and nearly every other marginalized group can point to a time in our nation’s history when they were excluded from our public school system.
Second, this claim of “serving all” is not presently true. No school can serve all students, so our public school system rations admission. Several public schools have attendance zones that draw boundaries between affluent and impoverished communities. These lines can and do exclude poor students from receiving a quality education. In fact, schools have employees whose jobs are to vet the addresses of students to remove those that do not belong.
The truth is that no school serves every child. It is impossible. That is why this attack fails; the true goal is not for a single school to serve every child but for every child to be served well by our educational systems. Serving all students well can only happen when we recognize the point of an education system is to meet the unique and varied needs of students and their families.
The late senator Daniel Patrick Moynihan understood this. In a 1977 address to the graduating class of LeMoyne College in Syracuse, NY, he said:
Diversity. Pluralism. Variety. These are values, too, and perhaps nowhere more valuable than in the experiences that our children have in their early years, when their values and attitudes are formed, their minds awakened, and their friendships formed.
I cherish these values, and I do not believe it excessive to ask that they be embodied in our national policies for the betterment of American education.
Our public education system should serve every student well. Yet we simply cannot do that by assigning students to schools via mandatory attendance boundaries. The only way to truly serve all students well is to elevate these other values of diversity, pluralism, and variety. The only way to truly serve all students well is to provide them with educational options.
