Taxpayer-funded lobbying — often referred to as intergovernmental lobbying — is the process of one governmental entity lobbying another. The entities that engage in this brand of lobbying include school districts, universities, police departments, fire protection districts, cities, counties, and various other agencies at every level of government that — in turn — lobby each other, state governments, and the federal government. In essence, taxpayer-funded lobbying implies that government — quite literally — lobbies itself.

According to Americans for Prosperity, this form of lobbying consumes up to $1 trillion of the tax revenue collected in this country each year. In consideration of tight budgets across the state of Missouri, expenditures such as these warrant particular scrutiny and a careful evaluation of the effects and legitimacy of intergovernmental lobbying.

There are many other concerns with taxpayer-funded lobbying. The largest is simply the unseemliness of its role in the constant expansion of the role of government at every level in all of our lives.

The Show-Me Institute’s Missouri government lobbying project is dedicated to bringing some sunlight into the practice. We have attempted to collect every current lobbying contract between a government institution and a private lobbying firm in Missouri. That effort is ongoing. It is our hope that interested Missourians will use this information to more effectively monitor their own local governments. Staying vigilant in regards to the activities of your government is difficult. We hope this tool makes it a little easier.

REPORT: “Taxpayer-Funded Lobbying: Government Lobbying Government,” by David Stokes and Abhi Sivasailam
RELATED COMMENTARY: “Missouri’s Taxpayers Lobbying To Pay More Taxes?” by Mary Kate Hopkins

The post Government Lobbying Contracts appeared first on Show-Me Institute.

In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8%, personal income grow by 51%, and population increase by 6.1%. The nine states with no personal income tax have seen gross state product increase by 86.3%, personal income grow by 64.1%, and population increase by 15.5%.
[…]
Over the past 50 years, 11 states have introduced state income taxes exactly as Messrs. Gates and their allies are proposing—and the consequences have been devastating.

The 11 states where income taxes were adopted over the past 50 years are: Connecticut (1991), New Jersey (1976), Ohio (1971), Rhode Island (1971), Pennsylvania (1971), Maine (1969), Illinois (1969), Nebraska (1967), Michigan (1967), Indiana (1963) and West Virginia (1961).

Each and every state that introduced an income tax saw its share of total U.S. output decline. Some of the states, like Michigan, Pennsylvania and Ohio, have become fiscal basket cases. As the nearby chart shows, even West Virginia, which was poor to begin with, got relatively poorer after adopting a state income tax.

These findings support the conclusions of a number of Show-Me Institute publications. In March, we published a policy study showing that taxes have a negative impact on economic activity. I used that data to write an op-ed. Show-Me Institute Chief Economist Joe Haslag and intern Abhi Sivasailam wrote last fall about the relative benefits of a sales tax versus an income tax. Finally, policy analysts Dave and Jenifer Roland compared the economic growth of Missouri to Tennessee, and found Missouri falling behind Tennessee, possibly because of Tennessee’s lack of an income tax.

The post More Evidence Against State Income Taxes appeared first on Show-Me Institute.

Normally, I would be thrilled. But, sadly, the study wildly misrepresents Abhi’s and my work.

We were cited in a study published by U.S. Public Interest Research Group (PIRG), an organization that initially began as a public interest law firm founded by perennial presidential candidate Ralph Nader. There are now many state-based PIRGs, who, according to the organization’s mission statement, stand up to powerful special interest groups in order to advocate for the American public.

In February 2010, U.S. PIRG published “The Right Track: Building a 21st Century High-Speed Rail System for America,” about the benefits of intercity high-speed rail. In 2009, President Barack Obama invited states to apply for federal funds that would be devoted either to updating railroads or to building entirely new rail systems. Authors Tony Dutzik, Siena Kaplan, and Phineas Baxandall argue in the paper that additional funding is necessary to bring America up to speed, as it were.

“The worst, most costly mistake America can make going into the 21st century is to not invest adequate resources in upgrading and expanding our passenger rail network,” write Dutzik, Kaplan, and Baxandrall (emphasis theirs).

This blog post is not to argue with PIRG’s conclusion — I believe others can, and have, argued persuasively that government-provided, high-speed rail is costly and usually doesn’t deliver what’s promised. Instead, this post is about academic integrity.

U.S. PIRG cites Abhi and me as the source for the following:

Missouri has applied for funding to pave the way for future 90 or 110 mph service continuing from St. Louis to Kansas City. The projects would reduce delays on this corridor by 48 percent, increasing the number of trains arriving on time from 19 percent to over 80 percent.

The cited source is an article we wrote titled, “High-speed rail predicted to travel much slower than advertised.” I re-read the article, hoping to find where Dutzik, Kaplan, and Baxandrall could have interpreted our work to indicate that “Missouri has applied for funding to pave the way for future 90 or 110 mph service continuing from St. Louis to Kansas City.”

I can’t find specific text that backs up the 90 or 110 mph service to which the PIRG authors refer. I did find the following in our article:

[…] trains traveling the route between Kansas City and Saint Louis would travel much slower. According to the state’s preliminary application for federal funding, those trains would travel an average of 55 mph after improvements, a 5-mph increase from the current average speed.

And:

In order for passenger trains to reach a maximum speed of 110 mph on the route between Kansas City and Saint Louis, a large portion of the track would need to be rebuilt as a double track, Union Pacific spokesman Mark Davis said.

“I don’t think anyone is seriously thinking of higher than 90 between Kansas City and Saint Louis,” said Randal O’Toole, a senior fellow at the Cato Institute, who studies transportation issues.

In fact, a takeaway point of our article was that there is a difference between maximum speed and average speed. Just because some state governors say that a high-speed rail train will hit speeds of 100 miles per hour doesn’t mean that your travel will remain at that constant speed. More than likely, your average speed will be much slower, with the train hitting that maximum speed for a short duration of time.

PIRG also notes, in the sentence attributed to us, that “The projects would reduce delays on this corridor by 48 percent, increasing the number of trains arriving on time from 19 percent to over 80 percent.”

According to the state’s application, we wrote in our article, trains were rarely arriving on time in Missouri:

According to the preliminary application, only 18.6 percent of trains running between Kansas City and Saint Louis arrived on time during the federal fiscal year of 2008.

So, I suppose that’s how the authors arrived at the figure of 19 percent. And we did write that the Missouri Department of Transporation (MoDOT) had estimated that, with improvements, the percentage of trains arriving on time would increase to 80 percent (we wrote that the estimated figure was 80 percent, not over 80 percent, as written in the PIRG paper). But Abhi and I also noted that trains had been arriving on time more than 90 percent of the time in recent months. And, to my dismay, I cannot find in our own work the 48-percent delay reduction figure that PIRG attributes to us.

Furthermore, it is strange that the PIRG authors attributed these figures to a brief article written by Abhi and me, rather than to the entities and published reports that are the direct source of the estimates we used. We simply reported what the transit improvement claims were; we did not verify them.

Finally, we represent merely one citation of 238 in this particular U.S. PIRG publication. If our work was misrepresented, it is certainly possible that other authors or facts were misrepresented, as well.

I will let Abhi have the last word, via this statement that he sent to me:

That researchers affiliated with the Show-Me Institute have been critical of high-speed rail projects in the state is readily apparent. In fact, pieces of published scholarship and blog content can be read as direct critiques of fundamental arguments that lie at the core of the paper released by PIRG. It is important to stress, however, that these disagreements are not on trial in this post.

This post was motivated not by an inclination to re-engage debate on high speed rail, but rather to offer a clarification of prior work and expound on a teachable moment: misrepresentation of this nature, however slight, damages the academic enterprise. Though the transgression was minor, such acts of misrepresentation represent a deficiency in either academic integrity or academic rigor that can damage the credibility of all parties involved. Scholarship with such errors invites not just skepticism on the quality of sources, but on the quality of the contentions they support.

The post U.S. PIRG Publication Misrepresents Substance of Show-Me Institute Article appeared first on Show-Me Institute.

The Daily RFT blog picked up on her post, but didn’t seemed particularly swayed by an argument for liberty. I had a conversation yesterday morning with my coworker Abhi Sivasailam, who suggested an efficiency argument against taxation, and pointed me to a National Bureau of Economic Research working paper titled “Cigarette Taxation and the Social Consequences of Smoking.” An argument that many people make in their attempts to justify cigarette taxes is that such a tax helps to internalize the additional costs of smokers — but this study concludes that the societal cost is already internalized.

From the study’s abstract:

Detailed calculations of the financial externalities of smoking indicate that the financial savings from premature mortality in terms of lower nursing home costs and retirement pensions exceed the higher medical care and life insurance costs generated. The costs of environmental tobacco smoke are highly uncertain, but of potentially substantial magnitude. Even with recognition of these costs, current cigarette taxes exceed the magnitude of the estimated net externalities.

So, if the costs of smoking are already largely internalized, imposing additional taxes on cigarettes is inefficient. It’s also worth pointing out that cigarette taxes are regressive, and any argument that holds the state should appropriate money from smokers to pay for other programs places an undue burden on a vulnerable group.

Is it horrible that people die from smoking cigarettes? Yes. Is it horrible that people die in automobile accidents? Yes, but that doesn’t constitute a rationale for taxing cars out of existence, or cupcakes, or the many other things that people use and enjoy that can also contribute to future poor health. If free, consenting adults choose to smoke, despite the known risks, it is their prerogative.

The post Smoke Screen Arguments appeared first on Show-Me Institute.

Meanwhile, the General Assembly, through House Bill 1812 and Senate Bill 784, is focused on reform of the Access Missouri grant. Currently, Access Missouri is structured to award a maximum of $1,000 in aid to students enrolled in two-year Missouri public schools, $2,150 to students at four-year public schools, and $4,600 for students attending Missouri's private colleges and universities. The bills in consideration would equalize these aid amounts to a maximum of $2,850 for all students, across all participating schools.

Choking the channels of aid to private school students while continuing to lavish aid on public school students only exacerbates the inequality and inefficiency that is characteristic of how the state currently supports its students. The current level of funds that the state awards to public school students already dwarfs the pool of funds directed toward private school students. In 2009, the General Assembly appropriated roughly $808 billion for four-year public higher education institutions. This amounts to an average per-student subsidy of approximately $7,280.

On top of this, qualifying public school students enjoyed an additional $56 million of publicly funded scholarships. Meanwhile, private school students received no per-student subsidies and shared a slightly smaller total of $52 million in public scholarship funds. Those who argue in favor of equalizing Access Missouri funds are misguided when they consider only Access Missouri and ignore the state's larger funding apparatus. Put simply, moving toward greater equality in Access Missouri is also a move toward greater inequality in total state support. There is, and always has been, a large disparity of public aid distributed between public and private students. Both reform proposals increase the size of this wedge. It is imperative, then, to consider whether this wedge is justified.

In 2008, Missouri's Coordinating Board for Higher Education adopted a set of basic values to guide higher education policy in the state. First among the list of values, the board recognized that the system is focused on students, learning, and each individual's realization of his or her full educational potential. The proposed reforms to higher education funding fail to do this vision justice.

First, the reforms do not support the full realization of student potential because they fail to honor the individual interests, skills, and needs of Missouri's diverse student population. For example, no public institutions in Missouri offer a complete architectural studies program, so students with an interest in architecture must turn to private institutions. On the margin, students unable to finance a private school education without assistance will necessarily settle for public-institution programs to which they are comparatively less suited.

Second, the proposed reforms pervert the vision of a higher education funding apparatus as centered on students. Instead, the reforms elevate the importance of institutions and suggest that students who attend public institutions are somehow more deserving of the taxpayer dime than students attending private colleges and universities. This is especially disturbing when considering that students attending private institutions contribute along with their parents funds to the pool of tax dollars that finance Missouri's support for higher education. The reform bills in the legislature would only serve to more unevenly distribute the resources of this pool. Meanwhile, Nixon's proposal would restrict private students access to the pool entirely.

The governor has said, In times like these, we simply can't continue to subsidize the choice to attend a private school.” This seems to suggest that the institutional choices that students make should be more relevant to the amount of aid they receive than their income, ability, or interest. This view fails to recognize that it is precisely in times like these that Missouri cannot afford to abandon its principles, or its investments in higher education students regardless of the institutions they choose.

Abhi Sivasailam is an intern with the Show-Me Institute and an economics student at the University of Missouri Columbia.

The post Scholarship Cuts for Private University Students Favor Institutions, not Students appeared first on Show-Me Institute.

As unlikely as it may seem, this middle-aged, middle-income, Midwestern state is pushing the envelope on its way toward fundamental tax reform. […]

[A]lthough Missouri’s revenue replacement could prove difficult politically, the benefits from reform could be enormous if the process is administered well and the constitutional amendment is carefully crafted.

In their discussion, the authors cite Prof. Joseph Haslag and Abhi Sivasailam’s recent Show-Me Institute policy study, “Previous Estimates Overstate ‘Fair Tax’ Rates, Harms,” in the appendix.

Laffer, et al., also include a comparison of Missouri and Tennessee, and they provide evidence that Missouri would experience additional growth if it eliminated its personal income tax. From chapter 2:

During the past 10 years, if Missouri had just caught up with the average of the states with no income tax, the average Missouri resident’s income would be more than $12,000 higher. That is amazing. Taxes really do matter. […]

The evidence is clear: States without an income tax outperform in every conceivable fashion than their higher-taxed brethren and have more tax revenues.

Given the data at hand, it is hard to imagine any more conclusive results from a cross-section time series of states that could be obtained in favor of Missouri’s tax proposal. Like many states in our current economic climate, Missouri needs help, and from the looks of it, a switch from onerous income taxes to broad-based sales taxes is exactly what the doctor ordered.

This echoes what Jenifer Roland and Dave Roland concluded in their 2009 policy study for the Show-Me Institute, “All Caught Up: How Tax Policy May Have Allowed Tennessee to Outgrow Missouri.”

The state snapshot for Missouri contains some good news and bad news. In 2008, Missouri’s personal income per capita cumulative growth is higher than the national average, but the state experienced negative net migration for the first time in a decade. This indicates that, when voting with their feet, people are choosing to locate outside of Missouri. On the 2010 ALEC-Laffer State Competitiveness Index, where 1 is the best and 50 is the worst, Missouri has an economic performance rank of 35 and an economic outlook rank of 15.

The post Missouri and the Show-Me Institute Featured in Rich States Poor States appeared first on Show-Me Institute.

First, they estimated the average family size in Missouri:

average family size = (size of Missouri population) ÷ (number of resident filers)

= 5,778,901.81 ÷ 2,626,773.55 = 2.2

Next, they estimated the size of the average rebate value, using the federal poverty threshold approximation associated with a family of 2.2, which is $15,393:

average rebate value = federal poverty threshold approximation × sales tax rate proposed in HJR 36

= $15,393 × 0.0511 = $786.58

Then, they estimate the cost of the rebate system, which is equal to the amount of rebates awarded:

(average rebate value) × (number of families qualified for the rebate) = (cost of rebate system)

$786.58 × 2,626,773.55 = $2,066,167,540

Lastly, they compute ?, the revenue-neutral tax rate:

? = (government revenue + cost of rebate program) ÷ (aggregate personal consumption)

? = ($7,117,761,408 + $2,066,167,540) ÷ $158,531,333,333 = 0.0579313171 = 5.793 %

where government revenue equals the sum of individual income, corporate income, and sales taxes.

We see that the size of the tax base, ?, decreases if the amount of exemptions increase. This indicates that the sales tax needs to be assessed on a broad base in order to for the rate to remain low. By decreasing the number of exemptions that exist in the status quo, Missouri can establish a sales tax rate that’s lower than other estimates have suggested.

In their case study, Haslag and Sivasailam explain that expanding the list of services that are taxed would not result in a dramatic increase in the cost of living. In a previous post to this blog, Sivasailam elaborated on this concept:

[I]t’s important to understand that a change in the tax code implies a change in incentives. People and firms alike respond to these changing incentives in many ways, including altering their supply and demand of goods and services. With that in mind, the claim that the prices on all goods and services would increase by the tax rate is misleading.

The post “Fair Tax” Math, Elucidated appeared first on Show-Me Institute.

In the chart to the right, the y axis represents the price of parochial education, and the x axis represents its quantity (P and Q represent the status quo price and quantity). The line labeled S1 shows one likely effect if the state income tax were replaced with a sales tax: An increased cost for parochial education would lead to a shift in the supply curve, wherein quantity demanded and supply provided would settle at a lower equilibrium. But the line labeled D1 shows another effect of the replacement of the income tax with a sales tax: Because families would have more money to spend that would have previously gone toward paying taxes, the demand curve for parochial education would shift, as well, leading to a higher equilibrium point for both supply and demand. We can’t predict which one of these effects will dominate, but the point is that replacing the income tax with a sales tax would not necessarily lead to a reduction in the amount of parochial school enrollment demanded by education consumers.

Another concern raised by the MCC is that because poor families already do not pay income tax, they would only be harmed by the implementation of a sales tax and would not benefit from greater income levels. However, as this blog post by Abhi Sivasailam notes, lower corporate and personal income taxes help fuel growth by attracting people and investment funds to the state. This results in higher employment levels and higher incomes, which benefit everyone. Furthermore, the bill as proposed in the Missouri Senate also includes a sales tax rebate for low-income families that may otherwise struggle to pay the sales tax.

The concerns brought forth by the Missouri Catholic Conference are not unfounded, but as my colleague Abhi Sivasailam reminds us, tax changes do not happen in a vacuum. The switch to a sales tax has the potential to greatly benefit Catholic schools in Missouri.

The post The Sales Tax and Catholic Schools appeared first on Show-Me Institute.

• The Missouri Budget Project misattributes numbers to the Show-Me Institute.

  The Missouri Budget Project claims that the Show-Me Institute revised its number to from 5.11 to 6.25 percent. This second estimated percentage belongs to former state Rep. Ed Robb, not to a Show-Me Institute publication. Furthermore, Robb’s calculations were his independent evaluation of a specific piece of legislation, not a reference to the Show-Me Institute study written by Dr. Haslag and Abhi Sivasailam.

• The Missouri Budget Project takes the exemptions out of the tax base, but they do not take them out of the rebate amount. Also, they don’t communicate why these products and services are inappropriate to tax and should therefore be exempted.
• The Missouri Budget Project ignores the issue of growth rate in its calculations.

  Assuming a rate of growth is standard procedure, and the Show-Me Institute study includes one, but Missouri Budget Project does not. Are they assuming a zero percent growth rate?

  Dr. Haslag elaborated on this point of contention in his comment responding to “Matt” on a recent blog post by David Stokes:

  The strongest case for PCE, in my view, is that reducing the tax rate on income results in faster growth. Neither MBP nor you have offered an alternative that increases the economy’s growth rate. No doubt, the tax on PCE is distortionary. To do the right experiment, we need a model of economic growth that accounts for facts observed in the world. The Ak model does so. Moreover, the economy’s equilibrium growth rate is a function of the income tax rate. By my calculations, reducing the income tax rate adds more than one-half percentage point to the state’s annual growth rate. This growth more than offsets the excess burden associated with the tax on consumer spending.

• After taking exemptions out of the tax base, the Missouri Budget Project applies the the amount of the rebate to a broad base. This is a very big difference.

  Dr. Haslag responds to this in the same blog comment:

  Along those lines, every time something is exempted, the rebate must shrink since the rebate is based on the concept of a refund on things that people buy that are subject to the tax. If you want to talk about accuracy, you should be aware that MBP and others have fixed the rebate while shrinking the tax base. In other words, they change the definition of the tax base and apply that definition while keeping the old definition of the tax base when they compute the rebate. There are two equations in two unknowns and the definitions must be the same across the two equations. MBP, citing ITEP, violate this definition across the two equations.

• The debate between the Missouri Budget Project and the Show-Me Institute concerns the size of the tax base and the size of the rebate, not the arithmetic.

  Dr. Haslag again:

  Since my calculations are made as transparent as possible, you can check my math. No one is questioning the accuracy of my arithmetic. Indeed, you are asserting my assumptions are wrong. Under your premises, my assumptions are wrong. I do not accept your premises. I digress, but I want things to be as transparent as possible.

It’s laudable that Missouri Budget Project is increasing its effort at making its analysis more transparent. At least its newest piece provides more detail about how the organization arrived at its estimate.

The post Clarification in the Fair Tax Proposal Debate appeared first on Show-Me Institute.

There are certainly legitimate arguments one might make against the Fair Tax proposal — simply stating, perhaps, a belief in in the fairness of progressive income taxation, wherein one’s tax burden automatically increases with income. I would disagree with that argument, but it is a perfectly legitimate argument to make because it doesn’t employ a demonstrably false set of facts. Repeating a figure based on a faulty set of assumptions about a proposal in order to score political points through fear, however, is not a legitimate form of argument.

The Missouri Budget Project again used its 11-percent sales tax figure in a Saint Louis Beacon op-ed today. Only a few days ago, I witnessed two economists tell the author of the MBP piece that her number was incorrect. They corrected her politely and professionally, and explained why it is wrong. Months ago, the MPB also received a copy of the Show-Me Institute’s case study, which went into great detail on the question and explained again why their 11-percent estimate is far too high. Unfortunately, they’ve continued to repeat their unreliable figure at every opportunity.

If you want to argue against Fair Tax legislation, that is fine with me. And, yes, it is likely that different people will come up with somewhat different estimates for how high the revenue-neutral replacement level of the sales tax would need to be. But if your estimate differs so dramatically from everybody else who has studied the issue that it appears to be just plain wrong, you should cease using it once that has been brought to your attention — or attempt to demonstrate where your opponents’ reasoning is faulty, in a detailed, systematic way. And if you don’t, people should stop taking you seriously.

The post The Missouri Budget Project Is Wrong appeared first on Show-Me Institute.

First, low-income individuals and families would see an automatic increase in their take-home income that is equal to the amount that they currently pay in income tax. They would be able to take home 100 percent of their earnings, because there would be no income tax withheld if the Fair Tax were implemented. This would be a tremendous benefit for those who live from paycheck to paycheck. In their recent policy study for the Show-Me Institute, “Previous Estimates Overstate ‘Fair Tax’ Rates, Harms,” Prof. Joseph Haslag and Abhi Sivasailam note the following:

In Missouri, the personal income tax rate is 6 percent; if this tax were repealed, consumers would be richer by that same amount.

In addition to having more money in their bank accounts, low-income individuals and families would also benefit from a personal exemption that would help them pay for the increase in sales tax. Like most Fair Tax proposals, the Missouri bill includes a “prebate” check system that is based on federal poverty guidelines and the number of people in each family.

Plus, eliminating corporate income taxes would place downward pressure on consumer prices and increase individual income even further. This is because businesses pay for corporate income taxes by passing them onto their consumers, employees, and shareholders. They do this by increasing the price that they charge for their products and services, reducing the amount that they pay their employees, and/or by eliminating or reducing dividends to shareholders.

States that have zero income taxes experience higher rates of growth as a consequence. For example, as Jenifer Zeigler Roland and Dave Roland recently demonstrated, the absence of an income tax caused Tennessee to outgrow Missouri. And, as the saying goes, a rising tide lifts all boats. The status quo hurts low-income individuals and families because income taxes discourage economic progress and because this population is disproportionately impacted by periods of slow economic growth. Low-income individuals and families are more likely to lose their jobs, possess fewer resources to endure periods of financial hardship, and are more in need of the initial employment opportunities that a healthy economy provides.

As another benefit of the Fair Tax, low-income individuals and families would benefit from increased employment opportunities. Eliminating the income tax would attract new businesses to Missouri, and they in turn would increase employment opportunities and broaden the tax base. Missouri needs all the help that it can get right now — the state’s unemployment rate was 9.5 percent in December.

Something that critics of the Fair Tax don’t address is that it eliminates loopholes and income tax exemptions in the existing income tax system that favor some businesses and individuals over others. High income individuals and corporations would no longer be able to use such loopholes to their advantage. As a consequence, the proposal would eliminate the mechanisms that are built into current tax law that send income tax revenues toward earmarks and special interests.

The post A Rising Tide Floats All Boats appeared first on Show-Me Institute.