A few days ago, an op-ed by a retired teacher made some inaccurate claims about Missouri’s teacher pension system. Today, the Post-Dispatch graciously ran a letter by yours truly in which I rebut them.  Primarily, I discuss the pension system’s underfunding, the potential for retirees to lose some of their income, and who would benefit from changing the retirement plan.

Additionally, David Nicklaus, business columnist for the Post-Dispatch, has an article in which he highlights my forthcoming paper in the Journal of Education Finance. Nicklaus writes:

Teachers love their pensions. A generous monthly check at the end of one’s career helps make the important, and sometimes underappreciated, profession worthwhile.

I wonder if teachers in Missouri’s lower-paying rural districts realize, though, that their pension contributions help subsidize the retirements of their better-paid counterparts in districts like Rockwood and Clayton.

It is great to see all of this attention going to an important topic that affects so many hard working Missourians. 

The post Join the Pension Discussion! appeared first on Show-Me Institute.

On Tuesday, April 5, Saint Louis voters will decide whether to extend the city’s 1 percent earnings tax for five more years.

Without a doubt, this is a hugely important decision.

In inviting me to talk to you, Ron Zager (co-chairman of the Missouri Progressive Action Group), asked that I begin by presenting both sides of the argument—for and against the earnings tax .

I am happy to do so. It makes for an interesting—and even a startling—contrast.

Supporters cite three principal reasons for extending the earnings tax:

1. It is simple, fair, and easy to collect. Businesses withhold $1 out of every $100 from the paychecks of all of their employees and pay it directly to the city. They also pay a 1 percent tax on their net profits.
2. It brings in a lot of revenue—almost as much as the combined receipts from the city’s property, sales, and utility taxes. It provides a third of the city’s General Revenue Fund, used to support fire, police, courts, streets, parks, recreation, and other day-to-day city services.
3. A large portion of this revenue is like manna from heaven. People who commute into Saint Louis from the surrounding suburbs account for more than half of the city’s annual earnings tax receipts of about $160 million. And why not? The high-earning commuters are significant consumers of city services, swelling the daytime population of the city by about 35 percent.

To sum up the case in favor of retention: The earnings tax is critical to the continued functioning of city and the continued provision of police and other services to a population that includes a high proportion of low-income residents. It is a real lifeline. The city would be in danger of going bankrupt without it.

Opponents have three main reasons of their own for eliminating or phasing out the earnings tax:

1. It encourages people and businesses to move out of the city.
2. It also encourages an ongoing merry-go-round of tax carve-outs and special favors for large and well-known firms. The city does not extend the same benefits to thousands of smaller businesses, which take care of most of the daily needs of people who live in the city, such as the neighborhood grocer, cleaners, pharmacist, or auto repair shop.
3. Though not a regressive tax (applying the same 1 percent to people at all income levels), it is a cruel one. Unlike federal and state income taxes, there is no exemption from the city earning tax for working people at or below the poverty line. The tax hits the first dollar of income even from the lowest-paying jobs. A still greater problem is the narrowing of job opportunities in parts of the city experiencing a rapid out-migration of people and the closure of many small businesses.

The minuses are really the flip side of the pluses I have just mentioned.

Yes, the earning tax is easy to collect, but it is also easy to avoid. As a business owner, you can avoid the tax on your net profits simply by moving your business to the suburbs—anywhere outside the city. There is no earnings tax in Clayton, here in Frontenac, or anywhere else in Saint Louis County and other surrounding counties and municipalities. If you did move your business, many or even most of your employees who already live in the county would, out of their own self-interest, applaud your decision. And others who live in the city would be given a reason to move to the county.

Yes, the earnings tax pays many big bills for the city. By the same token, it provides a strong incentive for individuals and businesses—who have bills of their own to pay—to relocate in order to avoid the tax.

By collecting more than half of earning tax revenue from commuters, the city is (inadvertently) making a powerful argument for downtown-based law firms and other businesses with a large number of highly paid employees to take flight—for both economic and personal reasons. At one stroke a firm can give many of its officers and employees an instant 1 percent raise while sparing them the bother of a long commute. So what can the city do to prevent such businesses from moving?

If you are the sitting mayor or other high-ranking city official, here’s the answer: Offer big potential flight risks all kinds of tax breaks and other incentives to stay downtown. Find ways to abate property taxes to keep prestigious firms from leaving downtown. Waive the half-percent payroll tax (separate from the earnings tax) for large employers such as Anthem and Wells Fargo. And lobby the state for more handouts.

But of course, given your obsession with preserving earning tax receipts, you do that only for the big guys and you forget all about the little guys who are so numerous (even in decline) that you know little or nothing about them.

A classic example of how this works can be taken from 2011, when Stifel Financial Corp., which has had its corporate headquarters in downtown Saint Louis since 1890, announced plans to buy its downtown office building and expand its workforce in the city by a couple hundred people. Mayor Francis Slay called it “tremendous news for the future of downtown.” He also helped Stifel get some $17 million in public financing for the purchase and renovation of the building.

Why would a large and successful financial firm need help in feathering its own nest? Ron Kruszewski, Stifel’s CEO, said it all: “There’s very little investment going on right now without some incentives.”

That prompted Bill McClellan of the St. Louis Post-Dispatch to comment in one of his columns: “When liberals like me argue for comprehensive health care, critics call us socialists. But when businesspeople demand public money to underwrite their projects, hardly anyone says anything.”

(I’ll take issue with McClellan on one point here: There is at least one institution that has fiercely and consistently opposed all forms of corporate welfare and crony capitalism, whether it is providing public funds for new corporate headquarters, public funds for professional sports stadiums, or any other kind of commercial development. That is the Show-Me Institute.)

To sum up the minuses: the earnings tax is a tax on work and enterprise, and when you tax something, you get less of it. In this case that means fewer jobs and less growth. The earnings tax has also encouraged unfair and unwise favoritism in tax practices—decisions made up on the fly to keep big-name businesses from bolting to the county. It’s time for a long look at Saint Louis city government—how it is financed and, more fundamentally, how it thinks.

Let us take a moment to consider decade-to-decade changes in the relative importance of Saint Louis among major cities in the United States over a long period of time—both before and after the introduction of the earnings tax in 1954.

According to census data, the last time Saint Louis moved upward in the ranks of U.S. cities was in the 1890s. The population grew from 452,000 people at the beginning of the decade to 575,000 in 1900, and Saint Louis moved from being the 5th largest city in the country to the 4th (behind New York, Chicago, and Philadelphia).

Of course, that was just prior to the Saint Louis World’s Fair. In that same amazing year of 1904, Saint Louis also hosted the world’s third modern Olympics—following the 1900 Olympics in Paris and the 1896 Olympics in Athens.

Saint Louis held onto 4th place until the 1920 census, when it was overtaken by Detroit and Cleveland, dropping to 6th. It was passed by Los Angeles in 1930 and Baltimore in 1940, falling to 8th. It remained in that spot in the 1950 census—when the city’s population hit an all-time peak of 857,000.

At that point the city’s population went into a steep decline that continues to this day. Since 1950, its population has dropped from close to 900,000 to a little more than 300,000—discarding almost two-thirds of its human body weight—and Saint Louis has gone from being the 8th-largest city in the country down to the 60th, behind such places as Tulsa, Oklahoma, and Wichita, Kansas.

It would be absurd to place all or even most the blame for this decline on the earnings tax. It would be equally absurd to deny that the earnings tax has made a significant contribution to the depopulation of the city and the growth of surrounding areas.

For one thing, we know that downtown Saint Louis no longer rules the roost as the unchallenged commercial center of the Saint Louis region. Clayton has become a strong second center, and other places around the county are also filled with offices and business enterprises. It is only in Saint Louis City that you find acres and acres of abandoned houses, deserted storefronts, and boarded-up factories.

Here’s a statistic that may surprise you: There are now more people who commute into Saint Louis County . . . both from the city and from Saint Charles and other counties . . . than there are people who commute into the city from the county or other jurisdictions. There are 236,000 people commuting into the county versus 172,000 commuting into the city, according to recent census data.

Somehow, Clayton and other municipalities receiving this great daily influx of commuters have been able to handle it . . . without instituting an earnings tax or having everything from the streets to public safety fall to pieces. Why is it any different for the city of Saint Louis? Why is the city unable to cope without taxing the earnings of people who come there to work?

Let’s turn then to the question of whether it is possible to phase out the earnings tax without throwing the city into bankruptcy and fulfilling the worst predictions.

Bear in mind that the proposal on Tuesday’s ballot in the city calls for phasing out the earnings tax over 10 years—whittling away at a $160 million funding gap that would occur in the year 2026 through spending cuts or revenue enhancements averaging $16 million a year between now and then.

Is $16 million a year too tall a mountain to climb? Somehow, in the city’s desperate efforts in recent months to persuade the Rams and the NFL to keep the team in Saint Louis, the city funneled $16 million through the Saint Louis Convention & Visitors Center Commission to pay legal fees and other expenses in what turned out to be a losing effort.

Before that, Mayor Slay and Missouri Gov. Jay Nixon were prepared to raise about $400 million to pay for a large portion of the cost of building a new downtown stadium for the Rams. That alone would have equaled the revenues from the earnings tax over a two-and-a-half-year period.

If almost any large business you can imagine were to lose customers year after year—eventually losing more than half of its business base—you would expect it to downsize drastically, if not go out of business.

Why is it—despite the steady, continuing loss in population—that the city’s budget continues to grow, if only slowly, from one year to the next, with few if any large reductions in its workforce?

Faced with such questions, city officials typically shift the focus to public safety, saying they need more rather than fewer police and firemen. Public safety accounts for a little over half of general funds expenditures. Why, then, is it so hard to trim the other expenditures that make up about 45 percent of the budget?

There are other ways that the city can either cut expenditures or raise revenues besides the shock of instituting sudden and drastic increases in property or sales taxes. It could raise hefty sums of money by privatizing assets such as the airport or the water system.

It could also make a serious effort to raise some revenue from its large nonprofit institutions. As Post-Dispatch business columnist David Nicklaus pointed out in a recent article:

These universities and hospitals depend on city service but don’t pay property taxes. Boston and other cities have negotiated payments from their big nonprofits; Saint Louis could try to do the same. Eliminating the 1 percent earnings tax should make it easier for these institutions to attract and retain employees; wouldn’t they pay something to make the tax go away?

But none of those things is going to happen without a fundamental change in thinking on the part of city officials who have come to look upon the earnings tax as the sine qua non of Saint Louis city governance.

Following the last election, when voters re-approved the earnings tax, city officials heaved a sigh of relief, agreed that the tax did indeed put the city at a competitive disadvantage, and promised to study alternatives. That was five years ago. And since then they have done nothing.

Maybe if the vote is closer this time, they will begin to think differently. But maybe not. Maybe they will just go on hoping for miracles while continuing to pursue policies that have contributed the city’s decline and fall from the heights it once occupied as a great American city.

The post The Saint Louis City Earnings Tax: Lifeline or Noose? appeared first on Show-Me Institute.

                Economists across the political spectrum have been recommending this for years. The Congressional Budget Office, David Neumark, and even Christina Romer  find the EITC is a better policy option than the minimum wage for helping low-income households.

                There a couple of reasons why the EITC is a better policy option than the minimum wage. First, it is specifically targeted to help low-income households. The minimum wage isn’t as well targeted. For example, a teen flipping burgers and making the minimum wage would benefit from a higher minimum wage even if both of her parents are surgeons. The EITC only goes to households making below a certain amount. Secondly, the EITC doesn’t increase labor costs. Increasing the minimum wage means employers will have to pay their employees more per hour. The EITC is a direct government benefit, so businesses won’t have those increased costs.

                The EITC is not a perfect program. It makes a lot of improper payments , costing taxpayers billions. Also, its complicated nature makes it necessary for many people to hire professional tax preparers so that they can receive the credit.

                Despite these drawbacks, the EITC is still a superior alternative to the minimum wage    

The post A Good Idea from the Post-Dispatch appeared first on Show-Me Institute.

First, the evidence is that six states enacted large personal income tax cuts in the years before the Great Recession. Three of these six states reported economic growth rates that were lower than the nation’s growth rate while the other three reported growth rates that exceeded the nation’s growth rate. The three faster-than-nation states were major oil-producing states, benefiting from the sharp run-up in oil prices that occurred after the tax rate changes were implemented.

Leachman et al. are correct in pointing out that multiple events affect each state’s economic growth rate. But the analysis is so perverted that it is more politics than economics.

Let’s try to be objective about the effects associated with a reduction in the income tax rate. First, the partial effect of a decrease in the income tax rate means that the after-tax returns to factors of production will increase. In other words, the return to workers and to those people taking risks as entrepreneurs and business owners. As the after-tax returns increase, the aggregate supply increases at a faster rate. This is how lower income tax rates, holding everything else constant, result in faster income growth. Leachman et al. do not present a new economic model that overturns this reasoning, so this point is indisputable.

What they must have in mind is the next round of effects associated with smaller state budgets. In the near term, state spending shrinks because the product of the tax rate and the tax base initially shrinks when the tax rate is reduced. The Leachman et al. argument is essentially that the government spending is on public goods — infrastructure, schools, and other capital investments — that offer a higher average return than private citizens could possibly realize from investing on their own. Honestly, this may be true. However, states purchase lots of things that are not about infrastructure, schools, and other capital investments. It may be a hard choice, but if there are fewer resources poured into state coffers, then the state must allocate those to the public projects that offer the highest return to its citizens.

The other part to this dynamic analysis is what happens when income grows faster because of the lower income tax rate. Because of this effect, over time, the state budgets will also grow faster, meaning that the path of state government future spending will exceed the high-tax-rate path. Leachman et al. do not even consider this.

Now, back to the evidence. Their interpretation is the worst kind of science. Ideally, a scientist would like to run a controlled experiment, isolating the treatment that they are considering and then compare results from the control group with the treatment group. Leachman et al. start off by recognizing that no such controls exist. Then they pervert their analysis by using the absence of the controls to argue that oil-producing states benefited only from their oil. Shame on them!!! What they cannot tell you is whether the non-oil producing states would have grown even slower if the income tax rates had been left at their higher levels. Now that would be a comparison.

There are other objective ways to rip their analysis. For example, they focus on a short time horizon. No growth theorist relies on data less than a decade old to try to infer what the growth-rate effects are. Yet Leachman et al. boldly assert the causality from just a few years of data.

You do not have to trust me. You can read the literature on factors affecting economic growth. At the state level, it is important to spend resources on public goods that are most valuable to people living within those boundaries. The next objective is to collect taxes from these people in the way that does the least harm; that is by creating the smallest distortions. Such taxing principles will result in higher living standards and happier people than for one group to nakedly claim their sense of fairness is the right tax structure.

The debate is too important to not carefully think about the best approach. Let’s think carefully.

The post The Worst Kind Of Science appeared first on Show-Me Institute.

Findlay’s analogy was in response to a recent Show-Me Institute paper on Missouri’s unfunded pension liabilities. The author of the policy study, Andrew Biggs, demonstrates that Missouri’s unfunded pension liabilities are much higher than the state has reported when we accurately account for the risk of the investments.

Biggs, on the Show-Me Daily blog, and Jason Richwine, of the Heritage Foundation, have criticized Findlay’s remarks. In his post, Richwine states: “From an economist’s perspective on costs, Findlay is free to pursue whatever level of risk he wants with the Missouri pension fund. What he cannot do is pretend that more risk comes at no cost to the state’s taxpayers, who must make up for any funding shortfalls.”

I cannot help but heap more criticism on Findlay. His analogy would be accurate if Biggs had suggested we take a zero-risk approach to pensions by banning pensions. Of course, that is not what he suggests. Rather, Biggs argues that pension liabilities should be calculated with a low-risk discount rate. In non-economist speak, that means when you are gambling with taxpayer money, it is wise to hedge your bets.

If we want to stick with the car theme, a better analogy would be that calculating pension liabilities with a low-risk discount rate is akin to purchasing auto insurance. Like driving, our investments have risks embedded in them. I believe it is important for Missourians to adequately plan for that risk before we let our unfunded liabilities come back to rear-end us. (How is that for a car analogy?)

The post Unfunded Pension Liabilities And Car Analogies appeared first on Show-Me Institute.

The St. Louis Post-Dispatch’s David Nicklaus brought these results to Gary Findlay, executive director of the Missouri State Employees Retirement System (MOSERS) and an outspoken opponent of fair market valuation. “Using a risk-free discount rate, Findlay says, is about as sensible as arguing that the state should take a zero-risk approach to traffic accidents — by banning cars.”

In fact, fair market valuation does not say that pensions cannot take investment risk. Nor does it argue that investment risk cannot pay off. Rather, it merely says that we cannot assume that investments always pay off and ignore the risks those investments pose to the budget and the taxpayer. Under current pension accounting rules, a plan that takes more investment risk — say, by shifting into stocks, private equity, or hedge funds — automatically becomes “better funded” because the plan then assumes a higher investment return. But high-risk investments do not make pensions better funded. Yes, they reduce contributions for current taxpayers — but shift an equal and opposite contingent liability onto future generations to pay full benefits should the assumed rates of return fail to materialize.

And, as recent experience has shown, riskier investments do not always pay off, even over the long run. In fact, MOSERS’s own investment consultants told them that the plan has a less than 50 percent chance of achieving its stated returns. But full benefits must be paid 100 percent of the time. Fair market valuation catches the cost of guaranteeing full benefits. Current accounting standards ignore it.

Findlay’s traffic accident analogy is not the most apt, but think about it this way: Automobiles come with obvious benefits but also costs, including the risk of traffic accidents. But we cannot weigh the costs and benefits if we refuse to count the number of accidents each year. Similarly, we cannot refuse to consider the possibility that our bets on high-risk pension investments will not pay off, particularly when billions of taxpayer dollars are on the line.

The post Valuing Public Employee Pension Liabilities: Nothing ‘Fair’ About It appeared first on Show-Me Institute.

There are two frustrating things about the study. First, as the St. Louis Post-Dispatch’s David Nicklaus noted, it does not make clear whether it is referring to just the city or to the entire region. Obviously, that has repercussions. If they applied the city’s 1.5 percent earnings and payroll tax to the entire region (as I think they did), that would be an error. Second, it is frustrating that Kansas City was not included in the study.

According to Nicklaus’ write-up, the main reason we ranked so poorly was our “relatively high property tax costs.” Some people might question that, as Missouri is not really known for high property taxes, even for businesses. In fact, this study by the Tax Foundation ranked Missouri as seventh best from the business property tax perspective.

How do these discrepancies come about?

First, it appears they are compiling their rankings with different methodologies. The Tax Foundation (which gives a better explanation of its methods) gives a lot of weight to certain property taxes (intangibles, inventory, franchise) that Missouri no longer has. So we rank very highly because we do not have those. KPMG appears to be going simply on total property tax bills and rates.

But I think the main reason Saint Louis ranks poorly while Missouri is ranked highly is that the main corporate property tax is the commercial surcharge, and that tax varies wildly by county within Missouri.

The commercial surcharge is a property tax rate applied on top of general charges for just commercial property, as its name implies. It ranges from 1 cent per $100 of assessed valuation in Reynolds County to $1.70 per $100 in Saint Louis County (followed right behind by $1.64 in Saint Louis City). That is a difference of $5,408 on a $1 million commercial property (not a high valuation for a commercial property). For comparison, 16 of Missouri’s 115 counties have a rate of more than $1, and 68 have a rate below 50 cents per $100 of assessed valuation. That is how Missouri can rank well, but Saint Louis poorly, on business property taxes.

Missouri needs to change our commercial surcharge system to allow the rates to decline as assessments increase, like all other property taxes. For that and other needed changes to the system, please check out this testimony.

The post ‘Saint Louis Has High Taxes!’ Say International Accountants appeared first on Show-Me Institute.

Nicklaus cites an economic study conducted by Robert A. Baade and Victor A. Matheson which found that “Researchers who have gone back and looked at economic data for localities that have hosted mega-events, attracted new franchises, or built new sports facilities have almost invariably found little or no economic benefits from spectator sports.” This echoes the conclusions of the St. Louis Federal Reserve study that I cited. The economic case for upgrading the Dome simply is not there.

I also have to concur with Nicklaus regarding the public officials who are making the case for the Dome. If these officials are for the Dome, make the case in terms of civic pride or boosting the city’s image. Take that case to the people and let the chips fall where they may, but do not try to sell the plan to the public stating that upgrading the Dome will be an economic boost to the area, because it is not true.

The post I Am Not Alone On The Dome appeared first on Show-Me Institute.

• No state can “win” the film subsidy war . Film subsidies are sometimes described as an “investment” that will pay off by creating a long-lasting industry. This strategy is dubious at best. Even Louisiana and New Mexico — the two states most often cited as exemplars of successful industry-building strategies — are finding it hard to hold on to the production that they have lured. The film industry is inherently risky and therefore dependent on subsidies.

Regular readers of Show-Me Daily know that I am a frequent critic of these programs. The following is a list of additional recent studies that I have referenced previously, all of which are specific to film tax credit programs. Each of these concludes that film tax credit programs have negative fiscal consequences for states. If any of you are aware of quality literature on the topic that I may have excluded, please leave a note in the comments section of this post.

1. In October 2010, the state auditor’s office in Iowa released a report on the state’s film tax credit program, which was subject to recent scandals. The auditor found that a full 80 percent of the credits that the state had granted were issued improperly — amounting to more than $25 million.
   
2. In September 2010, the Senate Fiscal Agency in Michigan released a study showing that the state spends more on film tax programs than they generate in economic activity. For example, in fiscal year 2010–11, Michigan will spend $125 million on film credits, which will generate merely $13.5 million in new tax receipts. This amounts to a net fiscal cost of $111.5 million.
3. In March 2010, the Wisconsin Department of Commerce published a cost-benefit analysis of the state’s film tax credit program, reporting that it costs 20 times more to create a job using the state’s movie tax incentive program than it does using other state job creation programs.
4. In January 2010, Tax Foundation released a study, “Movie Production Incentives: Blockbuster Support for Lackluster Policy,” concluding that production incentives such as targeted tax credits do not spur economic growth.
5. According to a 2007 study by Oxford Economics, “The Economic Impact of the UK Film Industry,” the film industry has a multiplier of only 2.0. This is lower than the multiplier for the economy average, and indicates that the indirect impacts on employment and output from the film industry are not very far-reaching. Even if there were a significant multiplier when money is spent in the economy, then certainly permanent businesses would provide more favorable returns — not short-lived activity such as film productions.

The post State Film Tax Credit Program Reading List appeared first on Show-Me Institute.

The following is an excerpt from the study (emphasis mine):

Significant confusion appears to exist regarding the public and private costs and benefits of the credits. Statements in the press regarding the benefits of the Media Production Credit typically highlight the increases in private sector activity and measure them against the public sector cost (often without accounting for the impact of lowering other public expenditures to offset the lost revenue from the credit). This comparison creates confusion about the impact of the credit on the budget. The nature of the credit and the resulting activity is such that under current (and any realistic) tax rate the State will never be able to make the credit “pay for itself” from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred.

Public discussion of the Media Production Credit also has confused the nature of the credit, often leaving taxpayers with the impression that the credit represents foregone revenue that the State would not have otherwise received. The amount of the Media Production Credit, however, is unrelated to a taxpayer’s liability. The credit represents a subsidy for production activity and is unrelated to any provisions in law that impose liability on the taxpayer. Because the credit is refundable, the State not only foregoes the revenue it would have otherwise received but also pays additional money to offset the costs of the production.

The study includes some striking statistics:

• In 2009, each job created by the film tax credit program in Michigan cost taxpayers between $44,561 to $193,333.
• in FY10–11, Michigan will spend $125 million on film credits, and this will generate merely $13.5 million in new tax receipts. This equals a net fiscal cost of $111.5 million.

Nicklaus linked to an article by Josh Barro discussing the study, which is also worth reading.

After my testimony before the Missouri Tax Credit Review Commission on Wednesday, co-chair Steve Stogel asked me which specific programs I would cut. Although I believe that Missourians would be better off if all development tax credit programs were eliminated, I realize that we live in a world of second-best solutions and that eliminating them all may not be politically feasible. If I had to choose which programs to eliminate, the film tax credit program would be among the very first. (This is unsurprising; by my count, I have written 18 blog posts about the specific subject of film tax credit programs on Show-Me Daily, not to mention an editorial.)

Policymakers often look to the economic development strategies used in other states and try to emulate them. It just so happens that Wisconsin recently scaled back its film tax program, and Iowa decided to eliminate its program, too. When will Missouri face the facts and do the same?

The post New Michigan Study: Film Tax Credit Program Does Not Pay for Itself appeared first on Show-Me Institute.

It is not exactly groundbreaking research for me to state that teams and players pay substantial income taxes in various forms. Here are the most recent payrolls and league ranking for the five Missouri teams:

1. Rams, $62,384,821 (32)
2. Chiefs, $83,187,156 (31)
3. Cardinals, $93,540,751 (12)
4. Royals, $71,405,210 (21)
5. Blues, $46,485,000 (22)

As far as I know, the location in which a team plays its regular season home games is the primary determinate for which taxes must be paid. So, the city of St. Louis, which hosts the home games of all three St. Louis teams, gets $1,518,079 per year in earnings and payroll taxes just from the Cardinals, Rams, and Blues players. Kansas City gets $772,962 from Chiefs and Royals players. (This post originally mistakenly said that the KC stadiums were outside of Kansas City proper. Thanks to David Nicklaus of the Post-Dispatch for sending me a correction, and for reading our blog!) Of course, when you account for team employees and the profit tax levied on each organization, the earnings tax receipts grow even larger.

Missouri receives an estimated $10,710,088 each year from applying the 6-percent income tax rate to athletes from each of its five sports teams. (With deductions, etc., this figure would be a little lower.) Missouri, like many other states, enforces its income taxes on visiting athletes, too. However, just as players from visiting teams must pay the income and earnings taxes, all the players get credit for taxes paid to other cities and states. The result is that the total taxes paid are just moved around between jurisdictions, as our former editor Tim Lee first pointed out when writing about the “jock tax” in 2005:

But Missouri athletes who pay other states’ jock taxes are able to subtract those tax payments from their Missouri tax bills. When you subtract the revenue lost from other states’ jock taxes, the result is practically a wash. If all 20 states repealed their jock taxes simultaneously, states would get virtually the same revenue with a lot less administrative overhead.

Two lists help us determine whether players pay more or less taxes: states without an income tax, and cities with an earnings tax. The Cardinals players don’t appear to do so well here. They pay both a state income tax and city earnings tax at home, and regularly travel to Pittsburgh, Cincinnati, New York, and Philadelphia. Only when they travel to play the Astros — and, less frequently, the Marlins — do they really get a pay raise. The Royals also pay the local earnings tax when they travel to Detroit, Cleveland, or New York. Both the Cardinals and Royals pay the other city’s e-tax each year when they travel across I-70 for the annual “rivalry” series.

The Blues pay a local tax on their frequent visits to Detroit or Columbus, but get a nice tax vacation when they head to Nashville. Of course, Canadian taxation becomes a issue for any hockey player, and for the Royals to a lesser extent.

The NFL schedule rotates from year to year more than other leagues, but the Rams players have to like getting to play one guaranteed road game in Seattle each year, because Washington has no state income tax and Seattle has no earnings tax. The Chiefs and Rams play this year in the regular season, so both teams will be paying the host city’s e-tax then, as well. (The two football teams usually play in the pre-season for the much-coveted “Governor’s Cup” but I don’t think athlete’s salaries are based on pre-season games so no earnings tax would be collected in that case.) If you are looking to avoid taxes, the AFC south is where you want to play — aside from the smallish earnings tax in Indianapolis, of course. The Chiefs have to pay high California state taxes for at least two games per year. (Disclaimer: All team opponent and schedule info listed here has been pulled from my own memory, with a little help from ESPN.com.) Of course, other factors such as where an athlete keeps his primary residence, the agressiveness of his accountant, etc., will all play a factor here. A player who lives full time in Missouri is going to pay Missouri income tax on salary earned, but not taxed, playing in Texas, while someone who lives in another state might not. I am a policy analyst, not a CPA.

What does all of this prove? Nothing really, yet. This post is less debatable than future posts in the series might be, because in these cases the teams and players are treated just like other businesses, and the taxes paid are substantial. That does not mean I think they should be substantial, just pointing out that the applicable tax policies show no favoritism. Also, it is simultaneously difficult to say that the athletes and teams are not paying enough in taxes when around 100 individual players generate more than $1.5 million per year to the city of St. Louis alone, and it is almost as hard to seriously complain about the taxes paid by modern professional athletes, who earn enormous salaries to play a game for a living. (Am I jealous? Absolutely!)

Future posts in this series will deal with areas in which teams are not treated like other businesses, for better or worse.

The post Taxes and Sports: The Earnings Tax (Part One in a Series) appeared first on Show-Me Institute.

His latest case study compared the prices of the metropolitan Kansas City market on both sides of the state line, and compared Springfield to Wichita. Unsurprisingly, the data show that Missourians pay a higher cost for massage services, a situation likely caused by market regulation. Stokes is quoted in the article as saying:

“This is a system designed to limit competition for the people who have the current licenses,” Stokes asserts. “That’s the only reason. Everything else is a smoke screen.”

I agree with David Stokes 100 percent. It baffles me how people try to argue for occupational licensing by saying that it is a form of consumer protection. Although his study demonstrates some of the ancillary benefits that licensing can provide, such as reduced search costs when trying to find a competent practitioner, government officials aren’t in a position to determine whether those benefits are worth the higher market costs that reduced competition brings. Ultimately, the primary thing being protected is the income of a particular set of licensed professionals.

I could easily prolong this post, but interns at the Show-Me Institute don’t get that long of a break. So excuse me while I go to Kansas to get a massage — it’s been a loooong day!

The post Stokes Massages the Post-Dispatch appeared first on Show-Me Institute.

The first commenter over at Mound City Money stated that if the toll is raised, he will avoid the bridge. Really? So, if the toll is raised to, say, $3.50 from $2.50, that extra buck will cause you to add 45 minutes to your trip? Really? Even if we take out the value of your time, the added driving will at a minimum use up an extra gallon of gas, at an extra price equal to the toll. So you’d be at best dead even (and worse-off in many cars) without considering the value of the 45 minutes you previously saved. I have to think that it sounds perfectly reasonable to increase the toll to the level that the ratings agency is calling for.

The decrease in Lake Ozark bridge traffic can pretty clearly be attributed to the decrease in overall traffic at the lake, as the second Mound City Money commenter notes, and as we saw earlier this year in articles about sales tax collections in the Lake Ozark area (I remember reading them, but am unable to locate them online right now). To find someone who has chosen to reduce his time boating at the Lake this year because of high gas prices, I only have to walk down the hall to my boss’ office.

I say they should raise the bridge toll by $1 in season and 25 cents out of season. I doubt that would have any serious effect on traffic. Or, better yet, just lease the entire thing to a private company and make the bonds an entirely private matter …

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The discussion begins at noon, so be sure to stop by and submit your own questions. It should turn out to be a lively exchange.

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Back in the 1990s, I owned a legal support company and we did a lot of process service and some investigation for attorneys. So I joined the statewide investigators association, a voluntary group, and I recall how badly many of them wanted to be licensed statewide by the government. There were different reasons for this, but I vividly remember some people arguing that their profession could never be a truly respected occupation until it was licensed, as if some governmental entity regulating you makes you legitimate. I think a great deal of people share that sentiment, and it is one I cannot fathom. Many people in professions like being licensed, because not only does it help to eliminate competition, but for some strange reason it makes them feel more proud of their own occupation.

From the Nicklaus article:

Missouri’s interior designers, who sought and won state licensing in 1998, and sports agents, who have been licensed since 2004, also show up as unregulated on the Reason Foundation’s list.

Why the hell should interior decorators be licensed by the state? What is god’s name could possibly be the safety rational for protecting someone from having the interior coloring and furniture of their house poorly designed? Please don’t read this as a rip on interior designers — we had one come to our house last year, and she was terrific. I assume she was licensed, as I just read a few minutes ago that they have to be, but I honestly could not care less whether or not she had a license. Rugged Individualism is in deep trouble in our society if people continue to think that what they choose to do for a living is not truly valued or impressive until they get a government license to do it. To use one of the best clichés we have: All work is honorable — government license or not.

The post License Me, Please, Please, Please … appeared first on Show-Me Institute.

Yesterday, I intended to link to this excellent Post-Dispatch piece about recent controversy over Poole, written by David Nicklaus — but I just didn’t have the time to say anything substantive about it. The article is still worth highlighting, though, because it makes a few points that deserve ongoing public attention:

When people start calling Bill Poole names, you know things are getting rough in the financial markets sandbox.

The amiable, bearded president of the Federal Reserve Bank of St. Louis makes an unlikely villain, but he’s become a regular whipping boy for market commentator James Cramer, and now Sen. Kent Conrad is calling for Poole to resign.

His sin? All Poole has done is to advocate the same careful, data-driven approach to monetary policy that has served the nation well in recent years.

Being cautious with Federal Reserve policy is no small thing. Any good student of 20th century economics knows that Fed policy was one of the largest factors (among many others) contributing to 1929’s Wall Street crash and the onset of the Great Depression. Any number of books on the subject reveal variants of this extreme example of cause and effect — the important thing is, the people running the Federal Reserve today understand the damage that irresponsible Fed policy can bring. Ben Bernanke, current Fed chairman, outlined the role of the Federal Reserve in spurring the Great Depression in a 2004 speech:

The market crash of October 1929 showed, if anyone doubted it, that a concerted effort by the Fed can bring down stock prices. But the cost of this “victory” was very high. According to Friedman and Schwartz, the Fed’s tight-money policies led to the onset of a recession in August 1929, according to the official dating by the National Bureau of Economic Research. The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October. In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it. Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930.

Bernanke acknowledged the Fed’s role in causing the Great Depression even more explicitly in an earlier speech from 2002:

The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman’s words, a “stable monetary background”–for example as reflected in low and stable inflation.

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

Current Fed leaders tend to credit economist Milton Friedman as the intellectual source for much of today’s practical monetary policy. As Bernanke said in yet another speech:

In preparing this talk, I encountered the following problem. Friedman’s monetary framework has been so influential that, in its broad outlines at least, it has nearly become identical with modern monetary theory and practice. I am reminded of the student first exposed to Shakespeare who complained to the professor: “I don’t see what’s so great about him. He was hardly original at all. All he did was string together a bunch of well-known quotations.” The same issue arises when one assesses Friedman’s contributions. His thinking has so permeated modern macroeconomics that the worst pitfall in reading him today is to fail to appreciate the originality and even revolutionary character of his ideas, in relation to the dominant views at the time that he formulated them.

And Bill Poole, of the St. Louid Fed, gave the keynote speech at a July 31 event honoring Milton Friedman’s legacy, co-sponsored by the Show-Me Institute:

Although Milton did not prevail in his quest to have the Fed maintain a constant money-growth rate, he did prevail in his insistence that policy be apolitical and rely to the maximum possible extent on market judgments. He lost a battle but truly did win the war.

It’s remarkable the extent to which Friedman’s views have influenced today’s Federal Reserve, but Friedman himself was so acutely aware of the potential danger Fed policy can cause that he’s on record as wanting to abolish the Federal Reserve altogether:

[… T]hough I want to know what my ideal is, I think I also have to be willing to discuss changes that are less than ideal so long as they point me in that direction. So while I’d like to abolish the Fed, I’ve written many pages on how the Fed, if it does exist, should be run.

Bill Poole and other Federal Reserve leaders deserve tremendous credit for standing up to demagogues who call for intervention by central banks in every momentary fiscal crisis. As David Nicklaus said in his Post-Dispatch column:

Someone needs to remind Conrad what the Fed’s real job is. As the nation’s central bank, it’s supposed to keep inflation under control while creating a climate that allows for steady employment growth. It’s not, or at least it shouldn’t be, in the business of propping up stock prices or bailing out hedge funds that invested in subprime mortgages.

[…] Poole’s point was that the Fed shouldn’t act rashly just to placate Wall Street, and it was a point that needed to be made.

This is exactly right. Bailing out market players who face the prospect of financial loss only reinforces the poor decisions that led to economic crisis in the first place. The Fed is there to help stabilize the economy as a whole, not smooth out bumpy rides for particular investors.

The post Trouble … With a Capital T appeared first on Show-Me Institute.

A lot of jobs are at stake — (Steve) Johnson says a couple of prospects are in
the 1,000-employee range — and Missouri isn’t exactly putting its best
foot forward. "If they called and said we have to make the final choice
tomorrow, then we’re in trouble," Johnson said. "They will not decide
on something based on uncertainty."

Businesses like Advantage Capital are now said to be looking in other places, like Mississippi, because Missouri does not have any incentives in place to match federal tax credits and other credits for businesses to move here. Now, of course, I do not like to see jobs redirected elsewhere, but rather than reauthorizing tax credits every two years there should be a push for broad-based reform that will attract all kinds of businesses. Maybe that should be the major discussion in the next session, rather than picking tax credit recipients.

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