Similar to Missouri’s potential $15.00 minimum wage, Seattle’s minimum wage ordinance passed in 2014 phased in an increasing minimum wage in the City of Seattle from the state’s $9.47 minimum to $11 in 2014, $13 in 2016, and $15 in 2017. A 2017 study at the University of Washington found that the increase to $15 an hour resulted in low-skilled workers experiencing a reduction in hours worked or even job loss. This decrease in hours worked for low-skilled workers resulted in “a net loss of $74 per month.” A pay cut of $74 per month can have a significant impact on low-income workers. The study found that employers opted to replace low-skilled workers with higher-skilled workers who could perform the job more effectively and therefore warrant a wage equivalent to the new minimum wage.

Seattle’s experiences are just one example of how a minimum wage increase negatively affects low-income workers. California recently increased its minimum wage to $20 for fast-food workers, resulting in many workers suffering from a loss of income. Mark Harmsworth, director of the Small Business Center at the Washington Policy Center, said:

Sometimes, instead of a salary bump, many workers instead find their work hours cut or their jobs eliminated completely. For some employees, if they fall below a minimum hour threshold required for benefits, they lose benefits too.

Increasing the minimum wage is a misguided way to try and help workers. If policymakers and voters want to assist low-income workers, then increasing the Earned Income Tax Credit would be a better approach.

The post A Closer Look at the Effects of a $15 Minimum Wage for Missouri appeared first on Show-Me Institute.

My colleagues and I have been writing about the online sales tax issue for years and have submitted testimony on the topic five times this year alone. The purpose of the tax is help level the playing field between online retailers and brick and mortar stores, but as Institute researchers have repeatedly emphasized, any effort to expand the state’s sales tax base should be done in such a way that it doesn’t raise the cumulative tax burden on Missourians. In other words, the bill should be revenue neutral. This legislation delivers in that regard.

SBs 153 & 97 offset the tax increases that will come with collecting online sales taxes from out-of-state retailers with future income tax reductions. Once fully implemented, after hitting various revenue targets over a period of years, Missouri’s top income tax rate will fall incrementally from 5.4 percent to 4.8 percent. This is a good move. It shifts the state government’s revenue reliance away from the economically destructive income tax and is paid for without raising other tax rates.

Additionally, SBs 153 & 97 include a host of other positive tax-related reforms that go beyond Wayfair. A few highlights include tax-increment financing reform, special taxing district reform, and a non-refundable earned-income tax credit. Components of each of these major reforms have been included in the Show-Me Institute’s Blueprint for Missouri over the past few years and represent significant improvements over our state’s status quo.

The bill signing represents just the beginning of what will be a long road toward Wayfair implementation. Online sales taxes aren’t slated to begin being collected until Jan. 1, 2023, while the other parts of the more than 200-page bill will go into effect later this summer. In the coming months, I’ll cover the many questions our state and local governments are facing regarding the online sales tax topic. But for today, I’m glad that after years of talk and no action, the governor and legislature finally delivered on this front for Missouri taxpayers.

The post Online Sales Taxes Bill Finalized appeared first on Show-Me Institute.

It turns out, Target workers themselves.

After Target raised its employees’ wages, Target then proceeded to cut their hours. A CNN story highlighted the workers’ frustration.

“I got that dollar raise but I’m getting $200 less in my paycheck. I have no idea how I’m going to pay for rent or buy food,” one worker commented.

Workers didn’t just lose hours—some lost benefits. Target employees must average 30 hours per week to qualify for health insurance benefits. But the reduction in hours worked pushed some employees below 30 hours, costing them health care benefits. The negative impact of such a policy was predictable.

The vast majority of people earning the minimum wage are not trying to live solely on that wage. The typical minimum wage worker is someone who is under 25, still in college, working part time, and living in a family well above poverty. According to a 2017 Government Accountability Office report, only 13 percent of households with someone earning between $7.25 and $12 per hour were in poverty.

Raising the minimum wage benefits some lucky teenagers at the expense of the working poor. Show-Me Institute analysts have discussed this problem many times before, most recently regarding Missouri’s decision to raise the state’s minimum wage to $12 per hour by 2023.

Perhaps Target’s situation will help people see that the negative consequences of minimum wage increases are more than theoretical. Policies targeted specifically at the desired recipients, like the earned-income tax credit, are more effective at incentivizing hard work than a one-size-fits-all policy.

If we want to help the working poor, raising the minimum wage is simply not the way to do it.

The post Fight for 15 . . . Hours Per Week? appeared first on Show-Me Institute.

The US Department of Health and Human Services (HHS) launched the Head Start program in 1965. It was expanded in 1981 and now has a $9 billion budget. Operated in Kansas City since 2005 by MARC, the program works to provide:

Comprehensive, high-quality birth-through-five early education services that facilitate healthy development including physical and social/emotional development and prepare children for school success.

Is it working? No. According to HHS’s own 2012 report, “after the initially realized cognitive benefits for the Head Start children, these gains were quickly made up by children in the non-Head Start group.” The report indicates this finding is similar to other studies published between 1995 and 2010. 

A 2013 story in The Washington Post is a pretty even-handed write up of the value of pre-K. The author points out that extrapolating findings from the HighScope Perry study (an influential pre-k study of a small group of children in Michigan) to larger populations like Kansas City’s is highly questionable. In discussing the fade out of any initial Head Start benefit, the author wrote:

Some Head Start supporters, like Danielle Ewen, formerly of the Center for Law and Social Policy (CLASP), argue that this says more about K-12, and that what’s likely happening is that poor quality public schools are actually reversing Head Start’s gains.

If this is the case, children in the Kansas City Public School District can expect to see no long-term benefit whatsoever. Russ Whitehurst of the Brookings Institution points not only to research on Head Start, but to large scale pre-K programs such as the Tennessee Voluntary Pre-K (TVPK) program. In those follow-up studies, children in the control group soon outperformed those who received the preschool benefit.

Using the state test data and the full randomized sample, the evaluators report negative impacts for reading, math, and science scores at the end of third grade for children assigned to TVPK. The negative impacts on math and science are statistically significant and substantive: children randomly assigned as preschoolers to TVPK had lost ground to their peers who had randomly not been offered admission to the pre-K program.

Whitehurst revisits this in a 2018 paper in which he writes:

Unabashed enthusiasts for increased investments in state pre-K need to confront the evidence that it does not enhance student achievement meaningfully, if at all. It may, of course, have positive impacts on other outcomes, although these have not yet been demonstrated. It is time for policymakers and advocates to consider and test potentially more powerful forms of investment in better futures for children.

As we wrote in a previous post, policymakers in Kansas City may not be interested in confronting such evidence. This is especially true of Whitehurst’s observation that direct aid to families, such as the earned income tax credit (EITC), “produced substantially larger gains in children’s school achievement per dollar of expenditure than a year of preschool, participation in Head Start, or class size reduction in the early grades.” 

Designing public policy is not easy. Neither is delivering effective education on a large scale. But we need to rise to the challenge of both. As it stands, the proposal of pre-K in Kansas City is unlikely to lead to significant long-term benefits for the children involved, especially if they matriculate into underperforming K-12 schools. A program with questionable efficacy that taxes the very low-income families it is meant to help seems, on balance, to make this plan more harm than help.

The post Pre-K in Kansas City Likely Won’t Deliver on Its Promises appeared first on Show-Me Institute.

On Tuesday, March 12, I appeared as a panelist on an American Public Square discussion titled “Pre-K for All?“ about the upcoming April ballot measure. Proponents of pre-K point to a single, small-scale study of a specific pre-K program conducted from 1962 to 1967. The study, called HighScope Perry, did show a positive relationship between participation in the program and educational and financial success. However, the program that was studied was intensive, expensive, and only included 123 children. While the Mayor and Mid America Regional Council (MARC) specifically cites the HighScope Perry study, the plan they endorse for Kansas City is nothing like what was done there.

Russ Whitehurst of the Brookings Institution has written at length about the failure of larger-scale pre-K programs such as Head Start and the Tennessee Voluntary Pre-K Program to generate impressive results. We’ll discuss that research more in future blog posts. But in a survey of the research on various school-readiness interventions, Whitehurst pointed out that direct aid to families, such as the earned income tax credit (EITC), “produced substantially larger gains in children’s school achievement per dollar of expenditure than a year of preschool, participation in Head Start, or class size reduction in the early grades.” That is a fascinating bit of information and should be of interest to anyone who is serious about helping low-income children.

During the panel discussion I offered, “You could do more for poor families in Kansas City by removing the sales tax on food and by exempting, say, the first $26,000 of earnings from the earnings tax. You can do more by aiding families—giving them more money in their pocket—than you can by taxing them and providing a program.”

But Mayor James was not having it. He responded, “There’s no way that you can tell me, regardless of what study you may cite,” that by reducing taxes on the poor that they, “are going to use the money to educate their children.” And maybe they won’t, but the data Whitehurst cites don’t specify how families spend the extra money. EITC funds are not earmarked, yet this direct support to low-income families still outperformed pre-K according to Whitehurst’s research.

Perhaps what low-income families need is not to have more money taken away from them in order to provide them more services. Perhaps what they need is more money, more flexibility, more agency to address their own challenges as they see fit. Perhaps telling poor people that government knows best how to spend their money and educate their children isn’t the best way to solve problems. The research (at least if we go beyond a specific study that seems cherry-picked to support a rosy view of Pre-K programs) seems to suggest this, if only policymakers will listen.

The post Pre-K Supporters Dismiss Research on Efficacy of Pre-K appeared first on Show-Me Institute.

While the situation for single parents working minimum wage jobs is undoubtedly difficult, increasing the minimum wage can harm people in that position, as well as those struggling to hold down a job. After Seattle increased its minimum wage, low-wage workers had their hours cut, and the number of minimum wage jobs decreased. In fact, it is the people without steady employment who are much more likely to be in poverty and who are hurt the most by the unintended consequences of a higher minimum wage.

In a working paper for the American Enterprise Institute, Angela Rachidi uses data from the Survey of Income and Program Participation (SIPP) to show that most families who have one adult consistently working are not in poverty—and if they are in poverty, it is likely to be for short periods of time. SIPP data give us unique insights because they follow the same families for 36 months and track their poverty and job status during that time. When measuring the federal poverty rate, on the other hand, the Census Bureau merely asks families if they have been in poverty at all in the past 12 months but nothing else about their situation.

One chart (below) from the paper sheds light on the economic situation of American families and how often they were in poverty or unemployed. The far-left bar represents families where at least one person held a job for the entire 36-month survey period. In this group, 78 percent were not poor at any time, 17.5 percent were poor for 1 to 18 months, 2 percent were poor for 19 to 27 months, and 2.6 percent were poor more than 27 out of the 36 months they were surveyed.

Intermittent = 1 to 18 months of the three-year period. Recurrent = 19 to 27 months of the three-year period. Persistent = more than 27 months of the three-year period.

Source: Rachidi, Angela; American Enterprise Institute. Persistence of Poverty and Joblessness in US Households. AEI Economics Working Paper. July 2018. Figure 5 (Author’s calculations using the Survey of Income and Program Participation, 2008 Panel, Years 2009–11, Waves 2–11).

Those who experienced intermittent and recurrent joblessness (two middle bars) were much more likely to be in poverty at some point during the survey period. These people are having difficulty getting hired at the current minimum wage. For those who are persistently jobless and do not have income from retirement or disability insurance to keep them out of poverty, the barriers to entering the job market are also high. Mandating that employers pay even more for their labor will only take away employment opportunities and make it even harder for them to get a foot in the door toward more stable employment.

A better solution would to be implement an earned income tax credit (EITC) here in Missouri so that those who are working can hold on to more of their paycheck. Instead of making low-wage workers pay a state income tax, a non-refundable EITC could reduce or even zero-out their state income tax bill and increase their take-home pay.

It’s understandable to want to do something for people who work hard but still can’t escape poverty. But just because a policy is intended to fix a problem doesn’t mean that it will actually work. Missourians risk creating a worse system with a higher minimum wage that benefits the few who consistently work while harming many more who face low earnings due to frequent unemployment or underemployment.

The post Should Missouri Increase the Minimum Wage to Help the Working Poor? appeared first on Show-Me Institute.

That’s why it was so disappointing that just as the EITC was on the verge of passing the Senate as part of House Bill 2540, an amendment struck. The proposed amendment, offered by an EITC supporter, would have stripped out the provision that would have essentially funded the EITC and an additional 0.1% reduction to the individual income tax. In response, the bill sponsor proposed instead to omit those effectively co-dependent sections from the final legislation, and that’s what the Senate agreed to. The revenue source for the EITC was gone, and with it, the EITC as well.

That’s why the cookie-cutter characterizations of the EITC ordeal by some Missouri news outlets is so off-putting. First, to portray tax reform as an either-or proposition—that you’re either “for corporations” or “for working families“—is fundamentally wrong as a framework for understanding tax policy. But secondly, to offer that portrayal with respect to the tax reform push of 2018, which included an EITC up until the final hours of the session, is especially misleading. Had it not been for the curious legislative decision to play chicken with a revenue provision in the waning hours of the session, the EITC would be on its way to enactment today. Alas, it isn’t.

A non-refundable EITC remains good policy. While its prospects are good for future years, it is nonetheless unfortunate that it did not pass in 2018. But to suggest that its failure this year was a matter of some form of class warfare is simply wrong, and unhelpful to Missouri newsreaders.

The post Enough: Earned Income Tax Credit’s Failure Wasn’t Because “Corporate Interests” Were Prioritized appeared first on Show-Me Institute.

Specifically, the bill reduces the individual income tax rate by four-tenths of a percent (from 5.9% to 5.5%), paying for that reduction by removing some of the federal tax deductibility that Missouri currently permits. That’s progress, but the bill would have been even stronger if language that created a non-refundable earned income tax credit could have been retained. Unfortunately that provision was stripped out late in the Senate debate of the bill after a trigger provision that would have paid for it (pending a Supreme Court case) was put on the chopping block.

Still, the bill as passed is an important one that continues the downward trajectory of the state’s individual income tax rate. In truth, it is but another step toward eliminating growth-destroying income taxes in this state, with many steps to go. But that long-term trend doesn’t detract from the importance of HB2540’s enactment, now and in the future. Congratulations to all the legislative leaders involved in this effort.

The post Lawmakers Give Missourians a Tax Break appeared first on Show-Me Institute.

Here at Show-Me Institute, we have written extensively about raising the minimum wage: how it increased unemployment and decreased hours worked in Washington D.C. and Seattle (here is a closer look at Seattle), how it would harm Kansas City workers, and why it actually hurts low-income and low-skilled workers the most. Let’s not forget how a “living wage”—usually pegged at $15/hour—would cost Missouri up to 218,000 jobs according to one study.

Moreover, the American Enterprise Institute put out a study just last month that showed how recent state minimum wage increases that were over a dollar decreased employment among low-skilled workers. Despite all of this evidence, there is still an initiative in Missouri to put a $12/hour minimum wage on the November ballot.

Wanting to improve the lives of poor Missourians is a noble goal, but there are better policies than mandating a higher minimum or “living” wage. For instance, implementing an earned income tax credit in Missouri and pursuing occupational licensing reform could open the door to higher incomes without negatively affecting employment. If organizations like the Poor People’s Campaign really want reforms that will help low-income Missourians, they should abandon the minimum wage and pursue more economically sound policies.

The post The Government Shouldn’t Mandate a “Living Wage” appeared first on Show-Me Institute.

THE SOLUTION: Transition toward the Earned Income Tax Credit (EITC).

An EITC is a credit that may be used to offset a worker’s state income tax liability. Proper use of EITCs could slow the growth of public welfare spending while providing material benefits to working families.

WHO ELSE DOES IT? Twenty-five states and the District of Columbia offer EITCs at either the state or local level, although the amounts and refundability of the credits vary.

THE OPPORTUNITY: Moving current public welfare dollars to an EITC will encourage self-reliance among the state’s poor while also restricting growth in public welfare spending. Not only does the EITC help working families make ends meet, but it also encourages recipients and families to find jobs and increase hours worked. Missourians can move up the economic ladder with the aid of the EITC—which can help people get off state assistance entirely, thus bringing down the cost of the credit.

KEY POINTS

• Aid to our most vulnerable citizens will be better targeted, while still providing the help they need.
• EITC recipients can build the self-esteem that comes from work.
• Public money will go toward helping families rise from poverty and escape dependence on government.

SHOW-ME INSTITUTE RESOURCES

Blog Post: Moving Missourians from Welfare to Work

Blog Post: Making Strides toward Welfare Reform

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

The post 2018 Blueprint: Earned Income Tax Credit appeared first on Show-Me Institute.

There are a lot of details to unpack here, but the short version is still pretty short.

• As Platte highlights, the bill here makes liberal use of revenue triggers for tax cuts to become effective. If that sounds familiar to longtime readers, it’s because Missouri adopted a similar apporach when it passed its tax cut three years ago. Legislators’ decision to simultaneously reform some tax incentives to help pay for the cuts deserves particular recognition, given our longstanding support of such innovations here in Missouri.
• When fully phased in, Nebraska’s top personal income tax rate would drop to 5.99% from 6.84%. Importantly, the overall tax rate for income below $29,000 would fall as well, further reducing taxpayers’ exposure. The bill would also increase the state’s earned income tax credit, a policy idea we have talked about many times before.
• The bill would reduce Nebraska’s top corporate income tax rate from 7.81% to 5.99%. Missouri’s current corporate rate is 6.25%.
• Finally, the bill would also change elements of the state’s property tax practices, including how agricultural land is valued. You can find some of our longstanding research on property tax issues here.

When discussing objectives of tax reform, there are obviously lots of approaches and ends that one could promote. But if growth is the objective, then going after income taxes has to be front and center in any reform plan. The approach being taken in Nebraska is an appropriate and gradual one to promote economic growth—an approach that could probably be taken good deal further and still be eminently responsible.

Nebraska’s tax reform push should give Missouri’s state legislators some pause as they generally twiddle their thumbs in 2017. Kudos to the Cornhuskers for spending the political capital necessary to advance these important reforms.

The post Nebraska Pressing Hard for Historic Income Tax Relief appeared first on Show-Me Institute.

Opportunity beckons.  This is your chance to do something big. In breaking into your midnight slumbers, I hope only to point the way forward – with a few thoughts on how to accelerate growth and quicken prosperity in Missouri come the New Year.

One is to tell you plainly: Stop trying to pick winners and losers with taxpayer money. Let’s say (to use a real example) a group of businessmen tell you that they need $120 million in public support ($40 million from the state and another $80 million from the city) to build a new soccer stadium and bring a Major League Soccer franchise to downtown Saint Louis. While predicting that the project will create jobs and ancillary development, backers are asking for taxpayer money to pay for about two-thirds of the cost of building the stadium.

You must say “No” to all such proposals. If professional investors demand major subsidies for a profit-seeking venture, then you know (or should know) it’s a bad deal for taxpayers. Governor-elect Eric Greitens has already signaled his opposition to the $40 million in state tax credits for the proposed stadium. You can go further – much further – by reducing annual spending on state tax credits for targeted economic development from more than $350 million per year down to zero. That would free up money for better purposes (see next point).

Two is to leave more after-tax money in the pockets of wage earners and business owners alike. People and businesses vote with their feet. They move out of states where the “tax price” of living, working, or running a business is too high and into states where it is lower. If you include the 1 percent earnings tax in our two biggest cities, Missouri has a top income tax rate of 7 percent, which is more than all but 11 states. You should slash state income taxes 50 percent over the next three years.

Three is to end compulsory unionism as a condition of employment. Six out of eight neighboring states have already passed right-to-work legislation. Missouri should join them in embracing greater freedom and competition in the workplace.

Four is to promote public sector union democracy and transparency. Public sector employees should have the right to say “yea” or “nay” to continued union representation at intervals of every two or three years. At the same time, Missouri should close the loophole that allows public officials and government unions to conduct collective bargaining in closed sessions.

Five is to allow charter schools – now limited to the Kansas City and Saint Louis areas – to expand statewide without limitation. Missouri should adopt innovative programs, such as education savings accounts and tax credit-funded scholarships, enabling public school students trapped in underperforming school districts to attend private schools.

Six is encourage greater competition and choice in another area ripe for reform – health care. You can begin by converting much of Missouri’s Medicaid program into health savings accounts (HSAs).   After purchasing catastrophic health care plans, beneficiaries would be free to tailor their spending to their needs and roll over unspent money from one year to the next.

Seven is to eliminate a major disincentive that keeps many poor people from looking for jobs – the loss of public welfare benefits that too often results from finding gainful employment. Earned income tax credits (EITCs) are one practical solution to this problem.

Arise and shine, Missouri legislators.  This is a once-in-a-lifetime opportunity to make exceptional progress across a broad range of important public policy issues.

The post Listen Up, Missouri Lawmakers: Here Are Seven Resolutions for 2017 appeared first on Show-Me Institute.

[t]ransitioning current public welfare dollars to an EITC will help foster a culture of self-reliance among the state’s poor while also restricting growth in public welfare spending. Not only does the EITC help working families make ends meet, but it also encourages recipients and families to find jobs and increase hours worked.

The EITC bills that appear to be next year’s legislative frontrunners are encouraging. Longtime readers know that Show-Me Institute writers have long supported unloading destructive income taxes; that the proposed EITCs can help achieve this for the poor is an added bonus to the work incentives embedded in the program.

But for the EITC to do the most good, policymakers should work toward a “transition” to it, not simply an implementation of it. Rather than viewing the program in isolation, EITC supporters should have an eye toward parallel reforms and work requirements in existing entitlement programs as well. That could mean a dollar-for-dollar downsizing of other entitlement programs to make room for the EITC, or the passage of other work-related reforms for able-bodied enrollees in Missouri’s entitlement programs.

A straight up expansion of entitlements, however, should be a non-starter for supporters of small, efficient, and effective government. The EITC should be part of a larger government push toward offering an effective hand up out of poverty, not just a new state program in addition to countless others already in existence. Without that conversation and action toward reducing the costs of other programs, the state risks undermining the good that can come from an EITC—for beneficiaries and taxpayers alike.

The post Missouri Should Not Stop at a State EITC; Larger Entitlement Reforms Are Needed appeared first on Show-Me Institute.

Certificate of Need: Missouri’s Certificate of Need (CON) law restricts health care competition by requiring health care providers to get state approval before entering new markets or expanding services offered in existing facilities. This restriction hampers innovative start-ups and market newcomers that would provide Missourians care and puts upward pressure on healthcare prices. Read our policy recommendations for certificate of need.

Charter Schools: Demand for charter schools in Missouri is at an all-time high. Unfortunately, charter schools are functionally limited to the Kansas City and Saint Louis School Districts. Tens of thousands of students are denied the opportunity for a better education. Read our policy recommendations for charter schools.

Course Access: All across Missouri, students do not have access to higher-level coursework such as AP courses, calculus, or physics. Read our policy recommendations to expand course access.

Earned Income Tax Credit: State spending is on the rise in Missouri, led by a growth in public welfare dollars. Public welfare spending now accounts for more than 26% of total spending and 34% of spending growth. The growth in public welfare shares of total spending has eclipsed the growth of all other general expenditure functions. Read our policy recommendations to reign in the costs of earned income tax credits.

Economic Development: Excessive use of economic development subsidies has hollowed out municipal tax bases and diverted tax revenue to specific developers. In the past 15 years, Saint Louis City alone has allocated $709 million away from municipal services through tax increment financing (TIF) and tax abatement. Studies from across the country indicate that these subsidies fail to generate promised jobs and growth. Read our policy recommendations to reform economic development.

Education Savings Accounts (ESAs): Missouri students are underperforming. On the 2015 NAEP exam, only 31 percent of Missouri 8th-graders were found proficient in Math and only 36 percent were found proficient in English. For the Class of 2016, only 22 percent of Missouri ACT test-takers scored “college-ready” in all four tested subjects. Many students are trapped in failing schools via residential assignment and have no opportunity to pursue a better education. Read our policy recommendations for ESAs in Missouri.

Higher Education: The University of Missouri system, and higher education in the United States in general, are at a crossroads. Tuition is rising, resulting in over $1 trillion in student loan debt nationwide. At the same time, students who fail to secure a high-income job face serious financial consequences. As schools struggle with this, a rising tide of anti–free speech policy is sweeping across the higher education landscape. Read our policy recommendations to reform higher education.

Individual Income Tax Reform: Missouri’s economy has been stalled for almost two decades, as startup growth has slowed and entrepreneurs and taxpayers are leaving the state. Missouri is shrinking relative to other states and economies, ranking 48th out of 50 states in real GDP growth between 1997 2015. Individual income taxes are destructive to the state’s economic growth, productivity, and income, encouraging taxpayers to move their work or investments out of Missouri. This not only lowers economic output for the state, but also destabilizes revenue for state and local governments. Read our policy reforms for the individual income tax.

Open Collective Bargaining: Under current Sunshine Law in Missouri, government bodies may close meetings, records, and votes relating to contract negotiations until the contract is executed or rejected. This lack of transparency in negotiations between government unions and government officials can lead to contractual agreements that aren’t in the public’s best interest. Read our policy recommendations for open collective bargaining.

Prevailing Wage and Project Labor Agreements: Construction contracts dictate what potential contractors must pay workers to get the job, and what kinds of workers the contractors can employ. That often means that large union contractors from big cities get jobs, to the detriment of smaller companies, local laborers, minority laborers, and taxpayers.

Public Pension Reform: Defined benefit (DB) pension plans promise employees annual payments for life upon retirement, but if a public plan does not have enough money to make these payments, taxpayers are legally bound to fund the difference. Pension plans can come up short if they fail to make sufficient contributions or overestimate their investment returns. Nationwide, state and local public pension funds are underfunded by more than $1 trillion dollars. Read our recommendations to reform public pension reform.

Public Union Recertification: Once a government union comes to power, it can stay in power indefinitely. No further elections are scheduled and no term limits are imposed. This means workers can do little to ensure their union truly represents their interests and is held accountable. Read our policy recommendations for public union recertification.

Right to Work: Many workers in Missouri can be forced to join unions. That is unfair not only to the employees disempowered by the law, but also to employers who have to operate under it. Read our recommendations for introducing right to work in Missouri.

Tax Credit Reform: The state of Missouri uses public money to subsidize the private projects of special interests, often in the name of “economic development.” Practically, that means less money for public needs and greater difficulty in later reducing taxes for all taxpayers. Read our recommended reforms for tax credits.

Transportation: The Missouri Department of Transportation (MoDOT) will likely face funding shortfalls in the near future. The state will need to generate new revenue in fair and economically sound ways. Read our recommendations for Missouri's transportation infrastructure.

The post 2017 Blueprint: Moving Missouri Forward appeared first on Show-Me Institute.

Because the minimum wage increase was not equally binding in all states, Clemens was able to analyze the differential effect of the hike across groups of workers and states. After controlling for the overall negative economic effects stemming from the Great Recession, Clemens reports as follows:

My baseline estimate is that this period's full set of minimum wage increases reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points. This estimate accounts for 43 percent of the sustained, 13 percentage point decline in this skill group's employment rate. . . .

As argued before in numerous analyses published by the Show-Me Institute and others, raising the minimum wage simply does not improve the economic welfare of all low-wage workers. Clemens’ work reaffirms the notion that those whom minimum wage increases are touted as benefiting the most are in fact those who are the most likely to be harmed. 

There are better ways to improve the welfare of the most vulnerable workers in society. Improving and expanding programs like the earned income tax credit (EITC) should be considered before more minimum wage increases do further harm to the neediest in society.

The post More Evidence on the Negative Effects of the Minimum Wage appeared first on Show-Me Institute.

Chris Edwards of the Cato Institute and Veronique de Rugy of the Mercatus Center wrote a report that was highly critical of the EITC and called for its abolition. They raise several points that are worthy of discussion.

First, they say that contrary to claims that the EITC encourages work, the program does not do much toward this end. “In sum- the overall work incentive effect of the EITC is mixed…”.  I would say that even if the EITC’s effect on work incentives is neutral, it is still superior to increasing the minimum wage, because higher minimum wages will likely reduce employment.

Second, the authors criticize the EITC as being overly complicated and prone to large errors in making payments to recipients. I agree with this point. The Government Accountability Office has as well. It’s something that policymakers should consider when deciding whether to enact or expand the EITC.

Third, the report says that paying for the program would force tax increases, thus damaging the economy. It’s true that raising taxes would damage the economy, but are tax increases the only way to pay for an expanded EITC? The first place I would look to as a way to pay for an expanded EITC would be to cut spending on other welfare programs. The main purpose of the EITC is to alleviate poverty for working families. If recipients are no longer in poverty, then they should need fewer welfare benefits. Therefore, before raising taxes to pay for an expanded EITC, how about cutting welfare spending?

Overall, this report does highlight important issues regarding the EITC. It is clear that the program is not perfect, but it does deliver positive benefits to recipients. I wonder—if the authors had to choose between increasing the minimum wage or expanding the EITC, which would they choose? Despite its issues, I still think expanding the EITC is a better policy option than increasing the minimum wage.

The post No Government Program is Perfect appeared first on Show-Me Institute.

You can read the Court’s decision here. Basically, the Court ruled that the ordinance conflicted with existing state law and thus was invalid.

Mayor Slay has promised to appeal to ruling, but assuming this ruling stands, we are left with the question of how best to help those working families who are struggling to get by on the current minimum wage.

Increasing the minimum wage, either at the local, state, or federal level, is not the way to go. Instead, the state and/or federal government should look to expand the Earned Income Tax Credit (EITC). Economists across the ideological spectrum agree that the EITC is a program that is better targeted to helping the working poor.

The EITC is a better policy than increasing the minimum wage for at least two reasons. First, it is specially targeted toward low-income households. If the minimum wage goes up, a teenager from an upper-middle class family working a minimum-wage job would get the same benefit as a single mother of two. The EITC goes only to members of low-income families who are working. Second, unlike an increase to the minimum wage, the EITC does not increase labor costs for business owners. Thus, an expansion of the EITC would not cause businesses to reduce hours or lay people off.

A lot of people might be upset by the Circuit Court’s ruling yesterday. However, this ruling provides policymakers with an opportunity to enact policies that can better help those who need it. The EITC is one such policy.

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Why is his opinion important?  Because he is the author of one of the most influential studies touted by those promoting an increase in the minimum wage.

Together with David Card of the University of California–Berkeley, Krueger analyzed the impact of an increase in the minimum wage on employment in fast-food restaurants. In 1992 New Jersey raised its minimum wage from $4.25 to $5.05 while Pennsylvania did not.  Their analysis found that fast-food restaurant employment growth in New Jersey was not adversely affected by the change.  This isolated case study from several decades ago has become, even though it is much criticized, the go-to piece of research touted by minimum wage advocates ever since. 

A proponent of raising the minimum wage, even Krueger recognizes that increasing it to $15 would likely do more damage to workers than good.  Especially to those workers at the low end of the pay scale.  Especially to those workers who live in a city like St. Louis, which is not a high-wage/high-cost city.  Increasing the minimum wage to $15 in St. Louis, as some have proposed, would devastate low-income workers in two ways.  First, some businesses would decamp to surrounding areas with lower minimum wages. And of the businesses that stayed in Saint Louis city, many would cut employees or reduce hours in order to control their labor costs. The trade-off for increasing the minimum wage to $15 is just too great to be sensible.

Krueger recognizes that there is a viable alternative to a minimum wage hike: the earned-income tax credit.  This tonic to the plight of the low-income family has been recommended by those on the left and the right as a better solution to the poverty problem than the use of a blunt tool like the minimum wage.  Christina Romer, another University of California–Berkeley professor and one-time chair of president Obama’s Council of Economic Advisors wrote in The New York Times in 2013 that the earned-income income tax credit “is very well targeted—the subsidy goes only to poor families—and could easily be made more generous.”

Krueger warns that the possibility of negatively affecting employment for low-income workers by raising the minimum wage to $15 “is likely to become more severe, and the risk greater.”  If proponents will not listen to the warnings of free-market economists, will they at least consider Krueger’s counsel before acting rashly?

The post Even Krueger Agrees: $15 Minimum Wage Too High 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    

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Scholars and analysts at the Show-Me Institute have written extensively on this topic, arguing that raising the minimum wage is not good policy. That is still the case, since the fundamentals of economic theory have not changed.

Instead of reading another installment from me, I’ll defer to Christina Romer, former chair of President Obama’s Council of Economic Advisers. Here is what she wrote in the New York Times about her former boss’s proposal to raise the federal minimum wage back in early 2013.

There is a belief that the lack of competition fosters a lower wage. Romer writes, “I suspect that few people, including economists, find this argument compelling today. Company towns are a thing of the past.” In the end, “Robust competition is a powerful force to ensure that workers are paid what they contribute to their employer’s bottom line.”

Some see using the minimum wage as an anti-poverty tool. “Most arguments for instituting or raising a minimum wage are based on fairness and redistribution,” she notes. But contrary to this view she rightly observes that “It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families.” Instead, like anyone else committed to really helping the poor, Romer advocates using the existing tax system. The earned-income tax credit “is very well targeted—the subsidy goes only to poor families—and could easily be made more generous.”

“So where does all this leave us?” she asks. Her reply is that “the economics of the minimum wage are complicated and it is far from obvious what an increase would accomplish.”

What Romer believed in 2013 is still true today, and it applies whether one is talking about federal or city minimum wages. Imposing minimum wages is just bad economics and misguided policy that does not help the most needy.

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