While tax exporting may succeed in disproportionately burdening nonresidents with a rental car tax, the taxes have negative economic effects for the taxing jurisdiction. In addition to lowering the quantity of car rental services demanded, there is evidence that consumers will travel to lower tax jurisdictions nearby, as was the case when Kansas City, Missouri levied a $4 per day rental car tax. Residents and nonresidents alike traveled across the state line to nearby Kansas, which offered a lower effective tax rate on an ad valorem basis, to avoid the tax in Missouri. This harmed Kansas City, Missouri’s economy, resulting in missed tax revenue, lower output, and potentially lost jobs in the rental car industry.

I myself have gone across the state line to rent a car in Kansas to save money. Many people in the region have done this, I am guessing, and the impact adds up. The paper cites research that put numbers to this behavior regarding rental cars:

Tax scholars William Gale and Kim Rueben found that a $4 per day rental car levy in Kansas City, Missouri—an effective tax rate of about 13 percent on an economy vehicle—reduced the number of customers at affected branches by 9 percent relative to branches that were unaffected. While consumers had less than a proportionate response to the tax, they altered their behavior by using other transportation options.

Kansas City cannot tax its way to prosperity. If city taxes remain high while services remain low, consumers and residents will continue to do what they have been doing: vote with their feet.

The post Taxes and Fees Affect Shopping Decisions appeared first on Show-Me Institute.

The latest anti-smoker proposal aims to raise the cigarette taxes to around 90 cents a pack (cigarette taxes in Missouri currently are 17 cents a pack) in order to fund scholarships for students. On the surface, this proposal sounds appealing, but raising excise taxes in order to fund education is not good policy. There are a couple reasons why this is the case: First, cigarette taxes are regressive. Poor people smoke more than higher-income individuals, and smoking takes up a higher percentage of their income.

Second, an increase in cigarette taxes can harm Missouri businesses. More people commute into Missouri than out of it. Our low excise taxes serve as an inducement for out-of-state visitors to purchase alcohol, gasoline, and cigarettes in Missouri instead of Kansas and Illinois. The chart below from  showmedata.org shows just how low Missouri’s taxes are in comparison to Kansas and Illinois (Missouri is in yellow).

If this proposal becomes law, Missouri’s cigarette tax rate will be higher than in Kansas. It isn’t hard to imagine commuters on State Line Road choosing a Kansas convenience store over a Missouri one if products are cheaper.

Now, some might argue that raising cigarette taxes is good in and of itself because doing so will reduce cigarette usage and improve public health. That’s partially true, but the effect is small. If the increased tax revenue would be spent on treating smoking-related illnesses, then the conversation would be worth having. However, even if we agreed that a tax hike should go to increased health spending, if taxes go up too much, people would simply resort to smuggling.

Personally, I’m not a fan of smoking. My grandfather suffered from emphysema due to his smoking. However, just because I don’t like an activity doesn’t mean I believe the government should treat it as a piggy bank for more spending. Let’s find ways to cut spending, not increase it.

The post Still Coughing Up More for Education appeared first on Show-Me Institute.

The post Show-Me Data: Visualizing Missouri’s Low Gas and Tobacco Taxes appeared first on Show-Me Institute.

That is why I think there will be significant interest in a piece of legislation filed today that would levy “upon sales of all violent video games an excise tax based on the gross receipts or gross proceeds of each sale at a rate of one percent.” Last year, in Oklahoma, legislator William Fourkiller (yes, that is his real name) introduced a similar piece of legislation, and it appears the Missouri legislation uses a fair amount of that bill’s language. For instance, a “violent video game” in the Missouri bill is defined as “a video or computer game that has received a rating from the Entertainment Software Rating Board of Teen, Mature, or Adult Only” — identical to the Oklahoma proposal.

Of course, as most video game players know, E.S.R.B. ratings do not deal only with “violence” but with language, sexual matter, content dealing with drugs and alcohol, gambling and many other factors. As Reason noted with Oklahoma’s proposal:

In other words, Teen-rated games like The Sims, Dance Central, or Guitar Hero would be included in the tax, even though they’re non-violent.

Clearly, the law is poorly crafted. And of course, that does not even begin to address the First Amendment problem of taxing the content of speech in the way this proposal would. When asked about Oklahoma’s proposal, the Entertainment Software Association found the move to be “misguided.”

“We are disappointed that even in the wake of an overwhelming decision in the United States Supreme Court finding proposals such as this to be patently unconstitutional, there are those who still try to attack video games with outdated notions of our industry,” said ESA’s Dan Hewitt in a statement provided to Gamasutra.

Indeed. Singling out speech in video games for special taxation is likely unconstitutional, and especially here in Missouri, our policymakers should know better.

The post Missouri House Bill Would Tax ‘Violent Video Games’ appeared first on Show-Me Institute.

The post McGraw Milhaven – David Stokes on KTRS appeared first on Show-Me Institute.

In this appearance, Stokes and the host discuss topics such as cigarette taxation, toll roads, library taxes, and people crossing state lines to save money on cigarettes, gasoline, and alcohol.

The post McGraw Milhaven – David Stokes on KTRS appeared first on Show-Me Institute.

I, and other members of the Show-Me Institute, have opposed raising taxes on cigarettes. However, if Illinois wants to send more of its residents fleeing to Missouri to buy cigarettes, then I will not talk them out of it. We could use the money. In fact, some legislators in Illinois fear that is exactly what will happen: “”We are going to lose revenue . . . from goods purchased across the border when people go to buy their cigarettes,” Illinois Sen. Kyle McCarter (R-Highland) said.

When the Show-Me Institute asked several visitors from Illinois whether they planned to stock up on cigarettes and other goods while in Missouri due to our lower excise taxes, many responded in the affirmative. It is likely that many more Illinois residents will feel the same way when this increased tax goes into effect.

So when people in Missouri advocate for increasing cigarette taxes, think about the state’s price advantage compared to some of its neighbors. Think about the potential customers that will be lost when the state no longer makes it worth their while to travel across the border to buy goods here. Also, think about how increasing taxes on cigarettes would harm the poor the most. Consider these things and be thankful that Missouri has not followed Illinois’ lead, at least, not yet.

The post Reminder From Illinois: It Could Be Worse appeared first on Show-Me Institute.

While growing up in the small border town of Atchison,
Kan., my father, uncles, and family friends made frequent trips
over the Amelia Earhart Bridge to a small convenience store in
Buchanan County, Mo. They usually returned with a full gas
tank and small quantities of alcohol or cigarettes. I was too
young to understand what prompted these excursions. Now I
know. My father and others took advantage of Missouri’s low
excise tax rates on gas, alcohol, and cigarettes. As these trips
continued, sales and tax revenue were redistributed from Kansas
to Missouri. While the convenience store in Missouri remained
busy, the Shell station near the bridge in Atchison was often
empty.

Missouri benefited at Kansas’ expense as a direct result
of maintaining a lower tax rate in a competitive marketplace. In
2009, the QuikTrip on Southwest Blvd. in Kansas City, Kan.,
moved its location 100 feet into Missouri to take advantage of
the lower excise taxes. However, the situation that prompted this
move may be about to change.

Last fall, the Missouri Secretary of State gave approval to
a coalition of Missourians, led by the American Cancer Society,
to circulate a petition proposing an increase in the cigarette tax
from 17 cents to 90 cents per pack, a whopping 429 percent
increase. If passed, this proposal will stop the heavy cross-over
traffic of people coming to Missouri from other states to buy
cigarettes at a bargain price. In fact, business likely will shift in
the opposite direction – out of Missouri into other states.
Kansas’s 79-cent cigarette tax would certainly serve as an
appealing alternative to Missouri’s potential 90-cent tax. Under
the proposed increase, those who purchase cigarettes in Missouri
would pay $2.20 more per carton than they would if they
purchase cigarettes in Kansas.

While raising excise taxes might appear to be a simple way to
increase revenue, it can backfire and may even cause a loss in net
cigarette sales. Missouri’s two largest metropolitan areas, Saint Louis
and Kansas City, border states with much higher cigarette taxes,
prompting residents of neighboring Illinois and Kansas to make their
purchases here. Missouri’s 17-cent tax is certainly attractive to residents
of Illinois, where the tax rate is 98 cents, and Kansas, where the rate is
79 cents. Missouri benefits when residents of other states who come to
Missouri for work, sporting events, etc., voluntarily make such purchases
here.

Missouri Attorney General Chris Koster, a proponent of raising
Missouri’s cigarette tax, claimed in the Kansas City Star that a fivefold
increase in the state’s cigarette tax would lift revenue by a commensurate
amount – from $90 million a year to close to $500 million. But Koster’s
figures do not account for the major decrease in sales likely to occur
should the tax hike become a reality. It is silly to think that cigarette
sales will remain the same if Missouri smokers are required to spend
$14.60 more per carton of cigarettes. Remember, when you tax
something, sales will decrease. Increasing a cigarette tax might result in
less smoking, but it will also drive down purchases of cigarettes.

Patrick Fleenor, former senior economist at the Tax Foundation,
provides a telling example: When Michigan increased its cigarette tax
rate from $2.50 to $7.50 per carton (25 cents to 75 cents per pack), sales
decreased 26.7 percent. During the same period, cigarette sales greatly
increased in Indiana and other neighboring states with lower cigarette tax
rates. Should Missouri follow in the footsteps of Michigan, convenience
stores in Atchison, Kan., are likely to become much more profitable and
Missouri will experience a loss of cigarette revenue because fewer
cigarette will be sold on the eastern side of the border.

Amy Lutz is an intern at the Show-Me Institute, which promotes market
solutions for Missouri public policy.

The post Why a Whopping Increase in Missouri’s Cigarette Tax Is a Bad Idea appeared first on Show-Me Institute.

For instance, stores in Missouri that are on the border with other states attract business from people shopping here in order to take advantage of the state’s low excise taxes. Show-Me Institute intern Amy Lutz recently wrote an op-ed that details the impact such a tax hike could have on interstate commerce.

Also, an increased tax on cigarettes would disproportionately harm the poor. The Post-Dispatch article mentions that raising taxes is an effective method for getting people to quit smoking. Do increased cigarette taxes result in significantly fewer smokers? If smoking is bad for us, and it is OK to increase taxes on that, where does it end? What next, enormous taxes on sugar to finance heavy broccoli subsidies? What about an obesity tax? Isn’t there something offensive about government micromanaging our lives?

The post Missouri’s Low Cigarette Taxes (And Why They Should Stay That Way) appeared first on Show-Me Institute.

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In this video, the Show-Me Institute’s David Stokes and Amy Lutz interviewed several Chicago Blackhawks fans visiting for a Saturday night hockey game against the Blues. Many, but not all of them, knew that Missouri’s tax rates were lower. But after learning of the lower tax rates, all of them planned on purchasing items such as gasoline while in town.

Lower taxes can lead to higher revenues — and keeping taxes low will keep the money flowing into the state of Missouri.

The post Gasoline, Cigarettes, Alcohol and Taxes: When Less Is More appeared first on Show-Me Institute.

I want to make it clear that I do not want to outlaw wine in Missouri. However, it troubles me that taxpayer money is subsidizing the wine industry. Specifically, the Missouri Department of Agriculture spends $1,828,859 (click on HB 6-Agriculture and scroll down to page 133) on something called the Missouri Wine and Grape Board.

According to the Department of Agriculture’s 2012 Budget Request Form (click on HB-6-Agriculture and scroll down to page 134), “The Wine and Grape Board stimulates growth of the grape and wine industry for the economic and social benefit of the citizens of Missouri.” Aspects of the board’s functions include using funds to “develop programs for growing, selling, and marketing of grapes and grape products grown in Missouri.” Indeed, the Missouri Wine and Grape Board does have marketing products, including brochures, videos, and radio advertisements. The Wine and Grape Board also funds the University of Missouri Institute for Continental Climate Viticulture & Enology in order to fund grape research programs.

So, in essence, the board serves somewhat like a chamber of commerce for the Missouri wine and grape industry. However, unlike a chamber of commerce, participation in this program is mandatory, with a charge of a 12-cent excise tax on every gallon of wine sold in the state. Also, in all my searches through the state budget, I have yet to encounter an official appropriation for a private chamber of commerce.

I have to ask, why can’t Stone Hill or Hermannhof promote themselves with their own money? Why can’t there be a private chamber of commerce that promotes the wine industry, or all the wineries of the state? I have no problem with private groups promoting wineries, but do I think the state should be promoting them? No.

Also, there is no evidence that this expenditure actually DOES have a positive impact on the state’s wine industry. In my search, I haven’t seen anything to suggest that the Missouri Wine and Grape Board has a discernible impact on the Missouri wine industry. Even the economic development report on the Missouri Wine and Grape Board website doesn’t really show the spending cause and effect; it just shows that in recent years, Missouri wineries are doing well. However, it doesn’t link the activities of the board to the wine industry’s success.

The key issue here is funding priorities. Why is the state funding this board, at least at its current level, when there are other places in the budget that may require that money? If the choice for appropriators is between potentially laying off teachers, firing firemen, or withholding funds from vital social services, shouldn’t every area of the state budget come under review for potential savings? Just my 2 cents.

The post Whining about Wine appeared first on Show-Me Institute.

A gas station and liquor store were located just across the border on the other side of the bridge; their parking lots rarely had an open space. Conversely, in Atchison, the liquor bottles and cigarette packs collected dust on store shelves while gas pumps remained unused. The higher excise taxes in Kansas on these products drove business away from my home state and into her eastern neighbor’s economy.

This scenario soon may become a distant memory. The American Cancer Society is leading a coalition that submitted a ballot initiative to the Missouri Secretary of State on Sept. 20. The proposed measure is expected to generate $308 million annually through tax increases on tobacco products, primarily cigarettes.

A similar initiative failed in 2002 and 2006. Like the 2006 vote, this initiative includes a proposed 80-cent increase in the cigarette tax, bumping the total tax to 97 cents if passed. This proposition, however, will not affect just the Show-Me State, but surrounding states as well, a point the Show-Me Institute has covered in the past. As David Stokes, a policy analyst for the institute, alluded to in an Aug. 4 blog post and video, Missouri’s neighbors often are propelled to make tobacco purchases in this state because of its attractively low cigarette tax.

The cigarette tax in Kansas now stands at 79 cents, 18 cents cheaper than the proposed tax increase in Missouri. What is intended to be a profitable deal for Missouri will prove to be more beneficial for the state of Kansas. The incentive for Kansas to cross the border in pursuit of a cheaper pack will be eliminated. Missouri stands to lose some revenue from the current cigarette tax; other revenue-increasing proposals, such as the fair tax, would not balance out this budget loss.

Should this initiative pass, the eastbound cigarette-seeking Kansans who flood into this state might be replaced by Missourians driving in the opposite direction.

The post The Missouri Cigarette Tax: A Partial Solution to Kansas’ Economic Woes appeared first on Show-Me Institute.

The post New SMI Video on Gas, Booze, and Smokes appeared first on Show-Me Institute.

Every day, Missouri has approximately 195,000 commuters that come into the state to work. That is the fifth highest total for any state. It is 55,000 more than leave the state to work each day. That ratio (+ 55,000) is the third highest number for any state. In both cases, Missouri trails only states along the eastern seaboard. (Our source for this is the 2000 Census, and we will update these numbers as soon as they are released from the 2010 Census.)

Missouri has low excise taxes. We have the lowest cigarette tax, the sixth lowest gasoline tax, the lowest beer tax, the ninth lowest wine tax, and the third lowest tax on spirits (liquor). What do excise rates and commuter totals have to do with each other?

Low excise taxes serve as an inducement for the 195,000 commuters to Missouri to voluntarily choose to purchase these goods while in Missouri. Missouri gains the tax revenue, and those commuters then bring many of the costs of the externalities of these items back to their home states. Low taxation levels on items that are often bought as part of a special trip serve as an incentive for commuters into Missouri to make those special trips when in Missouri. (This is opposed to, say, lowering the tax on lettuce, which is generally purchased as part of a comprehensive trip to the grocery store.)

These goods (gas, alcohol, tobacco) have other properties that make them a target for purchasing by commuter consumers. They can be purchased very quickly. This is a function of the standard quantity the goods are bought in, and the lack of search costs for most of the products. The reduced search costs are themselves a function of either no brand loyalty (gas) or extreme band loyalty (cigarettes). Among these three goods, only alcohol will generally see comparison shopping, but even there brand loyalty is very strong. These goods also do not spoil. (Cold beer is an exception.) Commuter consumers are not going to buy groceries on their lunch break, or before a long commute home in traffic. Finally, all of these items are more difficult to purchase online than other goods, for fairly obvious reasons and certain legal restrictions.

Missouri’s low excise taxes don’t just benefit Missourians who use these goods. They benefit the entire state by encouraging 195,000 daily commuter consumers to make these purchases while in Missouri. On the other side, they encourage the 140,000 Missourians who leave the state each workday to hold off on these purchases until they return to Missouri. This maximizes the tax revenues received by Missouri, while the costs of the externalities are spread among many states.

NB: As a matter of internal policy, the Show-Me Institute does not hold opinions. All opinions expressed in Show-Me Institute publications and video are those of the respective authors or speakers.

The post Gas, Booze, and Cigs: How Lower Tax Rates Make Money for Missouri appeared first on Show-Me Institute.

While I was loitering outside, I noticed the following sign on the front of the building:

This sign is fantastic! It acknowledges and capitalizes on the fact that tax rates affect consumer behavior. As contributors to Show-Me Daily have discussed previously, businesses and individuals tend to vote with their feet. Differences in tax rates across borders encourage individuals to shift their purchases to areas that have lower taxes.

The tax rate on cigarettes in Illinois is $0.98 cents per pack of 20. In Wisconsin, this rate is $2.52 per pack of 20. This means that an individual will pay (2.52-0.98)*10 = $15.40 more in excise taxes on cigarettes in Wisconsin than she would in Illinois. (I’m assuming that state and local sales taxes account for the $0.85 discrepancy between this number and the sign.)

I suspect that at least some number of Wisconsin residents shift their cigarette purchases to Illinois when they can, which results in higher tax revenues and more business activity in Illinois. I also suspect that this Road Ranger has higher cigarette sales than an identical gas station that’s located on the Wisconsin side of the border, as a direct consequence of this difference in tax rates.

In comparison, Missourians enjoy the lowest taxes on cigarettes in the nation, at $0.17 cents per pack. Although there have been frequent calls to increase this rate, the economy in Missouri benefits from the marginal increase in tax revenues as a direct consequence of this policy. Increasing the state tax rate on cigarettes would shift some marginal amount of this activity from Missouri to other locations.

The post Selective Tax Rates in Advertising appeared first on Show-Me Institute.

It also shows the way in which high selective taxes negatively affect businesses — in this case, bagel stores. This tax could cause customers to patronize restaurants that are not subject to a higher marginal tax rate, instead of frequenting bagel stores. (This leads me to wonder whether the pizza or sandwich industries were behind this measure.)

What is the rationale of taxing sliced bagels over non-sliced bagels? Over other breads? Over other food products? Is consuming sliced bagels a behavior that should be deterred?

There are many calls to tax “sinful” products such as soda, cigarettes, alcoholic beverages, fatty food, and tanning because their consumption is linked to health conditions like obesity and cancer. Is consuming sliced bagels, as opposed to non-sliced bagels, similarly linked to a negative health condition?

I wonder whether restaurants in states that border New York are benefiting from increased sales of sliced bagels.

This is a teachable moment for the state government in Missouri. Instead of assessing a complicated myriad of selective taxes, like New York is doing, Missouri should implement a tax climate that is broadly based.

The post Selective Sales Taxes, Sliced Bagels appeared first on Show-Me Institute.

That Missouri is so reluctant to raise taxes puts added anti-tax pressure on Kansas. Convenience stores in Wyandotte and Johnson counties fear losing even more business to Missouri stores if Kansas boosts the tax again.

When you tax something, you get less of it, after all. When a state increases the tax rate on goods like alcoholic beverages, cigarettes, and gasoline, individuals will consume less of them. After a certain point, the total tax revenue generated from these products is reduced, as well.

By keeping its tax rate low relative to its neighboring states, Missouri can maximize the amount of revenue that it generates. This would help ensure that not only Missouri residents shop in-state, but that individuals located near the border in neighboring states will also shop here.

Tax increases are not cost-free for states. In addition to the cost of reduced sales tax revenue, they have a cost in terms of lost competitiveness. Fewer people and businesses will locate to high-tax states because the costs of living and doing business are higher.

The post “Should Five Per Cent Appear Too Small, Be Thankful I Don’t Take It All” appeared first on Show-Me Institute.

We see that Missouri residents enjoy lower taxes on beer, wine, spirits, cigarettes, and gasoline than those who live in neighboring states. Kentucky is the only neighboring state that has a lower tax on spirits, and it’s only 0.8 cents lower than Missouri’s. As we’ve discussed before on Show-Me Daily, this discrepancy gives non-Missouri residents an incentive to travel to Missouri to purchase these products. As a positive unintended consequence, Missouri benefits from increased tax revenue.

Note: The trend of taxation on spirits in Iowa looks wonky, and this is because Iowa’s state government directly controls the sale and distribution of distilled spirits within the state. Because they are taxed differently, it is difficult to compare spirits across states. Beginning in 2005, the graph shows an implied excise tax rate, which is calculated using a methodology that the Distilled Spirits Council of the United States (DISCUS) designed. The Iowa Alcoholic Beverages Division has an explanation on its website:

Tax on distilled spirits in Iowa is levied through a 50% mark-up on product sold through the Iowa Alcoholic Beverages Division wholesale liquor distribution system. The mark-up system was enacted with the privatization of state stores in 1987 and was originally set at 60%. The General Assembly reduced the mark-up to 50% later that year in April 1987.

I encourage our blog readers to use the IDEAS web tool to perform similar comparisons.

The post Missouri: Land of Relatively Low Taxes on Beer, Wine, Spirits, Cigarettes, & Gasoline! appeared first on Show-Me Institute.

A plan pushed by Rep. Mike Bost, R-Murphysboro, could bolster a core of his district’s economy. Bost wants to create a fund that would go toward improving the region’s wine industry.

He’s proposing to divert a portion of the revenue from the excise tax on wine, and reinvest it in the industry. It’s classic rent-seeking behavior. He also uses the copycat argument (i.e, “other states are doing it, so mine should, too”) that many legislators use to justify production incentive programs for their favored industries.

“This is not anything that hasn’t been done in other states,” Bost said. “That is why the state of Missouri has grown its wine industry so well, and it’s because they are able to do this.”

Although it is true that Missouri provides assistance to wine producers, it does this in a manner that’s different than the one proposed in Illinois. Rather than diverting excise tax revenue, Missouri provides a generous tax credit to wine producers.

Using the “Show Me: Tax Credits” web tool, I discovered that Missouri has awarded $5,736,848.39 under the Wine and Grape Tax Credit during the past decade. The largest recipient, Stone Hill Wine Company, received a combined sum of $2,005,629.22 from 2002 through 2004:

Trend Wine and Grape Tax Credits Awarded in Missouri by Vendor

First and foremost, I disagree that a state should rely on tax credits to attract businesses. A state is better off if it has businesses that are self-sustaining, not reliant on government assistance.

That said, however, I prefer Illinois’ proposal to Missouri’s Wine and Grape tax credit program because it places the burden of the subsidy on users rather than on non-users. In Missouri’s program, all taxpayers in the state pay for the subsidy. In the Illinois proposal, only those who consume the product are assessed. It’s a user-fee system that’s analogous to the way in which gasoline taxes and tolls fund highway maintenance.

Additionally, it’s fallacious to expect that the production and consumption should be equal within the state. States like Missouri and Illinois should focus on the activities that they do best, and then realize the benefits of free interstate trade. If Illinois were serious about maximizing its wine consumption, it would specialize in some other type of production that it can do more efficiently, and then trade with another state that has a comparative advantage in producing wine.

Critics of the Illinois proposal are correct to state that the money being spent on wine production cannot be spent on other programs, such as education. However, the same can be said of the money that Missouri taxpayers spend via the wine and tax credit. No matter how it is routed, taxpayers are going to be poorer by the amount of the subsidy.

The post Rent-Seeking Behavior in the Illinois Wine Industry appeared first on Show-Me Institute.