They say that the best time to plant a tree was 20 years ago, and the second-best time is now. That about sums up my opinion on the City of St. Louis’s one-percent earnings tax, the continuation of which is before St. Louis voters on the April ballot. The best time to start phasing out the earnings tax really was 20 years ago, and the second-best time is still now.

The 20 years in the saying is particularly appropriate in this case, as the Show-Me Institute released its first study on the earnings tax almost exactly 20 years ago. Professor Joseph Haslag, then at the University of Missouri, documented how the earnings tax reduces overall income and employment in the city by encouraging businesses and individuals to locate outside of the city. Additional studies conducted by Show-Me Institute analysts and others have found similar results regarding the harms of local income taxes generally.

Haslag didn’t just demonstrate the harm of the earnings tax; he also recommended a strategy to replace it in order to maintain necessary city services. Haslag suggested changing state laws to allow St. Louis to institute a land tax, which is simply a property tax on the value of the land only. Pittsburgh is one city that had beneficial results from implementing land taxation in the 1980s. Alas, while land taxes are popular with economists and fiscally beneficial, they are politically unpopular to say the least. Needless to say, land taxes have never been adopted in St. Louis (nor has state law been amended to allow them). But the harms of the earnings tax have continued to help drive St. Louis’s population and economy lower, and those fiscal harms were exacerbated during the pandemic.

An easier change (legally, if not politically) than a land tax would have been to start phasing out the earnings tax 20 years ago while increasing a combination of property and sales taxes over time to replace the lost revenues (while cutting spending where possible as well). Poor decision-making over the past two decades has made that already-difficult change almost impossible. Damaging special sales taxes such as community improvement district (CID) taxes are now ubiquitous throughout shopping areas in the city. Primarily used as a smokescreen for harmful corporate welfare, CIDs and other special sales taxes have driven sales tax rates sky high. While the sales taxes have gone up, commercial property values have plummeted. According to the St. Louis Business-Journal, downtown St. Louis office buildings have lost 19 percent of their assessed value since 2019, and even more if you go back further. The largest office building downtown, the AT&T building at 909 Chestnut, paid $5.5 million in property taxes in 2009. It paid just $200,000 in 2024. While that is the most extreme example, similar examples can be found throughout downtown.

The economic situation in the city was already bad, and the tornado that hit in May made it even worse. It was the type of disaster that could make people consider radical changes, and perhaps the land tax is the type of radical change the city needs. (For the record, the Show-Me Institute’s offices were destroyed in the tornado, and while we’re a nonprofit, our office building is subject to property taxes.)

As large parts of the Central West End and the Northside are still recovering from the tornado, St. Louis city government has commendably allowed homeowners with damaged homes to reduce their tax payments, but the long-term impacts on city tax revenues may be significant. The population of New Orleans still hasn’t recovered from Hurricane Katrina and, while the damage to St. Louis was not that severe, the risk is the same.

I suggest it is time to change state law to allow for a land tax, including on land owned by larger “nonprofits” like Barnes Hospital. The land tax could be imposed on the value of the land throughout St. Louis at a level that would gradually increase to make up for revenue lost as the earnings tax is phased out over a period of 10 years (or more). (Other changes would be necessary, including ending the tax subsidies the city gives out.) What makes land taxation so beneficial is that as homeowners and businesses rebuild their damaged property, they aren’t hit with higher taxes for the home or building. The tax is set to the land, which can’t be altered, rather than the building. So, return to the city, rebuild your home or business, make it even larger—do whatever you want—and you won’t be punished with higher taxes.

Pittsburgh in the 1970s was experiencing economic difficulties just as St. Louis is now. Land taxation helped spur investment in Pittsburgh, and it could have the same effect on St. Louis. The city has been hemorrhaging population, jobs, and wealth for decades. Honestly, at this point in its history, what does St. Louis have to lose?

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That brings me to this report, authored by Neerav Kingsland, one of the central architects of New Orleans’ education system. In it, he describes how the system works and looks at preliminary results. I recommend reading the whole thing, but my quick reactions are as follows:

1. The academic results are really encouraging. The graph above (from page 3) shows the progress that New Orleans has made, nearly closing the gap between the city and the rest of the state. I can’t think of any big-city system anywhere that comes that close to the state’s average. Can you imagine if Kansas City or St. Louis achieved at the same level as the state as a whole? Clearly this system can drive improvement.
2. That said, Kingsland is open about the fact that New Orleans is far from perfect. Just getting closer to the average of one of the lowest performing states in the union is not good enough. New Orleans still has a long way to go toward becoming a world-class system of schools, and to his credit, Kingsland is honest about that.
3. On another note of caution: New Orleans has a lot of things going for it that might be hard to replicate. As Kingsland points out, a constellation of nonprofits, advocacy groups, educators, civic leaders, and others have come together to help make this system work. There was also a huge infusion of social capital post-Katrina; individuals moved there specifically to help rebuild and improve the city. We have not seen similar levels of comity and commitment in the Show-Me State.
4. Missouri would have to make several key shifts to make our big city systems look like New Orleans’. The majority of schools in New Orleans are overseen by a statewide Recovery School District that functions very differently from your standard school district. It does not operate schools, or at least does not want to operate schools over the long term. It is designed to be a funder and a regulator, with independent charter organizations operating the schools themselves. There has been an unsuccessful effort to create such a district in Missouri, but it would be possible to try and pivot a shrinking school district like Kansas City into a regulator-funder like the RSD. If charter schooling spreads outside of Kansas City and St. Louis, given the number of small districts that it might disrupt, some kind of state-wide district model might be necessary.

All in all, New Orleans is a hopeful example. It was able to move a district that was one of the worst in the nation meaningfully forward. No one would say it is anywhere close to where it needs to be, but it appears to be on the right track, which is more than we can say for most districts (including those in our own back yard).

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After Hurricane Katrina, the RSD ramped up its operation in New Orleans. The district takes over failing schools, operates some schools directly, and authorizes others as charter schools. The system that one chief of staff described to me is one that allows schools autonomy in exchange for accountability. The RSD is actively working to put the structures in place for choice and competition to work, while ensuring students in poverty or with special needs are being served.

The system that the superintendent from Missouri described to me is very different. He views the system as being optimal when the district has sole control of all the public schools in the area. Rather than letting those schools be autonomous, he wants to develop the “best practices” and implement them throughout the entire district.

I believe the superintendent from Missouri has the best of intentions. He wants to make sure his system meets the needs of students, but I think his system has a fatal flaw in that it is built around a leader. When a good leader is in place, the system may work well; but when an ineffective leader is in place, the entire system can fail.

The RSD’s model builds the system by aligning incentives in the right direction. This includes giving school administrators the power to lead through autonomous schools and giving parents the power to choose. In this system, an individual school may fail, but the system as a whole moves ever forward because the incentives are aligned in the right direction.

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Since 2007, the proportion of students in the district scoring “basic” — essentially at grade level — or better has now more than doubled from 23 percent to 48 percent, rising faster than any other district in the state.

Test scores from students that still fall under the Orleans Parish School Board, which held onto a small group of high-performing schools, improved as well, with 82 percent of students scoring basic or better, up 2 percentage points from the year before.
[…]
Still, the proportion of RSD students scoring at basic proficiency in state testing climbed 5 percentage points to 48 percent this spring from the year before. That figure combines results from state LEAP, iLEAP and graduation exit exams.

The latest results compare with growth of just 1 percentage point to 66 percent across the state as a whole.

The 16 schools that remain under the Orleans Parish School Board, some of them magnet schools with admissions requirements, continued to perform well above the state average.

This last bit undermines the oft-repeated notion that charter schools only prosper by “stealing” the best students from public schools. New Orleans’ experience shows that all schools can improve when parents are allowed to choose the schools that best fit their students’ educational needs. There’s a great deal of evidence that charter schools in Missouri improve educational outcomes, but in order to realize gains anywhere close to what New Orleans has witnessed, Missouri will have to allow for expansions of both the number and the geographic scope of charter schools.

Link via Marginal Revolution.

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The other three states — as well as New Hampshire and Tennessee, which tax only interest and dividend income — all stayed at the same number of seats. That means their growth was average, or near average.

All 10 states that lost representation have a state income tax.

According to the Tax Foundation, the eight states gaining seats in congress have an average total tax burden — including taxes on income, sales, and property — ranking of 28.3, on a scale where 1 is the state with the highest tax burden and 50 has the lowest. The 10 states losing seats have an average ranking of 20. If you remove Louisiana from the equation, because of its low tax burden and the fact that that state lost a number of residents after Hurricane Katrina, the remaining nine states have a more striking ranking of 16.7.

Another interesting note is that Washington, which gained a seat, has a high total tax burden but no income tax — and only a month ago, that state’s voters soundly defeated a proposal that would have instituted one.

I don’t claim to have demonstrated causation with this brief review of Census data for a blog post. But the noted examples show a striking correlation between lower taxes overall, and especially the lack of income taxation, for population growth. And when populations grow, economies often grow with them.

To read further Show-Me Institute research about to these topics, please visit the taxation section of our main website.

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In most public school systems in America, students attend the school for which their neighborhood is zoned. But in the five years since Hurricane Katrina, New Orleans has created a school system unlike any other in the country. “We used Katrina as an opportunity to build—not rebuild, but build—a new school system,” says Paul Vallas, the outgoing superintendent of the Recovery School District, which, authorized by the state to turn around failing schools, took over most of New Orleans’s schools after the storm. Last year more than 60 percent of the city’s students attended charter schools; this year nine additional schools switched to a charter model, so that number will be higher. Vallas calls this new paradigm an “overwhelmingly publicly funded, predominantly privately run school system.”

In 2005 Orleans Parish was the second-worst-performing school district in the state, and in some schools 30 percent of seniors dropped out over the course of the year. In 2003 one high-school valedictorian failed the math portion of the state exit exam five times and could not graduate. Things were different at the charters: at New Orleans Charter Middle School, which in 1998 became the city’s first charter school, parents would put their head in their hands and cry if their child’s name didn’t come up in the admissions lottery.

In New Orleans today, students and educators have unprecedented leeway to mold educational experiences. Students can apply to and, if accepted, choose to attend any of the […] 46 charter schools or 23 “traditional” schools. The vast majority of schools have open-enrollment policies that allow any student to attend, regardless of past academic success. (Schools with more applicants than spots hold lotteries.) The prevalence of charters means that in most of the city’s schools, educators can choose how their schools are run. Even in traditional schools, principals have unusual autonomy over the hiring—and firing—of teachers, since the city’s teachers’ union lost its collective-bargaining rights.

So far, the experiment appears to be working. Before Katrina, two thirds of students were attending schools deemed failing by state standards, notes Leslie Jacobs, a New Orleans education-reform advocate; in the 2010–11 academic year, she says, it will be less than one third. “The fact that we haven’t gotten everything right yet shouldn’t take away from the fact that we’re getting a whole lot more right,” she says. New Orleans schools are still performing below the state average on achievement tests, but according to Jacobs’s analysis of state data, the gap between New Orleans and the rest of the state has basically been cut in half.

Obviously, that’s far from perfect, but it’s more improvement than the city saw under the old regime. I also think that the teacher union’s loss of collective bargaining rights is a big reason that charters schools have the chance to succeed in New Orleans. Public school teacher unions typically act as a special interest groups hell-bent on stopping any kind of competition to the public school model, so they lobby for laws restricting options like vouchers, education tax credits, and charter schools. Missouri, for instance, has fairly strict rules on charters requiring them to have an academic sponsor and restricting their operations to the cities of Saint Louis and Kansas City.

Still, students in Missouri’s charter schools can be expected to outperform their public school counterparts over time, according to a study by Standford University’s Center for Research on Education, which my colleague Josh Smith blogged about last year. If Missouri offered an even more welcoming environment to charter schools — by, say, letting them operate anywhere in the state — we might be able to come closer to matching the impressive gains of the New Orleans’ schools. At the very least, the research shows that charter schools can replicate the academic accomplishments of public schools at a much lower cost, which is still a net benefit over the status quo.

Again, the evidence shows that schools are like most other institutions in that they perform best when their stakeholders have alternatives and choose which establishment to patronize.

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Our vision is simple: a great education for every kid in our city, no matter the color of their skin, what neighborhood they stay in or how much money their parents make.

This statement, combined with the New Orleans location, led me to guess that the organization favors parental choice in education. “What neighborhood they stay in or how much money their parents make” sounds like a reference to the traditional district system, in which school assignments are based on geography and the alternatives are open to people who can pay tuition. And choice policies have shaped the New Orleans school system to a degree reformers most places can only dream of: Children who temporarily relocated from New Orleans after Hurricane Katrina received vouchers to attend public or private schools of their choice, and New Orleans has a larger percentage of students attending charter schools than any other city.

I read further and saw that my guess was wrong. The “What We’ve Done” section of the website is all about school food. Of the 12 recommendations for change, two call for more local food in school lunches. One suggests that schools establish gardens on their premises because “Students need to grow fresh food and taste what they grow.”

Kids Rethink New Orleans Schools is lobbying for something peripheral to a great education. It doesn’t matter where school food was grown, as long as students get a nutritionally complete meal. And gardening, while it’s possibly educational and rewarding, is not a basic human need. If you think of school priorities, like creating a safe environment and teaching students to read, maintaining a garden would be pretty far down the list.

I hope Kids Rethink New Orleans Schools will reevaluate its goals and stay true to its original mission. A couple of questions to consider: Are the most pressing inequities already addressed, so that we can now devote our attention to gardens? Or do neighborhoods and parental income levels continue to keep a great education out of reach for many students, for reasons that have nothing to do with food?

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Charter competition has caused one unexpected and fascinating phenomenon. When facing a growing number of charters, districts turn to advertising. […] In May 2007, the St. Louis district awarded a no-bid contract to a marketing firm to “drive the message of the negative impact of charter schools.” Seemingly unable to improve results, districts rely on public relations to stem the migration of students to other schools.

Kansas City also earns a mention, because 20 percent of public school students there attend charter schools.

Smarick raises the question of why districts don’t improve more in the face of competition from new charters. He concludes that traditional districts are so wedded to the old order that they can’t adopt innovations. The solution he suggests is to crowd out the districts by enrolling a majority of students in charters — as is happening in New Orleans, where most public schools were reopened as charters after Hurricane Katrina.

I like the idea of all public school students (rather than a lucky few) choosing between competing charters. But I don’t think the transition will be as easy to effect as Smarick predicts. His idea is that when charters have a majority of the market, this is what will happen in the traditional districts:

As chartering increases its market share in a city, the district will come under growing financial pressure. The district, despite educating fewer and fewer students, will still require a large administrative staff to process payroll and benefits, administer federal programs, and oversee special education. With a lopsided adult-to-student ratio, the district’s per-pupil costs will skyrocket.

Wow, that sounds exactly like … what is going on right now in the city of St. Louis! According to Smarick, at this point everybody in the city is supposed to "demand fundamental change" and we’ll transition to an all-charter system. I’m not holding my breath. Public school monopolies are hard to shake. So far, the only public school district that’s given most of its market share over to charters is the one that was obliterated by a natural disaster.

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Missouri Sen. Claire McCaskill has joined with 12 other senators to propose bipartisan legislation to ban price gouging at the gas pump.” Gas prices in Missouri are nearly $3.00 a gallon, so people are already feeling the pinch on the pocketbook,” McCaskill, a Democrat, said in a statement. “Without strong laws banning price gouging, we will remain vulnerable to market manipulation and consumer exploitation in times of national emergencies, as we learned in the cases of 9-11 and Hurricane Katrina.”

Every time gas prices rise, we hear the same litany of cries for protection from high prices — presumably stemming from the notion that a price is just an arbitrary number, set by whim, or the greed of the seller. Sure, it’s possible that any one seller can set prices higher than found on the general market, but these sellers don’t move much of their product. Patrons notice lower prices elsewhere, and take their business with them. When a commodity is as widely provided as gasoline, by many, many competing sellers, the prices we see at the pump are simply measurements of intersecting supply and demand. It’s a measurement in the same sense that inches can measure height, or pounds can measure weight. In a competitive market, prices are not arbitrary — and the word "gouging" is misleading jargon.

There are plenty of people in Missouri who were driving during the 1970s, in the days of gasoline price controls — which led to corresponding shortages, sales caps, and interminably long lines at the pump (and those lines are a form of price increase in themselves). There’s no economic mystery here; if gasoline prices are set below market level by legislative fiat, people who value the gas less buy more of it, so the people who value it highly — who would be willing to pay a higher price — end up less likely to get what they need.

More importantly, prices act as a signal to producers as well as consumers. When prices rise, entrepreneurs rush to produce more, so they can sell more and make more money. This is exactly what’s needed in times of emergency or crisis, as columnist Jeff Jacoby pointed out:

Imagine a system that could instantly respond to a calamity like Hurricane Charley by mobilizing suppliers to speed urgently needed resources to the victims. Imagine that such a system could quickly attract the out-of-town manpower needed for cleanup and repairs, while seeing to it that existing supplies were neither recklessly squandered nor hoarded. Imagine that it could prompt thousands of men and women to act in the public interest, yet not force anyone to do anything against his will.

Actually, there’s no need to imagine. The system already exists. Economists refer to it as the law of supply and demand. Unfortunately, too many journalists and politicians call it by a more pejorative and destructive name: "price-gouging."

A steep rise in the price of gasoline doesn’t reach the level of crisis that’s caused by a particularly destructive hurricane, earthquake, or wildfire, but it’s important all the same to recognize that setting legislative caps on prices leads to shortages in almost any situation — and shortages are bad for people of every social class. Economist Don Boudreaux pointed out that the alternatives to market prices can be just as much a problem for the poor and desperately needy as for the rich:

One alternative method of rationing is queuing.  But surely first-come, first-served is quite arbitrary.  Perhaps the father with starving children will get to the front of the line, but who’s to say that the drug dealer won’t beat him to the front of the queue? Indeed, the father with starving children likely has lots of important tasks to carry out at home in the immediate aftermath of a natural disaster. These tasks might well keep him at home too long to get a favorable spot in the queue, or, if he does get a favorable spot, he’ll waste lots of time queuing rather than being at home with his family during an especially dire time of need.

An even more likely alternative to rationing by price is rationing by personal connections ? family ties or political ties. The poor family with starving children is unlikely to have as many personal and political connections as are wealthier people in town. The outcome of rationing by connections will almost certainly be biased in favor of wealthier, more-prominent citizens.

One great advantage of rationing by market prices is that they reduce to a minimum the role of arbitrariness. Price are, in other words, a great equalizer. Anyone who is willing to pay the market price for a good or service is just as likely to get that good or service as is the seller’s mother, neighbor, or bowling buddy.

Ultimately, market prices allow people to plan and prioritize their needs in a rational way. If the price of gas is too high, it may mean you decide to carpool more or ride a bike for short trips — and, when you really need to, you can fill up and drive to important destinations or appointments. But if the gas is simply unavailable because "gouging" legislation has spurred shortages, everybody‘s needs and priorities are undermined. Except for the politicians — the real gougers — who can pretend they’re helping you.

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