Elections and inaugurations are a time for reflection and a recommitment to principles. As Missouri prepares for the new administration of Mike Kehoe, it’s worthwhile to consider the performance of his predecessors—especially on issues relating to fiscal management of taxpayer resources.

The Cato Institute, a libertarian-minded think tank based in Washington, DC, rates the fiscal performance of governors. The good news is that Governor Mike Parson is not the worst governor in the United States, but he’s the worst one who claims to care about limited government.

Cato has issued its report every two years since 1992. The report methodology, available online here, issues a letter grade based on each governor’s success at restraining spending and tax increases. Parson earned a D grade in 2024. Author Chris Edwards wrote, “Parson has been a tax reformer, but he has dropped the ball on spending control. The general fund budget has jumped from $10.5 billion in 2022 to an expected $15.6 billion in 2025, a 49 percent increase in just three years.”

The D grade placed Parson 40th of the 48 governors rated. Florida governor Ron DeSantis was ranked 19th and Virginia Governor Glenn Youngkin came in 15th. Parson was closer to Minnesota governor and recent vice-presidential caudate Tim Walz, who came in last. Of Missouri’s neighbors, governors of Iowa, Nebraska, and Arkansas each earned an A grade, ranking 1st, 2nd and 4th respectively. Even Illinois governor J.B. Pritzker and California’s Gavin Newsom outperformed Parson, placing 32nd and 35th respectively.

If one uses Republican party identification to denote a preference for small government and low taxes—and that is arguable these days—Parson’s 40th-place ranking stands out even more. It made him the worst-scoring Republican in the nation. And 2024’s score is not a fluke; Parson scored a D in 2022 and a C in 2020.

Parson doesn’t just compare poorly to other current governors; he scored poorly compared to past Missouri governors. Parson’s letter grades surpass only those of Mel Carnahan (scoring D, D and F) and Robert Holden (F). Parson even seems to score worse than Jay Nixon, whose scores were B, C, D, and D. (If you’re wondering, Matt Blunt was the best scoring governor since 1992, earning Missouri’s only A in 2006 and a B in 2008.)

Note that the report’s methodology changed for the 2008 report but has remained the same since. Previous iterations relied on many more variables, but the outcomes are unlikely to have been much different.

Missouri’s total spending has practically doubled in the last five years, including not just the general fund, but other dedicated state funds and federal money. That total spending jumped from $27 billion in 2019 after Parson’s first year in office to a little more than $50 billion for 2025. It now costs three times as much to run Missouri as it did in the Carnahan and Holden administrations!

Parson’s profligacy stems from the decisions he’s made since the federal government’s COVID relief funds flooded Missouri’s budget with billions of dollars in one-time cash. States were given considerable discretion on how to use much of the relief funding, not to mention the state tax dollars the federal cash freed up for other uses. Unfortunately, Parson, with the help of Missouri’s General Assembly, fell victim to the allure of so-called free money.

Today, Missouri’s budget is littered with what were once temporary initiatives that never ended and now receive permanent funding. Or, perhaps worse, formerly federal obligations that are now borne by state taxpayers.

Key among these includes Parson’s decision to use state funds to maintain the higher childcare subsidies the federal government subsidized during the COVID pandemic, now costing state taxpayers at least $70 million annually. Parson also failed to meaningfully manage Medicaid spending. Missouri’s lackadaisical approach to checking program recipient eligibility, after the federal government lifted its COVID-era ban on the practice, has likely cost taxpayers hundreds of millions of dollars thus far.

In addition, Parson increased state employee pay by 7.5% plus an additional 3.2% cost of living increase last year. These raises were paid for with a temporary influx of state funds, but because the increased pay was not made commensurate with employee reductions, the higher salaries will require new permanent funding sources and will increase the obligations of the already underfunded state pension system.

Governor-elect Kehoe has a difficult job ahead of him administering government and working to attract more families and employers to the Show-Me State. Unfortunately, his predecessor has done him—and the people of Missouri—a great disservice by failing to properly manage taxpayer funds.

The post Missouri Must Do Better at Controlling Spending appeared first on Show-Me Institute.

All this aggravation ain’t satisfactionin’ me

A little more bite and a little less bark

A little less fight and a little more spark

Although Elvis Presley intended these words for a romantic interest, Missourians can be forgiven for thinking they sound an awful lot like a plaintive cry to the state legislature. As an interim committee of the Missouri State Senate considers tax credit reforms, we are reminded of other similar efforts that generated reports and recommendations, media stories, and precious little actual reform.

A 2017 Governor’s Committee on Simple Fair and Low Taxes issued a report offering numerous reforms for all tax credits, and specific additional reforms for the Historic Preservation Tax Credit, the Low-Income Housing Tax Credit (LIHTC) and the Missouri Works program.

In 2010, then Governor Jay Nixon appointed the Missouri Tax Credit Review Commission, which made recommendations on many tax credit programs, including the same three programs singled out in the 2017 report.

Each of these efforts made clear that Missouri’s generous and numerous tax credit programs are a drain on state resources and often fail to produce the desired results. There is plenty of research to support the claim that tax credit programs aren’t worth the cost. Missouri state auditors have been railing against wasteful tax credits for years. And it isn’t a partisan issue; governors and auditors, both Republican and Democrat, have called for substantive reform, yet substantive reform is elusive. Why?

It doesn’t take a cynic to see that the very reason why these tax credit programs are bad for taxpayers—they often offer a very low return on investment for taxpayers, but a very high return on investment for developers—is why they are so popular among developers. My colleague Elias Tsapelas has written recently on the relatively weak reforms considered for LIHTC and how the goal of providing low-income housing can be better achieved without the program. But those who benefit from buying and selling tax credits have every interest in stopping any changes. The claims regarding the necessity of these programs and their economic impact are often overstated—and often backed by no economic analysis or research at all!

The most recent legislative session failed its task of reforming LIHTC, saw overwhelming support for the creation of a new film tax credit program, and gave us self-styled conservatives advocating for tax credits targeted to General Motors. Elvis’s impatience is palpable. Any Missourian can quickly learn which reforms are necessary and why; what is in short supply is the will to actually enact them.

The post A Little Less Conversation, A Little More Action appeared first on Show-Me Institute.

In our new paper, “Overgrown and Noxious, the Abuse of Special Taxing Districts in Missouri,” Graham Renz and I detail the hundreds of micro taxing districts that have collected over a billion dollars from Missourians. Some of these, such as fire protection districts and sewer districts, may be familiar to readers. But explosive proliferation of two other types of district—community improvement districts (CIDs) and transportation development districts (TDDs)—is driving the increase.

Since they were created in the 1990s, the number of CIDs and TDDs in the state has grown to more than 600. Many were created without any public vote and too many lack basic mechanisms of oversight. After a recent report, the Missouri state auditor stated,

There need to be protections in place to ensure public dollars are being utilized efficiently, effectively and for the good of the public. It is simply unacceptable that state law allows for self-dealing and conflicts of interest within these taxpayer-supported projects.

Our paper examines the history and growth of these special taxing districts and suggests some simple reforms that could help increase public accountability and reduce the likelihood that private developers will be allowed to pass on their own private costs to taxpayers.

Listen to our podcast on special taxing districts in Missouri: https://soundcloud.com/show-me-institute/the-hidden-costs-of-living-in-missouri

The post Taxes and Taxing Districts on the Rise in Missouri appeared first on Show-Me Institute.

House Bill 1235 simply adds the following language to Missouri statutes:

No state land or building shall be designated in honor of an individual unless such person has been deceased for more than two years. This section shall not apply if money is donated to a state entity in exchange for the right to name state land or buildings.

If former U.S. Senator Christopher “Kit” Bond wants to give his own money to Missouri to build a bridge, or former Governor Jay Nixon wants to reach into his own pocket to build a state park, that’s fine. But spending taxpayer dollars is different, and rewarding individual politicians for doing their official duties by naming public assets after them—at least  while they’re still alive—seems a questionable practice at best.

In fact, why not extend the same restriction on all political subdivisions. To me, Emanuel Cleaver II Boulevard is just . . . tacky. Shouldn’t  taxpayers  be confident that those who spend their money are not seeking fame and self-aggrandizement? House Bill 1235 helps get us there.

This is a revised version of the original post.

The post What’s in a Name? appeared first on Show-Me Institute.

Here we go again, I thought – another episode in the long-running story of local and state political figures being played for suckers in offering special tax breaks and subsidies to a major corporation with a much-ballyhooed plan for moving work to another city and state.

In 2013, Boeing decided to shop the production of a new airliner (the 777X) to other states after the local International Machinists Union in Washington state voted 2-to-1 to reject Boeing’s offer of an eight-year contract. Keen to wrest this piece of work away from Boeing’s giant facility in Everett, Washington, then-Missouri Gov. Jay Nixon and Saint Louis County officials were gung-ho participants in the bidding war, which involved 22 states and about twice as many cities.

They quickly put together a package that would award $3.5 billion in tax cuts and tax credits to Boeing, mostly over a 10-year period. A substantial portion of those tax credits would have been transferrable – meaning that Boeing could have sold them for cash to other companies wanting to shelter income in Missouri.

Boeing was promising up to 8,500 high-paying jobs. Though that may sound like a lot, it amounted to just 0.3 percent of total employment in Missouri. Where was the fairness (or the economic logic) in lavishing so much public assistance on one company – and less than half of one percent of the workforce – while implicitly increasing the tax burden on thousands of other companies and millions of other workers? In the end, Boeing decided to keep production in Everett – but only after the Washington state legislature approved $8.5 billion in tax breaks and subsidies for Boeing. The Seattle Times called it “the largest state-tax subsidy to one company in American history.”

History repeats itself – with Amazon replacing Boeing in what promises to be another bidding war for high-paying jobs. Once again when asked to jump into the game with tax breaks and subsidies, local and state officials – here in Missouri and pretty much across the nation – are all too ready to oblige. They do not question whether they should be in the game; they only ask: How high do you (Amazon) want us to jump?

Wherever it goes with its second headquarters, Amazon is plainly looking for a ton of corporate welfare – almost certainly in the many billions of dollars. Its request for proposals states:

A stable and business-friendly environment and tax structure will be high-priority considerations for the project. Incentives offered by the state/province and local communities to offset the initial capital outlay and ongoing operational cost will be significant factors in the decision-making process . . . Outline the type of incentive (i.e., land, site preparation, tax credits/exemptions, relocation grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers.

In this case, what is good for Amazon is not good for the country – or for the state of Missouri. Let Amazon pay the “initial cost and ongoing cost of doing business” out of its pocket, just as other businesses do. Corporate welfare is a curse, not a cure.

The post Corporate Welfare: A Curse, Not a Cure appeared first on Show-Me Institute.

As someone who ran his own business for many years, I am aware of the difference between cost and price, even if it is something that eludes many political leaders and more than a few businesspeople with their noses in the public trough.

Cost is the expense that a business incurs in making a product or performing a service. Price is the amount of money that a customer pays for the product or service. The difference between the two is the business’s profit or loss. In a competitive marketplace, profitability is the acid test that separates winners from losers.

In an article that appeared in the St. Louis Post-Dispatch on Dec. 24, Missouri Gov. Jay Nixon spoke in favor of awarding $120 million in subsidies to a group of wealthy businessmen who want to build a brand-new stadium and bring a Major League Soccer (MLS) franchise to downtown Saint Louis.

“It’s the price of doing business,” Nixon said, adding: “Folks may want to anguish a little bit” over the ladling out of such a large sum of public money to underwrite a private venture but not to worry — because, “quite frankly,” this is a necessary and “cost-effective” way of putting a new business (the MLS franchise) on its feet.

The suggestion here is that the city of St. Louis and the state of Missouri must be willing to part with $120 million — that being the price demanded by the group of businessmen (with the enthusiastic support of MLS Commissioner Don Garber) — in order to have a good chance of landing the soccer franchise.

But wait a minute.

If this was such a great business opportunity, why were these self-described businessmen and the MLS panhandling for public support? Why didn’t they think they could cover their costs — including the cost of building the stadium — through the sale of tickets, merchandise, and TV rights? And if they can’t cover their costs through their sales and still make a decent profit, why should anyone think that what they are trying to do is anything other than a foolhardy venture?

Running a business isn’t supposed to be easy. If misguided or self-interested political figures try to make it so (through public subsidies to private ventures), they inevitably divert scarce resources to less productive uses.

They make it possible for those without a solid business plan, and without any real appetite for innovation or risk, to enjoy an undeserved moment in the sun — at taxpayer expense.

At the same time, they encourage others to eschew enterprise for the seemingly easy but dead-end path of cronyism.

In short, they only poison the well that produces prosperity under the free market system.

What our outgoing governor called “the price of doing business” has nothing to do with business in any serious sense. Incoming Gov. Eric Greitens called it by its proper name.

It is “corporate welfare” for the idle rich.

The post The ‘Price’ of Doing Business appeared first on Show-Me Institute.

Cost is the expense that a business incurs in making a product or performing a service. Price is the amount of money that a customer pays for the product or service. The difference between the two is the business’s profit or loss.

In an article that appeared in the St. Louis Post-Dispatch on Dec. 24, Missouri Gov. Jay Nixon spoke in favor of awarding $120 million in subsidies to a group of wealthy businessmen who want to build a brand-new stadium and bring a Major League Soccer (MLS) franchise to downtown Saint Louis.

“It’s the price of doing business,” Nixon said, adding: “Folks may want to anguish a little bit” over the ladling out of such a large sum of public money to underwrite a private venture, but not to worry – because, “quite frankly,” this is a necessary and “cost-effective” way of putting a new business (the MLS franchise) on its feet.

The suggestion here is that the city of Saint Louis and the state of Missouri must be willing to part with $120 million – that being the price demanded by the group of businessmen (with the enthusiastic support of MLS Commissioner Don Garber) – in order to have a good chance of landing the soccer franchise.

But wait a minute.

If this was such a great business opportunity, why were these self-described businessmen and the MLS panhandling for public support? Why didn’t they think they could cover their costs – including the cost of building the stadium – through the sale of tickets, merchandise, and TV rights?

Running a business isn’t supposed to be easy. If misguided or self-interested political figures try to make it so (through public subsidies to private ventures), they inevitably divert scarce resources to less productive uses.

They make it possible for those without a solid business plan, and without any real appetite for innovation or risk, to enjoy an undeserved moment in the sun – at taxpayer expense.

At the same time, they encourage others to eschew enterprise for the seemingly easy but dead-end path of cronyism.

In short, they only poison the well that produces prosperity under the free market system.

What our outgoing governor called “the price of doing business” has nothing to do with business in any serious sense. Incoming Gov. Eric Greitens called it by its proper name.

It is “corporate welfare” for the idle rich.

The post Fuzzy Thinking on the “Price” of Doing Business appeared first on Show-Me Institute.

A new Republican governor, Eric Greitens, will replace term-limited Democrat Jay Nixon. “I think that we’re going to see bills that have been vetoed in the past, like right to work, go through quickly,” says Brenda Talent, the CEO of the Show-Me Institute. Last year the Republican House tried to override Gov. Nixon’s right-to-work veto but fell short by 13 votes.

Expanding charter schools, Ms. Talent predicts, will be an “easy lift,” and tackling corporate welfare is a possibility. “To give you an idea of the magnitude of the problem,” she says, “you could eliminate the corporate income tax in the state simply by eliminating economic development tax credits.”

Read the entire article here.

The post Show-Me Institute Looks Ahead in Wall Street Journal Article appeared first on Show-Me Institute.

1.       Offer TIF in order to attract a business into your municipality and grow, or

2.       Say no to subsidizing a business, watch a neighboring municipality say yes, and then suffer as your economic growth is shifted into a neighboring city

This race to the bottom among neighboring communities has created an environment where municipalities feel obliged to hand over corporate subsidies, but the grass is looking greener around St. Louis.

In the past, even if a county government determined that a TIF development might be damaging to the region, an individual municipality within the county could easily override the veto with a two-thirds vote, essentially leaving the county voiceless on developments that impacted it.  Under the new law, if a municipality chooses to override, it will only be allowed to use tax incentives to finance the costs of demolition and clearing land.  Starting in August, affected counties will be able to significantly limit funds going toward developments that aren’t in the wider region’s best interest. 

TIF was originally developed to assist areas that were struggling economically—areas that would otherwise have difficulty attracting investment.  Sadly, this has not been the trend in recent years.  With the threat of big businesses relocating to tax-friendly municipalities, TIF has instead been used to attract well-connected businesses to areas where development might well have occurred without any subsidies.  The new TIF law will not restrict development subsidies unless the overarching county determines that a project will be damaging to the region as a whole.  It’s a much healthier approach to decision making than pitting one municipality against another. 

TIF reform has been discussed for many years at the Show-Me Institute, and the new law  is a win for Missouri’s economic well-being.  There are other reforms that should be discussed, such as applying checks and balances to the rest of Missouri (the override limitation only pertains to Saint Louis, Saint Charles, and  Jefferson counties), but limiting the powers that municipalities abuse to the detriment of their counties is a step in the right direction.

The post Progress on TIF Reform appeared first on Show-Me Institute.

“The basic assumption of your draft regulations appears to be that top down, Washington driven standardization is best…. You are funding teaching interventions or changes to the learning environment that promise to make public education better, i.e. greater mastery of what it takes to become an effective citizen and a productive member of society. In the draft you have circulated, I sense a pervasive technocratic bias and an uncritical faith in the power of social science.”

Was it:

(A)   Then Kansas Senator (now Governor) Sam Brownback

(B)   Then Texas Governor Rick Perry

(C)   Then California Attorney General  (now Governor ) Jerry Brown

(D)   Missouri Governor Jay Nixon

If you guessed Sam Brownback, you would be wrong. It was actually Democrat Jerry Brown.  Yes, that Jerry Brown.

This quote resurfaced in an interesting piece by Matt Barnum of education website The 74 about California’s long-running opposition to federal education policy. Brown’s riposte was a harbinger of the showdown that California ultimately had with the Department of Education in 2013, when California suspended its standardized testing and school rating system. The feds said they couldn’t do it and threatened to withhold funding. Brown responded more like a Texan than a Californian and dared them to come and take it.  The feds backed down.

I think there are two interesting lessons to take away from this story (which is worth reading in full).

First, states can stand up to the federal government. It obviously helped California that it is the most populous state in the union and is one that will reliably deliver Democratic votes, but even with that said, it is clear that the federal government is loathe to pull funding that overwhelmingly benefits poor students and students with special needs. That is not to say that they wouldn’t, but states are probably in a stronger bargaining position than they realize.

Second, the issue itself matters. California picked a smart issue on which to go toe to toe with the Department of Education. Had the feds been opposing standardized tests and the states supporting them, the calculus would probably be much different. A hardline stance might not work with an issue with more divided opinion or one where the federal government has the majority opinion on its side.

I don’t know if what California is doing is right or wrong. I’m by no means a technocrat, but I think they probably swung too far in the opposite direction on testing and school accountability. That said, part of respecting local control of education is realizing that not everyone is going to make the decisions that you would have made had you been part of the process. Agree or not, we can learn from California about what states can do when they feel they have been pushed too far, and we can recognize the need for states to have a game plan in place in case they are asked (or ordered) to do things expressly against the will of their citizens.

The post They Fought the Feds, and the Feds Lost! appeared first on Show-Me Institute.

However, last March a Cole County judge invalidated much of SB5, ruling that several of its most important provisions were unconstitutional. Although the decision will be appealed, it has jeopardized the protections that SB 5 had provided to Missourians.

Regardless of the fate of SB5, concern about court fines and fees should extend beyond traffic tickets and percentages of budgets. State Senator Eric Schmitt (the sponsor of SB5) sponsored legislation in the recently completed session to extend the protections against taxation by citation.

SB 572 (passed by the legislature this session) lowers and caps fines applicable to both municipal traffic and ordinance violations and adds municipal ordinance violations to the calculation of the 20% municipal revenue cap allowed to come from municipal fines and fees.

The use of taxation by citation in any form invites unpredictability and conflicts of interest among the courts and law enforcers. For the benefit of government and the people of Missouri, tax policies should be set so that revenue is reasonably stable and predictable.

The first step to solving any problem is admitting that one could exist. The legislature has recognized that funding municipalities using traffic fine collections, and now municipal ordinance violations, is bad policy—and that’s a great start. The next step is to fully address taxation by citation in all its forms.

The post Making Sure Municipal Courts Are Not Tax Collectors appeared first on Show-Me Institute.

It was indeed a busy session. When it ended on May 13, people on both sides of the aisle congratulated themselves on the good work they had done.

But there was a disconsolate creature that wandered back and forth between the Senate and House chambers that nobody seemed to notice.

This was the elephant that everyone chose to ignore: the Show-Me State’s far-below-normal economic growth going back more than a decade.

From 2001 to 2014, Missouri’s annual output of goods and services grew at an annual inflation-adjusted rate of just 0.85%, compared to the national median for all state of 1.57%. In average real GDP growth, Missouri ranked 45th among the 50 states.

With average economic growth over that time, state GDP would be 10.4% higher than it is today, and median household income would be up 9.8%, or $4,739—at $53,102.

Before adjourning on Friday, May 13, our lawmakers sent a total of 139 bills to the governor, compared to 130 in 2015 and 190 in 2014.

Without arguing the merits of any of these bills, I would point out that none of them was directly related to anything that would spur economic growth . . . and few were even tangentially related to that issue.

That sets this session of the legislature apart from the previous two sessions.

Two years ago, the Missouri Legislature took at least one step in the right direction when it overrode Gov. Jay Nixon’s veto and passed the first reduction in Missouri income tax rates in 93 years (albeit a small reduction that will not begin to take effect until 2017).

A year ago, the legislature passed a bill that would have made Missouri the 26th “right to work” state, meaning that workers would no longer be required to join a union or pay union dues to qualify for many private and public sector jobs. Nixon vetoed the bill, and its supporters were unable to override the veto.

This year, the would-be champions of greater freedom in the workplace passed a watered-down “paycheck protection” bill to allow workers to opt out of the campaign contributions and expenditures of most government labor unions (excluding fire and police unions). Again, Nixon vetoed the bill. On the last day of the session, the effort to override the veto failed by a single vote.

In any event, the “protection” offered to workers under the so-called paycheck protection bill was highly dubious. As it was written, the bill did not require government unions to make financial information publicly available, and it would have painted a bullseye on the back of any union member who dared to request union financials as a basis for opting out of some portion of dues.

I am hoping that in the next session of the Missouri Legislature, we will see much more of a pro-growth agenda—with a concentration on cutting taxes, reducing regulation and red tape, and doing more to secure greater freedom in the workplace.

The post The Missing Element in the 2016 Legislative Session appeared first on Show-Me Institute.

When Missouri’s funding formula was rewritten in 2005, lawmakers prudently placed a limit on just how much the state’s obligation to fund education could grow from year to year. In 2009, believing gambling tax revenue was going to flush the system full of cash, lawmakers removed the cap, and the amount has grown and grown to an absurd degree. This year, the formula required almost $500 million more than the state was willing to pay.

My colleague James Shuls has been all over this issue for years. As he wrote recently:

When I make a payment on my credit card debt, the next month’s payment is lower. However, when lawmakers increase funding for the foundation formula, it triggers an increase in the funding that will be required for the next go-round. This occurs because the formula is updated bi-annually based on how much a select group of districts spend per pupil.  The legislature gives districts more money, the formula gets recalculated based on this new spending, and the target moves ever upward.   

We have created a vicious circle in which more spending begets more spending.

Now, the legislature is considering reinstating the five-percent cap. This would not necessarily fix the perpetually increasing funding cycle, but it would slow it down. It would make it more feasible for lawmakers to fully fund the foundation formula.

Ending the vicious cycle is a great first step. Here’s hoping this turns the legislature’s attention to broader issues of education reform, like the ones we outlined in 20 for 2020. 

The post House Wisely Overrides Veto on Funding Formula Cap appeared first on Show-Me Institute.

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

Without a doubt, this is a hugely important decision.

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

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

Supporters cite three principal reasons for extending the earnings tax:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But sadly, the Governor's positivity doesn't bring back the missed opportunities of the last seven years. In Jefferson City we have seen hostility to substantive income tax cuts, opposition to serious education reforms, the promotion of a long line of tax incentive boondoggles, and the rejection of reasonable reforms to the state's labor policies. This year's priorities also leave something to be desired; for instance, "keeping tuition low" at Mizzou, a key plank from last week's speech, is probably a misplaced priority while the University fights to earn back the trust of the taxpayers who fund it. 

A few months remain for the Governor and the Legislature to make real progress on a host of important policy matters, and I expect that there will be some forward movement on ethics reform before he leaves office. That is a great thing. I worry, however, that that's where the progress will end. Let's hope not.

The post State of the State Address Strikes Happy Notes, But Forgets Opportunities Lost appeared first on Show-Me Institute.

The Edward Jones Dome in downtown Saint Louis is another story. Praised as state-of-the-art when it opened in 1995, the 100 percent publicly financed dome is on the verge of abandonment several months shy of its 21st birthday.

The future of the St. Louis Rams – the dome’s current occupants – will be decided in the next couple of days as the NFL owners club considers two competing plans for new stadiums in the Los Angeles area – one of them put forward by Stan Kroenke, the owner of the Rams, who wants out of Saint Louis.

Whatever happens, the Saint Louis dome’s playing days as a football stadium are probably over. It stands as a monument to wishful thinking – a telling example of the fallacy that public officials can accelerate a city’s growth or reverse its decline by “investing” large sums of money in a giant sports complex.

When the dome was first proposed and developed, its backers – including two Saint Louis mayors, business and civic leaders from the city and county, Missouri legislators, and the editorial board of the St. Louis Post-Dispatch – described the project as a much-needed shot in the arm for downtown Saint Louis. They claimed it would create thousands of jobs, generate hundreds of millions of dollars in new business activity, and more than pay for itself through the additional tax revenues it would create for St. Louis City and County and the state of Missouri.

In a 1993 editorial, the Post predicted a “downtown resurgence” and only worried that the riverfront might become “a gridlock of automobiles overlooked by a garish strip replete with pulsating electric signs and the amplified voices of barkers luring people aboard (casino) boats.”

Today the St. Louis riverfront is emptier than ever.  Over the last two decades, the city has continued to lose both population and jobs, while St. Louis County and the state as a whole have also experienced subpar economic growth. There is no sign of any dome-centered economic growth.

The Edward Jones Dome was desperation’s child.  In 1988, after the St. Louis Football Cardinals took flight for Phoenix, Arizona, leading figures in the city became serious about building the new stadium that the departing owner Bill Bidwill (not wanting to share space with the baseball Cardinals) had craved.  Enlisting the help of Saint Louis County and the state of Missouri as partners, they gambled on building a stadium entirely on spec – not knowing when, or even if, they would be able to attract another NFL franchise to replace the Cardinals.

Surely, the thinking went, a metro area of our size (two and half million people) and with our willingness to open the public purse strings, should have no trouble attracting one of two NFL expansion franchises then coming up for grabs.

That was a big mistake. In late 1993, the NFL awarded the new franchises to Charlotte, North Carolina (with the now #1 seeded Panthers in this year’s NFL playoff), and to Jacksonville, Florida.

Thus, there was great joy in Mudville when Georgia Frontiere, the widow of longtime L.A. Rams owner Carroll Rosenbloom, elected to move the Rams franchise from an aging stadium in Anaheim to a new one in her old hometown of St. Louis.  As the dome was nearing completion, she saved political and civic leaders from the embarrassment of having a football stadium but no team.

Corralling the Rams was hailed as a great victory for the city and state – but was it a good deal for taxpayers?

Plainly it was not.  The Rams shared no part of the cost of building the dome, yet they have paid an annual rent of $250,000, or just 1 percent of the $24 million that the city, county, and state have paid to service the debt on its construction . . . and will continue to pay ($12 million from the state and $6 million each from the city and county) for another five years. That means taxpayers are still on the hook for another $120 million – money that would otherwise be available for public services ranging from fire and police protection to education, roads, and infrastructure.

In addition, the lease agreement allowed the freeloading tenant to demand major improvements at public expense, and gave the team the right to opt out of the lease ten years early – in 2015 – if the city and state failed in their contractual duty to keep the dome in the top tier of NFL stadiums.

That is the option that Mr. Kroenke deployed at the beginning of last year when he announced his intention of moving to Los Angeles.  For a while, the response from city and state officials was déjà vu all over again.  St. Louis Mayor Francis Slay and Missouri Gov. Jay Nixon joined forces in trying to raise some $400 million in public assistance to go toward the building of a new $1 billion-plus riverfront stadium to keep the Rams in St. Louis.

But now it seems the air has gone out of that spheroid. There seems to be a growing realization (even in St. Louis) that if a team thinks it can make a whole lot more money in one city – with no subsidies – than it can in another – even with copious subsidies – it probably makes sense for all concerned to let the team go where it wants.

The post Deflate-gate in Saint Louis: Air goes out of a plan for a new subsidized football stadium appeared first on Show-Me Institute.

Nixon and Kroenke are two squires cut from the same cloth – a trophy-hunting governor who thinks he can pick winners and losers and a super-rich developer with a long history of currying favor from government entities.

In this situation, we may debate the question of whether it is worse (i.e., more “unspeakable”) to give or to receive. Here we are talking about the award of hundreds of millions of dollars of taxpayers’ assistance to a hugely profitable sports business that does nothing to advance the public good.

It is at least appropriate that the object of the hunt is made largely of concrete.  Along with the unwarranted subsidies, that makes it doubly indigestible – both from a gastronomic and an economic viewpoint.

The post The Unspeakable in Full Pursuit of – a Football Stadium appeared first on Show-Me Institute.

Despite the Governor’s claims, Missouri is not a low-tax state. We may have low taxes on gasoline and cigarettes, but when it comes to something important like your income, there are many other states with lower taxes.

Why focus on income taxes? Economic theory—and everyday experience—tells us that if you want less of something, you should tax it. That is the thinking behind carbon taxes. But while taxing carbon emissions may reduce the levels of CO₂, taxing labor income will reduce the desire to work. That is, raise income taxes and people will work fewer hours, which will result in less output.

In the end, higher income taxes stifle economic growth—and the creation of wealth. That is why tax rates matter. There is hard evidence indicating that states (and counties) with lower income tax burdens perform better economically than states with higher tax burdens.

With that in mind, the important question becomes: How do Missouri’s income taxes stack up against those of other states?

To answer this question, Rik Hafer and I used standard tax preparation software to calculate how much a family of four earning the U.S. median income had to pay in income taxes across all 50 states This allowed us to compare the tax burden in Missouri to that in other states. (The full report is available at ShowMeInstitute.org)

Contrary to the claim that Missouri is a low-tax state, we found that this average family of four would have to pay more in income taxes in Missouri than in 27 other states. Closer to home, that family also would pay more in Missouri than in Oklahoma, Nebraska, Kansas, and Tennessee. Our results are just one indicator that Missouri’s income taxes are not among the lowest in the country.

The Tax Foundation has compiled information regarding the top marginal income rates for every state. According to their calculations, Missouri has the 22nd-highest marginal income tax rate in the country. While this does not mean Missouri has the highest tax rate, it does mean that Missouri is not one of the lower-rate states, either. This ranking can understate how Missouri’s rates compare for most people. For example, California’s top tax rate is much higher than Missouri’s. However, Missouri’s top rate kicks in after $9,000 of income, and California’s kicks in after $1 million. In fact, many Californians face lower tax rates than Missourians of similar incomes.

Taken together, these rankings suggest that there is room for Missouri to cut taxes in order to remain competitive with other states. Nine states, including Tennesse—which borders Missouri—do not tax labor income at all. Kansas, Oklahoma, and Illinois all have top marginal rates that are lower than Missouri's. There are ways to help lower income taxes for Missourians without causing large revenue shortfalls. This includes broadening the sales tax base and cutting down on issuing economic development tax credits. If Missouri wants to remain competitive with its neighbors, it needs to build on the tax cuts it has already enacted and pass more tax cuts.

People who claim Missouri is a low-tax state are ignoring the taxes that really matter, like income taxes. For Missouri to be a low-tax state, there is more work to be done.

The post Taxes Are Still Too High for Missouri appeared first on Show-Me Institute.

Speaking of the restoration of the centuries-old Bourbon monarchy — following the massively convulsive interlude of 22 years between French Revolution and Napoleon’s defeat at Waterloo in 1814 — Talleyrand quipped, “They [the Bourbons] have learned nothing and forgotten nothing.”

On a smaller scale, the same judgment applies to the lessons learned (or studiously ignored) in a lengthy report released last week into the “underlying issues” behind the riots and looting that erupted in the St. Louis suburb of Ferguson (pop. 21,200) following the shooting death of a young black man by a white police officer on Aug. 9, 2014.

Commissioned by Missouri Gov. Jay Nixon, the report is long on liberal pieties and dogma, including the advocacy of some policies that will only worsen existing problems, but short of practical suggestions for improving economic or social conditions in a close-in, big-city suburb that went from predominantly white to predominantly black in the space of two decades.

For example, the Ferguson Commission calls for expanded job opportunities for black youth. Who can argue with that? As the commissioners point out, for blacks aged 16 to 19, the unemployment rate (nationally) is 30.1 percent, compared with 15.5 percent for whites in the same age group. But then the report endorses calls for almost doubling the minimum wage to $15 an hour.

The adverse impact of a dramatic increase in the minimum wage on teenagers looking for their first jobs should be clear to anyone who stops to think about it. If a business is forced to pay $15 an hour to a worker whose true value to the enterprise is, say, $8 an hour, that amounts to a hidden tax of $7 an hour, or 87.5 percent, on the employment of that person — a tax that does not apply to people making, say, $20 or $30 an hour. Naturally, such a tax would encourage employers to invest in automation and concentrate their hiring on more skilled and experienced workers. As Milton Friedman put it, “The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills.”

The commissioners call for concerted efforts to “enhance college access and affordability” through expanded scholarships and other means, but they ignore the biggest problem: poor test scores and a lack of readiness for college. In the Normandy school district — Michael Brown’s alma mater — 93 percent of students who took the standard college entrance examination scored below the national average. Normandy students taking the ACT test had an average score of 16 —not high enough to gain admittance to most four-year state institutions. It isn’t funding that is keeping these students from going to college. It is their abysmal K-12 preparation.

Predictably, the Ferguson Commission urges the state to invest in a universal pre-K program and move the compulsory education age down to 5 from 7. This would become a new (and hugely expensive) entitlement, while adding another layer onto K-12 schools that are not meeting the needs of low-income, African-American students (who make up 80 percent of Ferguson-Florissant students and more than 96 percent of students in nearby Normandy). How is expanding a broken system going to help anyone?

In its 198 pages, the Ferguson Commission Report calls for the expansion of a broad mix of other programs at multiple levels of government — ranging from food stamps and public transit to Medicaid and housing assistance — and it recommends a panoply of new programs to raise the awareness of police officers, teachers, and other public officials of the danger of unconscious or unintentional racial bias.

“In the 2011-12 school year,” the report notes, “14.3 percent of black elementary school students in Missouri were suspended, compared to 1.8 percent of white students.” It then adds, “Research suggests that some of the discipline gap may be attributed to teacher bias, which predisposes them to expect less of minority students and to discipline them more frequently and more harshly.”

However, the report makes no attempt to assess, or discuss, what part of “the discipline gap” — if any — may be due to other reasons — including the high incidence of low-income black children growing up in single-parent homes, with no live-in, working fathers.

Among the 189 “calls to action” contained in the report, one of the more startling recommendations is the complete elimination of all school suspensions and expulsions for disruptive behavior from kindergarten through third grade.

At the outset of the report, the commissioners give themselves a broad pass in describing their work as “a study of underlying issues — not an investigation of an incident.” They write:

This report is not in any way an investigation of what happened between Michael Brown Jr. and Officer Darren Wilson in Ferguson on August 9, 2014, nor is it an investigation of the response to the uprising that followed. Other bodies have been responsible for those investigations.

For the record, it should be noted that Officer Wilson was twice cleared of charges of any wrong-doing in the death of Brown: First, by the Saint Louis County grand jury’s decision not to bring murder or manslaughter charges against him, and second, in an 86-page report by the U.S. Justice Department in early March which supported that decision.

Over the past 12 months, numerous newspaper and magazine articles have called attention to the widespread misuse of local police and courts in Saint Louis County (including Ferguson) as de facto tax collection agencies — imposing heavy fines and fees for minor traffic violations and other municipal code infractions while often jailing people for failure to pay tickets.

The Ferguson Commission report rightly condemns such practices (as did the U.S. Justice Department in a separate investigation of Ferguson Police Department procedures). In July, Gov. Nixon signed a bill into law that greatly limits the extent to which municipalities can rely on fines and fees to fund themselves.

On balance, however, the Ferguson Commission fails in its stated purpose of “outlining a (new) path to racial equity.” For the most part, it is a compendium of tried-and-failed liberal policy recommendations.

The post The Liberal Solution To Ferguson, Mo? More Liberalism appeared first on Show-Me Institute.

It seems that there are those in the city who want to get some type of minimum wage increase passed before the Legislature has a chance to override Governor Nixon’s veto of HB 722, which would forbid municipalities from raising their minimum wages after August 28. What’s interesting to note is that even if the Board of Aldermen passes a bill before the August 28 deadline or the Legislature fails to override the Governor’s veto, Saint Louis probably lacks the legal authority to raise its minimum wage above the state minimum wage. Regardless, a $13 per hour minimum wage would be disastrous for the city and its workers.

The Congressional Budget Office studied the effects of increasing the federal minimum wage to “just” $10.10 an hour and found that it would cost 500,000 jobs. Now this 500,000 figure is a national number, but the effect on jobs would be especially pronounced if the wage went up at the local level, because companies forced to pay the higher wage can just hop across the city border to escape the mandate. Even the liberal Vox.com thinks that $13 per hour (never mind $15) would be too high a minimum wage for Saint Louis.

What about the other cities that have raised their minimum wages? If the recent evidence from Seattle is any indicator, things aren’t looking good.There are also some signs out of Los Angeles that might give policymakers in Saint Louis pause.

                Momentum is building in some parts of Saint Louis City government to increase the city’s minimum wage, as evidenced by the convening of a special session to debate the issue. However, that doesn’t mean that such a move would be good policy. A large increase (and going from $7.65 to $13 or $15 per hour would certainly qualify as large), will end up costing jobs  and failing to help the working poor. 

The post The Idea That Would Not Die appeared first on Show-Me Institute.