Last week in The Kansas City Star, I argued the earnings tax is harmful. The responses suggest the Show-Me Institute is winning the argument, regardless of the vote’s outcome. What’s striking is that even those who acknowledge the tax’s flaws remain unwilling to act on their supposed principles. (St. Louis will also be voting on the earnings tax.)

I argued that the tax is regressive, drives workers and businesses away, and fuels the city’s subsidy culture.

David Hudnall, a reliably left-of-center columnist for the Star, urged a yes vote but largely conceded my points. In a column titled, “Just hold your nose and vote for Kansas City’s earnings tax,“ he agreed the tax is regressive and supports lavish subsidies for wealthy developers.

Weirdly, Hudnall then lamented that the tax requires a public vote in the first place. But he wistfully concluded, “I’d welcome a little more fiscal discipline at City Hall.”

The Star’s Editorial Board also endorsed a yes vote but conceded the tax is regressive and “economically harmful”—a significant admission. The piece further conceded, “The earnings tax is not the best way to fund such a large proportion of our city services.” Another notable concession. The piece closed not with a demand for action, but with little more than meek, wishful thinking:

We hope to see future City Council candidates campaigning on a pledge to reform the system. We also hope to see council members who vow to keep the basics of what makes a city hum fully funded—and ratchet back the incentive handouts.

Back in 2021, the last time Kansas City voted on the earnings tax, the Editorial Board urged a yes vote after admitting the tax was regressive and fed the city’s incentive culture. (They even admitted that the sales tax was too high.) Yet they feared reform would be worse.

In 2015, another reliably left-of-center columnist for the Star, Yael Abouhalkah, lamented that the city has neither explored alternatives nor held a meaningful discussion about the tax. He also observed that the tax is regressive and hits the poor hardest.

The problem, then as now, is that city leaders have no incentive to explore alternatives or discuss a 10-year phaseout of a tax widely acknowledged as harmful. Why? Because rather than demand better, the Star’s opinion class and business leaders reliably fold at the slightest scare tactic.

Hand-wringing about Kansas City’s flawed tax structure is not enough. We need city leaders, including those at the Star, to live up to their principles. Otherwise, what is the point of having a platform?

The Mayor and Council have failed to address these issues. There is no reason to expect that will change until voters demand it.

The post Earnings Tax Defenders Unable to Defend Earnings Tax appeared first on Show-Me Institute.

Between 2014 and 2019, ridership on St. Louis Metro buses and light-rail trains dropped by nearly 25 percent. Thanks to the pandemic, ridership in recent months has only been half what it was in 2019, and thanks to increased numbers of people working at home it may not ever return to 2019 levels.

This suggests that St. Louis doesn’t need to spend hundreds of millions—or billions—of dollars building new light-rail lines. Yet that is exactly what St. Louis Mayor Tishaura Jones wants to do, not because St. Louis needs it, but because federal funding might become available for it. That federal funding would depend on local matching funds, meaning St. Louis taxpayers would have to pay higher taxes for train rides few of them will take.

St. Louis’s light-rail record is unimpressive. In 2001, Metro opened the 17-mile MetroLink College extension, doubling the total number of miles in the system. Metro carried fewer bus and light-rail riders the year after opening this line than it had carried the year before. The same thing happened when it opened the 3.5-mile Shiloh-Scott extension in 2003. The 8-mile Shrewsbury-Lansdowne MetroLink extension gained some new riders, but all of those riders were lost after the 2008 financial crisis, and most never came back.

Overall, light rail has failed to boost the region’s transit ridership. In 1993, before the region’s first light-rail line opened, buses carried 40.3 million riders. Since then, Metro has spent around $2.5 billion building 45 miles of light-rail lines. In 2019, buses and light rail together carried 36.1 million riders, 11 percent fewer than before light rail.

Part of the problem is that light rail is functionally obsolete: just about anything light rail can do, buses can do better for far less money. Counting capital costs, Metro spent $12.80 per light-rail rider but only $8.30 per bus rider in 2019.

The current proposal to expand MetroLink with a new north–south corridor line through downtown fails on two key fronts. First, while transit advocates say spending more money on transit helps low-income people, the fact is that most low-income people do not take transit to work. Census Bureau survey data show that only 4.4 percent of St. Louis–area workers who earned less than $25,000 a year took transit to work in 2019. Meanwhile, the sales taxes used to support Metro buses and light rail are highly regressive, meaning the 95.6 percent of low-income people who aren’t dependent on transit are disproportionately paying taxes to support rides they aren’t taking.

Second, cities that have successful rail transit have a high concentration of jobs in a central business district, and St. Louis is not one of those cities. The percentage of regional jobs in downtown St. Louis has been declining for years. It is currently down to about 60,000 employees downtown, very few of whom take light rail to work. Expanding MetroLink on the proposed north–south route will be a very expensive attempt to take people who don’t use light rail for work to jobs in an area where they don’t work.

The places in downtown St. Louis that benefit from MetroLink (the stadiums, convention center, etc.) already have it. The money Metro wisely spent adding and improving stations at Cortex and Barnes Hospital cost a fraction of the amount of a new line and served an area where people of all incomes actually use MetroLink to go to work. (The Barnes/Central West End stop is the busiest stop in the system.)

Meanwhile, while we debate MetroLink’s further expansion, Metro’s bus system is “disintegrating,” says engineer Richard Bose at the pro-transit NextSTL website, because the agency can’t find enough drivers to keep it operating. Jones and other city and regional officials should devote their efforts toward helping Metro run the system it already has rather than trying to expand it. Federal and local funds spent on an effective bus system offer a better solution to address the needs of the people who live in North St. Louis County. Otherwise, people might get the idea that the real purpose of light-rail transit is not to move people, but to move dollars from taxpayers’ pockets into the hands of light-rail contractors.

The post MetroLink Light Rail is MetroWaste appeared first on Show-Me Institute.

My first work in government was in property assessment and tax issues. I was hired in June of 2001 to work for the St. Louis County Council as an aide. A short time later, the 2001 “Drive-By Assessment” scandal erupted, and the next few months of my life were devoted to property tax and assessment-related constituent work. In 2019, taxpayers in Jackson County experienced a similarly critical and difficult assessment cycle.

The Times story discusses studies that have found that lower-value homes tend to be over-assessed, and higher-value homes tend to be under-assessed. This leads to a shift in the property tax burden to the poor. Why does this happen? It’s due to the way assessment systems work. Home valuations are based on comparable sales data, and at the extreme high and low ends there are fewer sales to compare to. This naturally creates a regression to the mean; houses at the higher end get compared to houses that aren’t quite as expensive, and houses on the lower end get compared to houses that are a bit more expensive. That leads to lower-value homes being over-assessed, and higher-value homes being under-assessed.

That does not mean we should get rid of the average-based assessment system. In fact, I think we should expand on it and stop individually assessing homes every two years. We should just raise or lower assessments based on the average in an area. We could combine that with accurate assessments at sale price for sold properties (important for high-value ones), individual assessments for new construction, and maintaining the appeal system for property owners who believe their property value has increased less than average.

I have been discussing this problem for years. In a 2007 op-ed for the St. Louis Business-Journal, I wrote:

This would safeguard against incorrectly undervaluing properties – particularly expensive ones – that might be underassessed over time by the use of an average-based system.

These changes would make for a much easier rollback of tax rates. When assessments go up, property tax rates are rolled back because assessments are not supposed to lead to a tax increase. However, this isn’t the case for many people. The rollbacks are based on averages, but assessments are currently individual. So if your assessment increased by 20 percent, but the average in the area was only 10 percent, you will get hit with a significant property tax increase. Using an average would mean that everyone faces the same increase, and the same rollback.

I will have much more to say over the coming months about property taxes in Missouri. In particular, it’s time to remove the Kansas City school district’s exemption from property tax rate rollback requirements. That is a big part of the assessment issues in Jackson County that needs to be addressed. But clearly, as the article in the Times shows, we have work to do in Missouri.

The post The New York Times Talks Property Assessments in St. Louis County appeared first on Show-Me Institute.

While starting your career with $25,000 plus in student loan debt can create challenges, these are somewhat offset by the higher earnings a college degree holder can expect. Yet, once again, student loan debt forgiveness is being floated as an economic policy. Let’s be clear: This relief is directed at the one in five Missourians who can expect significantly higher earnings over their lifetimes. Everyone else is left with nothing except picking up the tab. What about car loans? What about credit card debt?

This is a textbook example of a regressive tax; relief for higher earners at the expense of lower earners. Expensive government giveaways create bad precedent. They incentivize bad behaviors. And, like it or not, they have to be paid for at some point. Sorry to be a Grinch, but don’t ask Santa to forgive your student loans.

For more on this topic, click here to listen to our podcast with the Cato Institute’s Neal McCluskey:

The post What About the other 80 Percent of Missourians? appeared first on Show-Me Institute.

The policy—net metering—allows consumers to offset their electric bill with electricity generated from rooftop solar panels. When the solar panels produce more electricity than the home is using, excess electricity is put back onto the grid. The meter “spins” backward, deducting the electricity generated from the resident’s bill. Homeowners pay only for the net amount their meter records, hence the name “net metering.”

Under Missouri law, net metering customers are paid at the retail electricity rate for the power they generate. However, retail electricity prices include more than just generation. Transmission and distribution costs, among other items, are included in a ratepayer’s retail electricity price. In Missouri, only about a third of the retail price is from electricity generation costs.

When net metering customers are paid retail rates, they receive payments not just for the electricity they produce but also the parts of retail rates that are used to maintain the electric grid, which they neither provide nor maintain. But the costs of providing and maintaining transmission and distribution infrastructure don’t disappear—utilities pass on the costs of net metering programs to other customers through higher rates.

The costs passed on to other customers can be quite high. According to research by the Brookings Institute, if a net metering customer zeroes out their monthly bill entirely, they shift $45 to $70 onto regular customers. Before reforms were enacted in 2016, net metering customers in Arizona shifted over $9 million in annual costs onto regular customers. Net metering customers in Nevada received a roughly $500 annual subsidy from regular customers; reforms in 2017 lowered that dollar amount, but only slightly.

Moreover, this cost shift has regressive effects. A survey by the Lawrence Berkeley National Laboratory found that solar panel owners have incomes 50 percent higher than the median income of households that don’t own solar panels. Asking lower-income earners to subsidize wealthier solar panel owners is hardly an ideal policy.

So what can be done about this problem? One solution is to compensate net metering customers at wholesale, not retail, prices. Net metering customers would be paid the costs the utility saves by not generating this electricity, which would not include the many other costs—transmission, distribution, administration, etc.—that the retail rate includes. This approach better reflects the value of the electricity produced and doesn’t lead to such drastic cost shifting. Alternatively, an additional monthly fee could be charged to net metering customers to offset retail price overcompensation, as Kansas has done.

Rooftop solar power has room for growth in Missouri, but current net metering laws unfairly reward those with solar panels and punish those without. Missouri should consider altering the net metering policy to make it fairer for all ratepayers.

The post Rooftop Solar Power Law Acts as Subsidy for the Wealthy appeared first on Show-Me Institute.

Over the past eight or so years, the number of distinct sales tax jurisdictions in Missouri has grown by more than 9 percent—a total of 199 new jurisdictions created. This growth is caused by several factors, but mostly by new and overlapping special taxing districts, such as ambulance districts, levee districts, and, most prominently, transportation development districts (TDDs) and community improvement districts (CIDs). These districts are formed to collect sales and other taxes to fund various improvements and services. Unfortunately, TDDs and CIDs usually just help pad developers’ bottom lines.

Source: Missouri Department of Revenue, Sales/Use Tax Rate Tables, numerous years.

As the figure above shows, with the increase in sales tax jurisdictions comes an increase in the average sales tax rate. This means that as more and more jurisdictions come on the scene, taxpayers cough up more and more money.

However, just because the average sales tax rate has been on the rise, it doesn’t necessarily mean all Missourians are paying more in sales taxes. As noted above, the driving force behind the rate increases has been the creation and overlapping of special taxing districts, which usually encompass relatively limited geographic areas. And although the TDDs and CIDs that are driving the rate growth are all over the state, about two-thirds are in the St. Louis and Kansas City metro areas, where much of the state’s population lives. So, overall, even if some Missourians are not significantly affected by the recent rate increases, many are.

Unfortunately, as things stand there is little taxpayers can do to curb the state’s sales tax rate growth. That’s because many if not most TDD and CID taxes can be established without the approval of the general public. These districts can be formed by property owners—often developers—meaning the taxpaying public has no say in whether the rate hikes become law. Real reform would have to come in the form of significant changes to the laws governing TDDs and CIDs. So, as the new year gets going and the legislature meets in Jefferson City, lawmakers keen on lowering (regressive) taxes should take some time to think about redesigning the laws that allow these districts to be established.

The post New Year, New Sales Taxes appeared first on Show-Me Institute.

The study, issued by the government of the District of Columbia in December 2017, “aims to calculate the combined state and local tax burdens that would apply to a hypothetical family at five different income levels living in D.C. as well as the largest city in each state.” Kansas City is included and St. Louis is not, and neither are some cities that we’ve identified as peers. But the data are valuable nonetheless.

The estimated tax burden for a family earning $50,000 in Kansas City—the median income is $47,000—is $5,444. That’s 10.9 percent of income and includes income, property, sales, and auto taxes. This places us 8th in the country, ahead of places well-known as expensive such as Boston, New York, Portland, Seattle, Denver, and Los Angeles.

Dave Helling of The Kansas City Star has pointed out that taxes in Kansas City are also regressive. This report supports that conclusion regarding auto sales taxes, stating that “Providence, Rhode Island; Bridgeport, Connecticut; and Kansas City, Missouri are the cities with the highest automobile tax burdens across all income levels.” Combined with all other taxes, a Kansas City family earning $25,000 pays a combined tax burden of 12.6 percent; 8th highest of the cities measured. For a family earning $100,000, the burden is lower at 11.2 percent, placing us 12th.

What’s worse, the sales tax estimates are low for Kansas City. On page 39, the study lists Kansas City’s sales tax rate to be 8.475 percent, but anyone living here knows it goes much higher due to the proliferation of special taxing districts across the city.

Individuals can determine for themselves if City Hall is providing a return worthy of the investment, but the debate over whether taxes are high is settled. Kansas City is a high-tax city. Our taxes are regressive, too, but they are certainly high.

The post The Tax Burden in Kansas City Is High appeared first on Show-Me Institute.

The Tax Foundation reported last year that 32 states exempt food purchased for consumption at home from tax. It reports that six other states tax food at a lower rate,

Food sales tax rates in these states are as follows: Arkansas: 1.5 percent, Illinois: 1 percent, Missouri: 1.225 percent, Tennessee: 5 percent, Utah: 3 percent, and Virginia: 2.5 percent.

This is true but incomplete. The Missouri General Assembly did in fact reduce its sales tax on food, but local sales taxes are still collected on food and beverage purchases. In St. Louis’s Central West End, the tax rate on groceries adds up to 7.4 percent; in Kansas City’s Power & Light District it is 7.6 percent.

What makes this the most unkindest tax of all, as Shakespeare might say, is that it is regressive, meaning it weighs disproportionately on the poor as everyone must buy food. Because Kansas City and St. Louis charge additional sales taxes on top of the state rate, any intention by the General Assembly to spare low-income consumers this tax is undermined.

To make matters worse, both Kansas City and St. Louis charge a flat and regressive 1 percent earnings tax on every dollar earned. The earnings tax is levied on the first dollar earned, and there is no exemption for lower-income workers. Adding insult to injury, the earnings tax is not levied on types of income enjoyed by wealthier citizens such as investment income or retirement.

Kansas City and St. Louis have a large number of low-income residents. Unfortunately, the cities’ taxes only add to the problem. The first order of business for any city leader who wants to help low-income workers should be to take less of their money away from them.

The post The Most Unkindest Tax of All appeared first on Show-Me Institute.

Taxes should be simple — easy to collect and understand. They should be as low as possible. And they should be fair, based in part on ability to pay.

Kansas City’s tax structure meets the “simple” test. But local taxes are not low, and they are not fair.

This argument is not new to readers of this blog or to anyone who lives in the city and has to pay the taxes. But conceding that local taxes aren’t low is a noteworthy turnabout for Helling, who wrote just two years ago on March 1 2016,

Kansas City’s tax burden is relatively low, and it’s pretty balanced. It fails miserably on the fairness index — relying far too much on flat sales and income tax rates that hurt the poor — but that shortfall is difficult for most voters to see.

My colleague responded at the time that taxes are not relatively low in Kansas City. In fact, we’re a high-tax city when one considers not just the sales tax—which is itself high—but property taxes and our one percent earnings tax. And Helling is correct that taxes are not only high, but brutally regressive, resting on the backs of the working poor in Kansas City. Kansas City goes the extra regressive step of even taxing food. To add insult to injury, some tax rates in poor communities are higher than in wealthier neighborhoods.

Kansas City has serious problems with how it collects and spends revenue. These things are worthy of public debate, and Helling’s piece is an important contribution to that discussion. City leaders—or those who would be city leaders—need to come forward and join the discussion, not just ask (as Mayor Sly James did last week) to be left alone.

The post Taxes in Kansas City: Still Too High, Still Unfair appeared first on Show-Me Institute.

Missouri State Representative Greg Razer, speaking about raising the gas tax, said last week, “That is absolutely, in my view, the way we have to go in the short term. . . . We have to take care of it (transportation). We have lots of state assets that we have neglected over the last 15–20 years, and it’s time that we as a state start living up to our responsibility.”

The state does have some wiggle room to keep gas taxes low even after an increase. Missouri’s fuel taxes—currently 17 cents per gallon for both regular and diesel—are the 4th and 5th lowest of all 50 states, respectively.

A policy study conducted by the Show-Me Institute’s Joe Miller in 2016 listed the following advantages to raising the gas tax:

1. It would raise revenue that is constitutionally appropriated towards roads.
2. It would have a low implementation cost.
3. The money raised would benefit the entire state highway system, along with local road and bridge projects.
4. It could be enacted without amendments to Missouri’s constitution.

But this is not a perfect solution, as the same policy study found the following disadvantages to a gas tax hike:

1. The revenue base would decline over the long term as cars become more fuel efficient and/or battery powered.
2. Fuel taxes are regressive.
3. The tax an individual pays is proportional to the amount of gasoline that they purchase, not to the number of miles driven on the state highway system.

Ideally, I would like any gas tax increase to be revenue-neutral. While our transportation system may need more money, that doesn’t necessarily mean that more money overall should go to government.

Regardless, the sooner we decide how to fund our infrastructure for the next century, the better. In addition to other measures such as toll roads, a gas tax may be an appropriate way to keep Missouri moving.

The post With MoDOT’s Tank Nearly Empty, a Fuel-Tax Increase Might Be the Answer appeared first on Show-Me Institute.

First, if the district is extended, the district and its taxes can continue up to an additional 15 years beyond its originally scheduled termination. Put more simply, that means up to 15 more years of collecting taxes that would not otherwise have been levied. To say that’s not a new tax is like a bank adding over a decade’s worth of payments to your home mortgage and telling you there’s nothing to worry about because the payments aren’t “new.”

Second, TDDs were meant to raise funds for critical infrastructure projects; what they actually raise funds for is often anything but that. A recent report by the Missouri State Auditor exposed TDDs in Missouri as routinely “engaging in questionable practices with little oversight or transparency.” One example has been the CVTDD itself, which used over $500,000 taxpayer dollars to construct a “beautification wall”—a project whose questionable use of tax dollars has been documented before.

Third, the ballot initiative language for extending the CVTDD is hardly reassuring to those interested in good government. The language provides an extensive laundry list of items that revenue from the CVTDD may be used to fund. While a casual reader might assume the list is exhaustive, such an assumption would be incorrect. The list of permissible expenses is preceded with the words, “including without limitation.” The scope of spending could exceed even the problematic spending priorities that are explicitly spelled out to voters. The items articulated on the ballot aren’t limits; they’re examples.

Fourth, if this ballot initiative passes, then anyone who shops in the CVTDD—not only the well-to-do, but also single mothers, poor families, and those of meager means—will be subsidizing the recreation of the CHA through the sales tax that they pay at Walmart and other stores in the district.

Setting aside the deficiencies of the ballot language and even assuming that taxpayers’ money is efficiently used within the explicit scope of the project, the proposal itself remains troubling. It would commit an entire community, through the vote of only a few, to subsidizing significant amenities for members of a narrowly tailored special interest organization—not to mention that there has been no showing of need that cannot be met without a tax that is inherently regressive. That a private group may end up with a public windfall, thanks to the state’s broken TDD laws, should bother us all.

The post One More Lap around the Ice Rink appeared first on Show-Me Institute.

We’re told early in life that nothing is truly free. If you’ve had to learn this lesson first-hand, you know that some “free” things are actually quite costly.

The Saint Louis Zoo, one of our region’s most beloved institutions, is one of those expensive free things. And soon it could get a whole lot more expensive.

Senate Bill 49 (SB 49), if signed into law, could mean voters in Saint Louis County and City will be asked to hike their sales taxes by one-eighth of one percent (0.125%) to help fund infrastructure, conservation projects, and other zoological activities at the Saint Louis Zoo. By all accounts, the needs at the zoo are genuine—many of its pipes, sewers, etc., are original. But the zoo already receives $21 million—about one-third of its budget—from county and city taxpayers through a property tax. Is ratcheting up the region’s already-high sales taxes the best way to raise additional funds?

Here are some reasons to think not.

Sales taxes in both the county and city just went up. The city’s sales tax rate will soon be 9.179%, higher than New York City’s or San Francisco’s—and another half-percent hike is on the horizon. Things don’t look much better in the county. With the passage of Prop P, Clayton will soon have a rate of 9.113%, as will places like Olivette, Webster Groves, and Ballwin. In Ferguson, sales taxes will sit even higher, at 9.613%. Add in the extra 2% levied by numerous, overlapping special taxing districts, and in some places you’ll be paying more than 11%! A new zoo tax will only make your shopping more expensive, and it will hurt the region’s poor the most.

Considering that policymakers have a seemingly never-ending list of “transformative” or “essential” projects that require tax hikes, is a zoo tax the best use of limited public resources? There is no formula to determine the optimal sales tax rate, nor is there a documented sales tax ceiling, but taxpayers will only stomach so much. If the sky isn’t the limit for tax rates, could a zoo tax help exhaust the region’s sales tax capacity?

And then there’s a basic math issue. The proposed tax could raise roughly $20 million per year if passed in both the county and city, and zoo officials have claimed there is a backlog of needed infrastructure projects that will require approximately $100 million. Accordingly, by conservative estimates, a mere six years of the tax could take care of all the zoo’s infrastructure needs, and an extra year or two could raise tens of millions for conservation efforts. But there is no language in the bill that states the tax would be temporary. So while zoo officials talk of specific needs that justify the tax, they fail to mention that, in addition to taking care of these needs, the tax would increase their annual budget by a third—and, apparently, permanently so.

Finally, a sales tax hike wouldn’t fix the underlying funding problems. Since the zoo does not charge admission, it has what economists call a free-rider problem. Not all of the visitors who enjoy the zoo pay for its operation. The result is a zoo with piling bills and no way to pay for them. But rather than address this problem, a zoo tax would simply exacerbate it. City and county taxpayers who currently subsidize the zoo for everyone would be forced to doubly subsidize the zoo for everyone. And while it’s convenient to say Saint Charles, Franklin, and Jefferson counties should impose a zoo tax too, residents from these counties comprise only 13% of the zoo’s visitors, and taxing them would likewise fail to address the free-rider problem.

There are alternatives to hiking sales taxes, and one in particular deserves greater consideration: charging a reasonable admissions fee. If other top zoos charge more than $50 for admission, visitors can pay a fraction of that to keep ours one of the best in the county. A small admissions fee—for those not currently paying property taxes for the zoo—could raise millions annually, and help avoid hiking an unnecessary, regressive tax.

It’d be great if some things in life were truly free, but they’re not. And nothing is wrong with that. The user-fee system works—it’s both fair and financially sustainable. Let’s hope policymakers and zoo officials keep that in mind in the coming months.

The post To Keep the Zoo Great, Keep It Out of Taxpayers’ Pockets appeared first on Show-Me Institute.

Many people have been drawn to the discussion because of the unique political situation surrounding Amendment 3. It is a cigarette tax designed to fund pre-K education that is supported by tobacco companies and opposed by the American Cancer Society Cancer Action Network. How can you not be interested by that?

But let’s cut through the fog. Politics are interesting and might get folks hooked, but ultimately it’s the policy that should concern us.

Backers have some solid reasons to support the proposal. Funds will be made available to both public and private providers, which would, in theory, provide a wider set of options than if funding was restricted solely to traditional public schools. Additionally, the drafters of the Amendment have taken steps to try and insulate the program from the forces of the educational status quo by requiring funds generated by the tax to be kept separate from general revenue and be managed by an independent board.

That said, there are reasons to be concerned about this proposal. While insulating the board from the pressure of interest groups is a laudable objective, it could mean that the board is less accountable to taxpayers. The amendment language also states that the board needs to be “equitable” in its distribution of funds. If you’ve even casually followed discussions of education finance in Missouri and Kansas, decades-long court cases can be fought over exactly what “equitable” means. Is this just opening a similar can of worms?

And all of this dances around the more central question: Even if we think that pre-K is something worth supporting, is a tax on cigarettes an appropriate way to fund it?  Cigarette taxes are extremely regressive. Poor people are far more likely to smoke than their richer peers, meaning that the poor will bear the brunt of the tax increase. Smoking is also on the decline, risking future revenue and raising the possibility that services will be cut or pressure will be put on the legislature to divert general revenue to subsidize the program.

For someone who doesn’t smoke but wants pre-K for their kids, Amendment 3 might seem to offer something for nothing. Unfortunately, nothing is free in this life, and someone is going to have to pick up the tab. Whether or not that “someone” should be a group disproportionately made up of economically disadvantaged people is worth considering.

The post Amendment 3: Politics are Intriguing, but Policy Matters More appeared first on Show-Me Institute.

Look at all these glamorous people eating canapés and drinking champagne in their seersucker suits and sundresses! Oh, no—is that what I think it is? RUN!

If you think it’s not a great idea to fund educational programs via cigarette taxes, you can start to feel like a skunk at a garden party.

Here in the great state of Missouri, on November 8 we will vote on a constitutional amendment that would establish a 60-cent tax per pack of cigarettes to create a fund for pre-K education. Backers believe that it would generate as much at $300 million per year, which would pay for tens of thousands of Missouri children to attend pre-K. They have an impressive advertising campaign and a strong social media presence highlighting the bipartisan support they have assembled for their plan.

On one level, I am sympathetic to their cause. I understand that there are perfectly defensible reasons to support raising cigarette taxes. Smoking is terrible, and we want fewer people to do it. Raising taxes will deter them. If we can provide pre-K with the funds such a tax generates, we’re killing two birds with one stone.

But there is more to this plan than meets the eye.

The largest financial backers of the amendment campaign have been big tobacco companies. Why, you might ask, is an industry looking to increase taxes on itself? Well, paired with the 60-cent tax on all packs of cigarettes is a 67-cent surcharge on so-called “wholesale” cigarettes—cigarettes produced by “small tobacco” companies not party to the landmark tobacco settlement that required the big tobacco companies to pay states in exchange for protection against future lawsuits. Big tobacco pays right around 67 cents per pack into these funds, giving small tobacco an edge in the marketplace. This amendment would eliminate that advantage.

What’s more, many anti-smoking and cancer-fighting groups have decided to oppose the amendment. They argue that a 60-cent tax is not substantial enough to deter folks from smoking.

For those of you keeping score at home: We have a cigarette tax campaign that is funded by big tobacco companies and opposed by the American Cancer Society. If I’m a skunk at the garden party, at least I’m in good company.

Setting the parlor intrigue aside, it’s hard for me to not think that for many Missourians, the real draw here is getting something for nothing. I don’t smoke, so I would never pay this tax. Most Missourians, particularly educated and wealthy ones, don’t either, so they won’t have to pay. If the state generates enough funds, there is good reason to believe that many middle-class children of nonsmokers will get pre-K without their parents having to pay a dime.

If we think one step further though, we see the problem. Cigarette taxes are about the most regressive tax we could possibly institute. Poor people pay the brunt of them. If this tax was going to be passed in 1950, when nearly half the population smoked, it would be spread more evenly across the populace. But it is 2016, and only a specific subset of Missourians smoke. What’s worse, a lot of those people are addicted to cigarettes, and we are preying on that addiction to fund something that we want.

Look at what happened in Arkansas, which instituted a lottery in 2008 to provide scholarships for students to attend college in the state. Like cigarettes, lottery tickets are disproportionately purchased by poor people. In Arkansas, scholarship recipients are disproportionately middle- and upper-income, making the scholarship lottery a pretty clear upward transfer of wealth. Sure, it sounded great at the outset, as non—lottery ticket buying parents eyed scholarships for their kids, but on the backs of the poor? It just feels unseemly.

There are reasons to support providing scholarships to pre-K to students in the state, but the how matters. How we fund those services, how we determine who is eligible, and how we pay for them is critically important. These considerations can get lost in big promises to people with little skin in the game.

The post A Skunk at the Pre-K Garden Party for Cigarette Taxes appeared first on Show-Me Institute.

Proposition A and Constitutional Amendment 3 propose to raise the state’s cigarette tax by 23 cents and 60 cents, respectively.  The first of these initiatives would use tax revenues to fund transportation infrastructure, while revenue from the second primarily would fund childhood education programs.

This sounds like a win–win; smoking would likely be reduced due to higher costs, and more funds arguably would be available for other important priorities. But as you dig deeper into the details of these proposal, some important questions immediately come to mind. For example, no more than 25% of the revenue generated from Constitutional Amendment 3 may be used for health care facilities and smoking prevention programs, a restriction that is difficult to understand. If smoking is so harmful that taxation is going to be used to discourage it, doesn’t it make sense to use the resulting revenue to help people quit or keep them from starting? 

We know that cigarette taxes are regressive by nature and tend to have larger impacts on low-income households.  The prevalence of smoking is almost twice as high among people below the poverty level than among the rest of the population, so a disproportionate amount of the tax will be collected from those least able to afford it. 

If the health risks associated with smoking are serious enough to warrant a sin tax, shouldn’t the resulting revenue be put toward services like smoking prevention programs or addiction treatment?  On the other hand, if smoking isn’t enough of a problem that the government needs to help people quit, then why should smokers be singled out for a tax to fund expenditures that benefit all Missourians?

The post Where There’s Smoke . . . appeared first on Show-Me Institute.

The Aldi in Gladstone, Missouri, just outside the city limits to the north, is not shown on the map. It charges only 4.725 percent sales tax. Again, that was no surprise because Kansas City is generally a high tax city.

The stores in Waldo and East Brookside to the south both charge 5.85 percent sales tax. The Aldi to the north, supposedly in the middle of a food desert but definitely in the poorer part of town, charges 6.35 percent sales tax.

The reason for this higher rate is the Independence Avenue Community Improvement District (CID), which collects an additional .5 percent tax on top of the existing sales tax. This means that the tax rate on unprepared food such as groceries is 6.35 percent; for restaurants it is 11.35 percent. According to their website, the purpose of the CID is:

to provide for enhanced and reliable improvements, security, services and activities, such as general maintenance of public areas, continued efforts to address area beautification related issues, as well as other concerns within the Independence Avenue corridor not already receiving such services.

It used to be that security, general maintenance, and beautification were addressed by the police, public works, and the parks department. As the city fails to provide these basic services, neighborhoods step in and do it themselves. As a result, the poorest neighborhoods, where the need is greatest and the ability to pay lowest, pay higher taxes.

The post Kansas City’s Reverse Robin Hood appeared first on Show-Me Institute.

The Aldi grocery store in Gladstone charged the least sales tax at 4.725%. The Aldi at 721 Paseo Blvd in Kansas City charged me 6.35% sales tax. The one at 6415 Troost charged me 5.85% sales tax.

While I expected Kansas City taxes to be higher than taxes outside the city in Gladstone, I did not expect the Aldis on the east side of Kansas City to tax so differently than one another.

This is troubling. A tax on food is bad enough as it is the most regressive of all taxes. Everyone must eat, and as the poor pay a larger portion of their income on food than the rich, this tax impacts them disproportionately. Add to this the apparent fact that grocery stores on the east side–in the middle of the so-called food desert–pay an even larger tax bill than grocery stores elsewhere, and you have a double whammy.        

The post Kansas City’s Poor Tax appeared first on Show-Me Institute.

These days there are a lot of calls to make people pay their “fair share,” and no, we are not referring to the 1 percent. We are talking about smokers. The argument for raising the tax on cigarettes is straightforward—smoking is harmful to individuals, and though smoking is an individual decision, it impacts each of us. We all bear the brunt of additional health care costs incurred by smokers. These are what economists call negative externalities. They are, in theory, why smokers should be taxed more for their behavior—to offset their costs to society. Most proposals to raise the cigarette tax, however, seek to tax smokers to pay for unrelated programs, such as education.

For example, Erin Brower of Raise Your Hand for Kids is seeking to put a 50 cent increase on the ballot to fund early childhood programs. Missouri Treasurer Clint Zweifel has proposed an increase to fund college scholarships, an idea Missouri Attorney General Chris Koster supports. In a recent special to the Joplin Globe, Koster called for a 73 cent per pack increase. These are certainly not the first calls for increasing the tax. In the past 15 years, tobacco tax increases have appeared two times on the ballot. Each time Missouri voters have had the opportunity to tax smokers more, they have failed to do so. Why?

First, Missourians are leery of using “sin” taxes to fund other programs, especially education. This was the same tactic used to legalize gambling in Missouri. Lawmakers said the revenue from gambling would go to education. They did not tell voters, however, that the money would supplant not supplement existing funds to education. There are fears that the same would happen with proposals to raise tobacco taxes.

Second, using tobacco taxes to fund other programs simply does not make economic sense. Missouri’s lowest-in-the-nation tobacco taxes help draw in an untold number of shoppers across state lines, especially in Kansas City and along the Illinois border. These shoppers make it a point to buy their cigarettes in Missouri, thus creating sales for our local businesses and generating tax revenue for the state. Raising the tobacco tax would deter these shoppers.

Tobacco taxes also have the negative distinction of being one of the most regressive taxes. Smokers tend to be from lower-income households. At the same time, middle-income families would benefit from many of the programs created from increased tobacco taxes, such as college scholarships. Thus, if Zweifel and Koster’s proposal was implemented, low-income families would be subsidizing the college education of middle-income families. What is the “fair share” for smokers to pay for a middle-class student’s college education?

The truth of the matter is that smokers are an easy group to target. Few, except for other smokers, are sympathetic to their plight. At the same time, we all support better educational opportunities for Missouri students. Therefore, taxing smokers is a relatively easy way to raise taxes to fund educational programs.

If lawmakers are seriously concerned about the negative externalities causes by smokers, they should direct tobacco tax revenue directly back to smoking prevention programs and the Medicaid costs for smokers. That is the only logically and economically consistent use of the tax revenue.

James V. Shuls, Ph.D., is an assistant professor of educational leadership and policy studies at the University of Missouri–St. Louis and a fellow at the Show-Me Institute, where Michael Rathbone is a policy researcher.

The post Taxing Smokers Does Not Show Support of Education 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 bill will create a bonanza for new major road construction as well as significant dollars for whatever transportation project local planners see fit. Don’t drive much, if at all? Now you get to pay to expand urban highways. Don’t live in Kansas City? Now you also can pay for the city’s $500 million streetcar. The amount of money Missourians pay will have nothing to do with how much they use or benefit from the project. The lack of a connection may be necessary in other areas of government, but a connection is imperative for transportation funding.
• The tax is regressive and unfair. While the sales tax will hit people of all walks of life, the main beneficiaries will be those who use the highways most, chief among them interstate truckers. According to an industry representative, 45 percent or more of the traffic on major Missouri highways is trucking, many of whom might be transiting the state and not paying the sales tax. A poor family that uses transit in Saint Louis should not be paying more for the I-70 rebuild than a semi headed from Denver to Indianapolis.
• It is unsustainable, bad economic policy, and not temporary. MoDOT is driving off the funding cliff because Missouri has not made the necessary alterations to its user tax base to pay for state roads and bridges. The bill, far from fixing those problems, specifically does not allow alterations to that tax base while proposing a non-user tax that will encourage overuse of roads, pollution, and sprawl. Ten years from now, all of MoDOT’s underlying tax base problems will be worse, meaning an indefinite extension of the sales tax hike.
• A 1 percent or .75 percent sales tax would be one of the largest tax increases in recent state history (taxing Missourians to the tune of $534 million per year), and almost nullify the effect of the proposed income tax cut, should that ever come into force.

If the state legislature and the people of Missouri seriously wish to fix transportation funding in this state, they need to look for economically sound policy solutions and not short-term fixes that cause greater problems down the road.

The post Highway Robbery: Missouri Senate Passes Sales Tax Hike For Transportation appeared first on Show-Me Institute.