Needless occupational licensing requirements make it harder for people to work in our state, and wait times for licensing waivers unnecessarily burden applicants.

The Solution

Periodic review of all licensing requirements, elimination of regulations without proven benefits to public safety or product quality, and reduction of the maximum time to receive an out-of-state licensing waiver.

Licenses Should Have Proven Benefits

Occupational licensing is the government giving someone permission to work in a certain field. Obtaining a license typically involves satisfying an educational requirement and paying a fee.

Most licensing laws are justified as public safety measures or as necessary to ensure the quality of the relevant service. However, there is little evidence that occupational licensing laws provide any benefit in this regard, as demonstrated by the Mercatus Center at George Mason University in a meta-analysis of 19 different studies directly related to licensing and product quality. In only 16% of included studies did researchers observe positive relationships between licensing and product quality.

Occupational licenses raise prices, impose higher barriers to entry, cost licensees time and money, and reduce innovation. Because of these costs, an occupational license should provide a proven benefit to public safety or product quality.

Issuing Waivers Efficiently

2020 marked the establishment of Missouri’s licensing reciprocity regime. Under current law, any person who has held a valid license issued by another state for at least one year can practice in Missouri at the same occupation or level with all Missouri licensing requirements waived.

However, the relevant oversight body can wait up to six months to issue a waiver to an applicant. A worker considering relocation to Missouri might not be able to wait half a year before starting work in the profession in which they’ve been trained. This delay puts applicants in a bind: Either wait for a waiver during this extended period or meet the Missouri licensing requirements so they can work. This reality may dissuade individuals from relocating to Missouri entirely.

Missouri provides an expedited licensing timeline for qualified spouses of law enforcement officers and members of the military. This is a step in the right direction, but all professionals seeking work in Missouri should have their applications reviewed in a timelier manner.

Key Facts

• Five percent of the U.S. workforce was licensed through state laws in 1950. In 2024, 22% are licensed.

• In Missouri, it only takes an estimated 26 days of education and experience to become an EMT, but 175 days to become a makeup artist.

Sunset Reviews for Occupational Licenses

Many licenses are created and then exist for years without scrutiny. Not all licenses justify the costs they impose; in fact, Missouri has eliminated a number of unnecessary licenses, such as licenses for hair braiders. A sunset provision would bring attention to other outdated and unnecessary requirements, helping ensure that only those with proven benefits remain.

Reducing the burden of occupational licensing could create opportunities for workers and consumers, lower prices, and increase economic growth. Licensed occupations should be the exception, not the rule.

Policy Recommendations

• Establish a staggered sunset and review period for all professional licenses and licensing boards.

• Reduce the maximum waiver review time from six months to 45 days.

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Well, buried at the end of an uneventful year for U.S. Supreme Court Rulings is a little case called West Virginia v. EPA. In 2015, the Environmental Protection Agency (EPA) under the Obama administration wanted to comprehensively regulate “greenhouse gases” at American power plants under the Clean Air Act, so it adopted what it called the “Clean Power Plan rule.” The rule put pressure on dirtier coal power plants to shutter and promoted alternative energy plants. The problem with that is the Clean Air Act had only ever been used to enable the regulation and oversight of individual power-generating facilities; Congress had not authorized the EPA to unilaterally reorganize all power-generating capacity of the United States at the grid level.

After seven years of legislative wrangling, constant litigation, and a couple of presidential administrations, the Supreme Court affirmed that the EPA had indeed exceeded its mandate under the Clean Air Act. The court found that when a “major question” like nationwide energy generation is to be decided, Congress must render its decision directly or clearly authorize an agency to act on its behalf, consistent with the law. Here, Congress had not spoken directly or made such a clear delegation to the EPA to give it such expansive powers, and because it had not, the EPA’s dramatic rulemaking was invalid.

To be clear, the court’s ruling doesn’t suggest that the federal government can’t regulate “greenhouse gases,” but it does make clear that if the federal government is going to regulate them, Congress needs to clearly authorize it. That’s a win for small and accountable government; this ruling preserves the constitutional norms of our republican form of government. Each of the three branches is constrained by the Constitution; new laws must be passed through Congress, not by bureaucratic fiat.

How do you stop out-of-control regulations like this? Ideally, by requiring some form of legislative action for them to continue. Regulatory reform is a dense and oftentimes boring policy area, but if I were to suggest one change consistent with state and federal constitutional divisions of power, I think it’d be appropriate for every regulation enacted by an agency to come with a sunset date. The sunset provision would wipe the regulation clean if not adopted and passed into law by Congress or a legislature. That way, every regulation would eventually have to get an up or down vote by the people’s representatives, or else disappear.

Regardless, the Supreme Court’s finding in West Virginia is an important one that hopefully will remind lawmakers that they alone should be making “the law”—and that they can, and should, be held accountable for both the laws they pass directly and any regulations that descend from the statutes they enact.

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A new study from the Institute for Justice finds that even though these things shouldn’t be the case, they are. Institute for Justice researchers studied 397 sunshine reviews (reports used by legislators that evaluate the need for new occupational regulations) from 15 states conducted from 1985 to 2017. They found that occupational licensing lobbies have driven the push for 84 percent of sunrise reviews and about 80 percent of these reviews declined to recommend licensing. What’s problematic is that legislators enacted licensing more often than recommended—twice as often as recommended in the reviews. These stats don’t instill confidence that occupational licenses were enacted to protect consumers, as is often claimed.

Missouri doesn’t require sunrise reviews and therefore wasn’t included in this study, but it does make one question whether Missouri’s occupational licenses were created under similar circumstances. Were Missouri’s various occupational licenses truly created to protect consumers? And are they still serving that purpose? We should have the answers to these questions.

A five-year sunset for all occupational licenses would give lawmakers new opportunities to assess the validity and necessity of occupational licenses. These licenses make it harder to get a job, which reduces supply and raises prices for consumers. Through a sunset process, unnecessary regulations (or even unnecessary licenses) that do not serve the purpose of protecting consumers can be identified and eliminated. A sunset provision would go a long way in supporting workers and consumers.

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The Institute for Justice’s report examines the debt and dropout rate of cosmetology students across the country, and the numbers are pretty shocking. To receive a cosmetology license in Missouri, one must complete 1,500 educational hours from an accredited cosmetology program. From the 2011–12 school year to the 2016–17 school year, the average cosmetology program cost $14,629 and students took on an average of more than $7,700 in federal student loans.

That’s not pocket change, but it’s even worse when earnings are considered. In Missouri, the median annual wage of a licensed cosmetologist in 2019 was $23,760. That’s slightly lower than the national average of around $26,000 for licensed cosmetologists and slightly higher than yearly earnings from a full-time minimum wage job. (For reference, earning Missouri’s minimum wage of $10.30 for 40 hours per week and 52 weeks per year equates to yearly earnings of $21,424.) And more than two thirds of students do not graduate on time, increasing their debt burden even more.

So much money is spent to fulfill a state educational requirement, but is that requirement even necessary? Occupational licensing is intended to protect the health and safety of consumers, but recent research indicates that only 25 percent of cosmetology training is health and safety training.

Occupational licensing increases costs to consumers, but the other side of that coin is often overlooked. Licensing requirements dramatically increase costs for the workers who must obtain that license to earn a living. This is especially true in cosmetology, where the costs are directly tied to licensing requirements, but this is also true no matter the cost or resulting wages. It’s time for legislators to reconsider these requirements, regulations, and boards that have burdened workers and consumers for too long. A sunset provision for occupational licenses would be a great step toward reducing burdens and costs for consumers and workers.

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Regulatory capture occurs when special interests gain control of regulatory agencies governing their own industries—regulators making the rules for themselves. You may think that a captured licensing board would have lenient regulations (who wants to subject themselves to strict rules?) but it’s much more common to see stricter rules with a captured licensing board. This is because the licensed board members directly benefit from punishing competitors and making it harder for newcomers to enter the market.

According to the report, cosmetology is licensed in all 50 states and the District of Columbia. Cosmetology boards typically consist of members who currently hold a license (incumbent members), members who represent cosmetology schools, and members of the public. Boards that are dominated by members who currently hold a license are more captured than boards dominated by members of the public. Missouri’s cosmetology license board has 11 members: 7 incumbent members, 2 school owners or instructors, and 2 public members. It’s clear where the balance of power is on the Missouri board.

Regulatory capture is one reason lawmakers should implement a five-year sunset provision on occupational licenses and licensing boards. With this provision, legislators would review each board every five years, and legislators could implement changes to fix problems (such as regulatory capture).

Unfortunately, regulatory capture doesn’t only affect those in (or who want to be in) the industry. Limiting competition lowers the supply of cosmetologists and raises the cost of your haircut. Everyone loses—except those already holding the occupational license, of course.

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Occupational licensing adds educational requirements, fees, and other hurdles that make it harder to get a job. We see onerous requirements negatively affecting workers across the country, such as hair braiders in Louisiana (highlighted in the Journal article) who need 500 hours of training to receive a full cosmetologists license to exclusively braid hair. Lawmakers at the federal level have expressed a desire to increase competition in the workforce by reining in occupational licensing, but it is state lawmakers and licensing boards that set the standards and regulations.

Missouri lawmakers took a big step forward with occupational licensing reciprocity, but there is still more that could be done. One policy that I believe would prove beneficial for Missouri workers: Lawmakers should introduce a five-year sunset for all occupational licenses and licensing boards. With a sunset, all licenses and boards must be evaluated and approved by lawmakers every five years. The hope is that unnecessary regulations, and maybe even unnecessary licenses, will be identified and eliminated. Reducing the burden of occupational licensing will create opportunities for workers and consumers, lower prices, and increase economic growth.

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But there are other parts of the bill that includes Aerotropolis that deserve attention. Although the legislation is peppered with a grab-bag of new incentive programs of questionable value to the state, there is a fair chance that two enormous tax credits — the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC) — may be phased out if the so-called “jobs bill” is going make it to the governor’s desk (emphasis mine).

Gov. Jay Nixon called the Legislature into special session on Sept. 6 to overhaul the state’s tax credits, which cost the general revenue fund more than $540 million a year. Nixon wanted legislators to scale back some programs while adding a few new ones, such as a tax break to spur development of a hub in St. Louis for freight flown between the Midwest and China.

But an agreement forged last summer by House and Senate Republican leaders fell apart, leaving the two chambers split over how much to cut and whether to set expiration dates or ‘sunsets” for programs that fund historic preservation and low-income housing development.

Senators remain committed to passage of seven-year sunset clauses, Mayer said Tuesday. An alternative review process proposed by Rep. Ryan Silvey, R-Kansas City, would not corral the programs’ growing costs, Mayer said.

The proposed “alternative review process” is underwhelming to say the least, and as a solitary legislative move, would force no substantive action on Missouri’s burgeoning tax credit system until at least 2016, if ever. The heart of the problem is that while the presumption in the House is that the tax credit system should exist largely (and for all intents and purposes, indefinitely) in its current form, in fact, many tax credits need to be extinguished, most sooner rather than later, and all need to be seriously investigated as to whether they’re achieving their objectives.

This is where the sunsets play a role. Sunset provisions like the one proposed turn the old tax credit presumption on its head, phasing out programs like LIHTC and HTC — which, in the state’s own analysis, do not even remotely pay for themselves — but nonetheless giving the legislature an opportunity to reduce and reform the programs in the interim. On an ideological spectrum, that is the conservative position: responsibly reducing the size and scope of government.

LIHTC and HTC combined have carved out billions of dollars from the state budget over the last decade, with disappointing economic results. If Missouri’s legislature can’t responsibly reform these two programs within a seven-year window, there’s no reason to believe the legislature will ever reform the programs.

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The Missouri house has pushed through the China hub bill after putting in nine amendments and leaving out tax credit sunsets.

Senate leadership says a tax bill with no sunsets doesn’t stand a chance, but the House passed China hub anyway. Speaker of the House Steve Tilley says he hopes the Senate is willing to compromise.

[…]

The bill passed the House by a vote of 98 to 48 and heads back to the Senate Tuesday.  The Senate will take the issue up when they resume Tuesday.

As a reference point, the original House tax credit bill passed with a 142-14 vote during the regular session in April. Big change.

Setting aside the political considerations in play — considerations that, granted, are nearly indispensable to understanding the day-to-day dynamic in the chamber — it is mystifying to me that budget hawks in the House aren’t demanding sunsets on most tax credit programs. When an amendment was introduced yesterday that would have phased out the Low Income Housing and Historic Tax Credits, it was resoundingly defeated with a 131-17 vote.

That’s unfortunate. Taken together over the last decade, the LIHTC and HTC have carved out a multi-billion dollar hole in Missouri budgets for a highly questionable return. An 11-cent return for every tax dollar spent on the former? A 23-cent return for every tax dollar spent on the latter? Whether or not you’re inclined to believe those findings, it’s worth keeping in mind how economic development tax credits have been distributed, and in what amounts. If tax credits are the spur to economic growth that proponents in the House say they are, I’d like to know what evidence precisely has brought them to that conclusion.

It would be apropos, however, that a House which initially envisioned an enormous half-billion dollar Aerotropolis tax credit would effectively reduce the program to $0 because it chose not to sunset — and therefore require legislative reauthorization — for a host of tax credits that have had ample time to prove their value to the state, but failed to compellingly do so. Barring a breakthrough between the House and Senate before the constitutionally-required close of the session in early November, that’s precisely where the House will find itself: without a bill passed into law, and therefore, without an Aerotropolis tax credit of any amount. We’ll know more next week.

Collecting fiscal boondoggles is not a credible economic strategy, and setting Missouri’s fiscal ship on a new course does not simply mean stopping bad policy from becoming law; it also means reforming existing law. Until Missouri’s legislators get serious about reforming or ending economic programs that are failing and, simultaneously, reducing the tax burden for all rather than a select few, Missouri will continue to drift into troubling budgetary waters.

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It’s notable that this $40,000 figure is much lower than the cap on film tax credits in Wisconsin, my home state, which is currently $500,000 a year. That’s only 8 percent of the maximum allowed! Furthermore, the existence of the cap obviously didn’t prevent the project from being made — since it was made.

Wisconsin has had difficulty with its film tax credit program in the recent past, and that’s why the state scaled back its program. From an earlier article on the subject that appeared in the Business Journal of Milwaukee (emphasis mine):

Producers [of the film Public Enemies] spent more than $18 million, but the [D]epartment [of Commerce] said most of that money went to out-of-state workers and for out-of-state services. Wisconsin’s real economic impact — money spent here, wages to Wisconsin employees and tax revenue from those wages — equated to $5 million. At that level of spending, the $4.6 million in tax credits nearly wipe out the fiscal benefits of the tax incentives program.

Similar to Wisconsin, the state government in Missouri should consider instituting limits and sunset clauses to control the cost of tax credit programs, given that the fiscal notes have had poor predictive power. This was proposed in the April 2010 report from the state auditor’s office, which pointed out that, of the 53 programs redeemed in 2009, 23 did not have annual or cumulative limits. The report also observed that it is difficult to predict the long-term effects of specific tax credits; with a sunset provision, the effects are reviewed and evaluated before a program is continued. Annual and cumulative limits would hold tax credits to the amount specified by the bill, which would discourage underestimates as well as control tax credit expenditures.

Furthermore, cutting the film incentive program in Wisconsin doesn’t not mean that major motion pictures will not be filmed in the state. On the contrary, the film industry is thriving in Wisconsin without it. Parts of Transformers 3 were filmed in Milwaukee this past summer, and the project didn’t receive a cent of subsidy from the state government. Transformers 3 is a blockbuster movie — much larger than the PSA project described in the article — and its producers decided to film in Wisconsin based on the merits of the region.

Missourians and Wisconsonites would both be better off if they attracted companies that were profitable because they engaged in activities in the unrestricted market — not those that are profitable because they exploited the political and economic environment through programs like targeted tax credits.

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Fiscal Notes

Fiscal notes tended to understate the cost of tax credits, some of which underwent further expansions after their initial passage. Of the 15 tax credits reviewed, the fiscal notes underestimated their total cost by $1.1 billion over a five year period. This is not surprising given the tendency that Show-Me Institute research assistant John Payne noted for politicians to overestimate the impact of their policies and underestimate the costs.

Four of the five tax credit programs for which fiscal notes underestimated the amount that the credits would disperse were new. They had lower participation than expected, as well as annual limits on the amount that could be redeemed. (See page 8 of the audit for a table displaying the projected and actual costs for all 15 of these tax credit programs.)

The audit notes that the short time frame — three years — of the cost estimates limits their ability to predict long-term effects. On the flip side, the audit also notes that even longer estimates are inaccurate and unable to predict true costs. Given that the fiscal notes had poor predictive power, the audit suggests that limits and sunset clauses may be necessary methods to limit the costs of tax credits.

Annual or Cumulative Limits

Annual or cumulative limits cap the amount of tax credits that can be redeemed from any particular program. This is one measure that the audit suggests be put into place for all tax credits, although 23 of the 53 programs redeemed in 2009 did not have annual or cumulative limits.

Some tax credit programs have seen their limits increased substantially, like the Missouri Quality Jobs program, which initially had a $12 million annual limit and currently has a $80 million limit. Officials’ ability to increase these limits through committees or departments, without having to go through the full legislative process, circumvents the purpose of limits.

Sunset Provisions

In 2003, Missouri passed the Sunset Act, which stipulated that each program must be reauthorized after six years. This allows the economic impact to be evaluated before further extensions are granted. Of the 18 tax credit programs passed after 2003, only 10 have sunset provisions. The audit suggests that sunset provisions be included in every new tax credit.

Conclusions From the Audit

Sunsets and both annual and cumulative limits could substantially control the cost of tax credits. As the audit points out, it is difficult to predict the long-term effects of specific tax credits; with a sunset provision, the effects are reviewed and evaluated before a program is continued. Annual and cumulative limits would hold tax credits to the amount specified by the bill, which would discourage underestimates as well as control tax credit expenditures. Currently accounting for 7.8 percent of the 2009 Missouri budget, tax credits will continue to grow if cost-control measures are not better implemented.

How has the legislature responded to the audit’s pronouncement on tax credits? The speaker of the House issued a press release disagreeing with its conclusions:

“Auditor Susan Montee and Governor Jay Nixon are playing a dangerous and damaging political game creating a fictitious conflict between education and Missouri jobs. Education and economic development are mutually beneficial, not mutually exclusive,” [the speaker] stated. “In the House, we have always welcomed independent, objective scrutiny on how to best reform and enhance tax credit programs. Missourians need jobs. Therefore, the Missouri House will continue to protect responsible economic development programs that create those jobs. And we will have the last word on this matter.”

With all of the evidence that tax credits cost more than anticipated with less impact than predicted, greater scrutiny is warranted before the state considers passing any further credits. The audit brings to light important issues that proponents of tax credits must face in order to bring greater fiscal responsibility to Missouri’s budget.

Aside from the audit’s careful consideration of the unforeseen costs that tax credits entail, it’s also important to consider some of the broader economic reasons that such targeted industry credits are not as effective as their proponents suggest. As Show-Me Institute scholars have repeatedly pointed out, tax credits are less efficient than lower tax rates, both because legislators have no special talent for picking winners and losers in the economy, and because the credits distort economic incentives, causing a misallocation of capital — subsidized producers have an incentive to produce more than is efficient, and some other set of unsubsidized goods or services are slightly underproduced as a result.

Perhaps this audit will encourage a the legislature to consider lower tax rates in lieu of inefficient tax credits.

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