First of all, consumer spending is holding up. After only growing by 1.3% in the first quarter of 2022, it ended the year growing at a 2.1% clip—hardly robust, but clearly in positive territory. Consumers have been slammed by high inflation and eroding purchasing power for the better part of two years, but the steady job market and still-elevated checking account balances of households have managed to keep them afloat. Unfortunately, so too has rapid growth in credit card utilization, which may act as a source of financial vulnerability for consumers going forward as they grapple with continued interest rate hikes. Transitions into credit card delinquency are already on the rise, driven especially by households in the 18–29 and 30–39 year age ranges.

Switching gears, gross private domestic investment declined notably in the third quarter of 2022 (9.6% on an annualized basis) but increased by 1.4% in the fourth quarter. On the surface, this turnaround is good news. However, peeking beneath the hood reveals some reasons to be cautious. Most strikingly, residential investment fell by 26.7% as the housing market gets pummeled by the rapid rise of mortgage rates over 2022. In the first week of January 2022, the average rate for 30-year fixed-rate mortgages sat at 3.2%. In the last week of December, it was at 6.4%. Such a huge increase in rates translates to a jump in monthly payments of over $800 for someone buying a $400,000 house with a 20% down payment—making it more difficult to qualify for a loan.

Looking beyond the housing market, nonresidential fixed investment increased by an anemic 0.7% on an annualized basis in the fourth quarter after growing by 6.2% in the third quarter, a sizable deterioration. As a result, fixed investment overall fell by 6.7% on an annualized basis in the fourth quarter, which is even worse than the 3.5% decline in the third quarter. So how is it, exactly, that private investment still increased by 1.4% overall? The answer: inventories increased, which is far less important for economic growth in 2023 and beyond than businesses confidently investing in new factories and capital.

So what does all this mean for 2023? Unfortunately, not much. The good news is that the economy is not crumbling—at least not yet. And there are also reasons to be hopeful that the Federal Reserve’s interest rate hikes are finally breaking the back of inflation despite the federal government’s fiscal profligacy since the beginning of 2021. However, interest rates are still on their way up, consumers are borrowing more, gas prices are on the rise again, and the housing market is stalling out, with very real prospects of modest to moderate house price declines in at least certain pockets of the country. None of these trends bode well for consumer sentiment or small business optimism. But there’s still a chance that the Federal Reserve can manage to thread the needle, and divided government in Washington, D.C., means that more blowout inflationary spending packages are less likely. It’s certainly something worth crossing our fingers about.

The post The Latest GDP Report: What Does It Mean for 2023? appeared first on Show-Me Institute.

Missouri has eight metropolitan statistical areas (MSAs), a term used to describe a city with a population of at least 50,000 and the surrounding area. Below is a graphic from my latest publication, The 2020 Missouri Tax Landscape, which provides an overview of Missouri’s economy and taxes at the state and local levels. The compound annual growth rate (CAGR) of these MSAs is a calculated rate helpful for evaluating growth over time. While GDP growth is volatile, the CAGR provides a calculated rate as if the growth had occurred at a steady rate during the period.

Notes: Some MSAs cross state lines, indicated by the inclusion of the states in the label. Real GDP numbers are for the entire MSA. Real GDP numbers are in chained 2012 dollars, meaning they are adjusted for inflation over time with 2012 as the base year.

Source: Bureau of Economic Analysis. Real GDP by County and Metropolitan Area.  https://apps.bea.gov/itable/iTable. cfm?ReqID=70&step=1#reqid=70&step=1&isuri=1

Columbia and Kansas City had the highest growth rates from 2009 to 2018, growing by 1.6 percent each year on average. St. Louis grew by less than half of that rate—a meager 0.7 percent. The CAGRs of Missouri’s largest MSAs are nowhere near those of large MSAs in surrounding states. In the same period, Oklahoma City, OK grew by a rate of 2.9 percent; Cincinnati, OH-KY-IN by 2.4 percent; and Omaha-Council Bluffs, NE-IA by 2.2 percent. Additionally, all of Missouri’s MSAs fell below the national growth rate of 2.3 percent during this period.

There are a lot of factors that contribute to a metro area’s growth, and the tax climate is certainly one of them. High tax rates take spending money away from citizens and make cities and states less attractive to people and businesses. There’s a plethora of research showing that taxation (and especially taxation on income) has a negative effect on economic growth. Given the low growth rates of Missouri’s MSAs, it may be time for some tax-related New Year’s resolutions.

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Over the years, we have marked the progress (or lack thereof) that Missouri has made by reporting new data on gross domestic product (GDP) released by the Bureau of Economic Analysis (BEA). If you pick out a single year’s data, Missouri seems to do okay. From 2015 to 2016, for instance, real GDP in Missouri increased at a 1.15 percent rate, ranking 31st out of the 50 states and the District of Columbia. Washington recorded the fastest growth rate, at 3.7 percent. It was a bad year for states that rely on natural resources: Louisiana, West Virginia, Oklahoma, Wyoming, Alaska, and North Dakota all reported declines in real GDP from 2015 to 2016. So, it looks like the recent decline in oil and coal prices helped push Missouri up into the middle of the pack. For reference, in the United States as a whole, reported real GDP increased at a 1.54 percent rate in 2016—much faster than in Missouri.

But year-over-year data doesn’t reveal larger, more important economic trends; any given year can be dominated by business cycle fluctuations. Growth is focused on long-term trends. When you look at the entire 1997–2016 period, the picture is quite different from 2015. Little wiggles in the year-over-year data get smoothed out and show the economic fundamentals operating within a state. Over the full two-decade period, we see that Missouri’s growth has been paltry.

During this period, Missouri has grown at half the pace of the United States as a whole (1.024% compared to 2.05%). Out of all 50 states and the District of Columbia, Missouri ranks 48th in economic growth; we trailed Mississippi by 0.001%—we were almost 47th. For an idea of the impact of Missouri’s poor performance, imagine you and a friend had started at the same job in 1997, each making $50,000 a year. If your friend’s salary grew at the rate of the country as a whole, and yours grew at Missouri’s rate, the friend would have made about $72,800 in 2016 while you’d have made roughly $60,400!

In a recent essay, Joe Haslag and Michael Austin identified some policies that could help explain why Missouri took a nosedive after 1997. There was the corporate income tax rate hike in 1993. There was a shift of spending from education and infrastructure to social services. There was the sharp increase in the state’s tax credit programs. And, though more difficult to measure, there was the regulatory burden that seems only to have increased over time. (Do you remember a time when the state government eliminated a regulation?)

The bottom line is that state government needs to take a thoughtful approach to policy if it is to boost economic growth. Lower tax rates, for example, result in higher returns on capital and labor. The state should look for high returns on its own investments as well, just like a private citizen or business would. Common-sense adjustments to emphasize education and infrastructure over policies that transfer wealth from one group of citizens or businesses to another are needed unless Missouri’s policymakers are satisfied with 47th place.

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When the BEA announces its real GDP growth rates for states, it uses an “all-industry” value.  This includes both private industries (all economic enterprises owned by individuals or groups) and also the government (which encompasses the purchases of goods and services at all levels/branches of government).  Because the private and public sectors both contribute to total (all-industry) output, this total measure can provide misleading signals on how well the private sector of the economy is doing.  After all, the private sector of the economy is the growth engine for future economic well-being. 

The table below illustrates how total measures don’t always paint the full picture. The table shows the growth rates for three categories: All Industry; Private Industry, and Government.  The data cover the most recent four quarters for which information is available. All growth rates are based on year-over-year comparisons to smooth short-term wiggles in the data. In other words, the growth rate for 2016Q3 is the growth rate from 2015Q3 to 2016Q3, etc.

The data show that government “output” grew in the third quarter but declined in the previous three. This resulted in an all-industry output growth that was lower than that of the private sector, which actually expanded in every quarter shown.  While the all-industry growth rate averaged 1.6 percent over these four quarters, private industry output—excluding government—increased at a faster average rate of 1.9 percent. 

You might be thinking, “But such small differences in growth rates are trivial.”  They are small, but they are not trivial:  Using the average all-industry growth rate, it would take 45 years for the state’s output to double.  The private industry values, in contrast, indicate that income would double in 38 years, a 16 percent reduction.  Surely most of us would prefer our income to grow faster. 

After separating out the effects of government, it appears that the private sector’s output of goods and services expanded at a faster pace than is suggested by the commonly used all-industry measure.  This example shows that including government’s activity can affect our perception of how well the economy is actually doing.

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GDP Growth during the Expansions of the Post-WWII Period

Source: CRS calculations based on data from the Bureau of Economic Analysis (BEA).

Note: Economic expansions as identified by the National Bureau of Economic Research.

This result is not just bad—it is catastrophic. The average American should not be wondering if his income is a bit above or below 2007 levels. Just by historical averages, the average American should be 20% better off than in 2007. And this slow growth is settling in as a permanent new-abnormal.

I believe the root cause of abysmal growth is the huge tax increases imposed by President Obama and Congress since 2008. The most harmful were the increase in the capital gains tax from 15 to 20 percent, the increase in top bracket income from 35 to 39.6 percent, and the new tax of 3.8 percent on investment income in the Affordable Care Act (ACA). The massive increase in regulatory burden through the ACA and Dodd-Frank bills are also crushing, but unfortunately are harder to measure.

The three tax increases mentioned above (plus higher state and local taxes) directly lower expected returns on all investments. Our government grabs the fruits of investment and then is puzzled when businesses do not invest. This causes billions of dollars of investment projects to come off the table.

Weak investment is the signature feature and cause of the abysmal "recovery" under President Obama. The aggregate of all investments in the United States is Net Private Domestic Investment (NPDI), computed by the Bureau of Economic Analysis. Relative to GDP, NPDI averaged 7% per year from1960 to 2008. The average was 7 to 8 percent from 1960 to 1990, and 6.5 percent in the Clinton and George W. Bush years. However, for the Obama years NPDI was an astoundingly low 2% of GDP!

In every year of Obama’s presidency but 2015, NPDI was worse than in any year from 1960 to his inauguration. This isn't bad luck. If nothing changed in the economy, the likelihood of having a period as bad as Obama’s just by chance would be 1 in 1000.

The numbers for GDP and NPDI are interesting, but they’re still just lifeless statistics. The human toll is terrible, taking the form of millions of Americans who can’t find jobs or can’t make ends meet in the jobs they do have.

Dismal investment levels are the predictable result of taxing investment and income at high rates. This terrible economic performance will continue until income and investment taxes are slashed. The government can still raise needed revenue with a broad-base approach, eliminating all the special deductions and credits and allowing very low rates.

On the other hand, maintaining the current high rates will entrench lackluster investment and stagnant incomes and trap far too many Americans in a bleak economic future.

The post The Dismal Recovery appeared first on Show-Me Institute.

If you have a high-skill occupation, you’re probably doing better than the BEA data indicate at first glance. The largest contributor to growth came from professional, scientific, and technical jobs; management of companies; and health care and social assistance jobs. On the other hand, moderate- to low skilled jobs showed little or no growth (see Table 3a and Table 3b on the “Tables Only” link here). While it is understandable that every state can have an unimpressive quarter, those with a vested interest in the state’s economic environment shouldn’t be satisfied with a consistent mediocre performance.

The post Missouri and the Lukewarm, Tepid, So-So, Unexceptional Personal Income Growth appeared first on Show-Me Institute.

The Bureau of Economic Analysis (BEA) data on personal income across states and metropolitan areas (http://www.bea.gov/newsreleases/regional/rpp/2016/_images/rpp0716.png ) shows that real per-capita personal income for the state of Missouri—personal income adjusted for inflation and measured on a per-person basis—increased at a rate of 2.1 percent in 2014.  That puts Missouri squarely in the middle of the pack, with the 26th-fastest growth among states.  Several neighboring states fared worse: Iowa, Illinois, Kansas, and Nebraska all registered slower growth rates. 

Because the state is a mixture of rural and urban areas, it’s worth asking if this middling record is reflective of all areas in the state?  To answer this question, we use BEA data for metropolitan areas in the country to see how real per-capita personal income grew in Missouri’s metropolitan areas.

The table below lists the name of the metropolitan area (metropolitan statistical area, or MSA as defined by the BEA), each MSA’s growth in real per-capita personal income and the MSA’s national ranking based on that growth rate.  For some perspective, the average growth rate in real per-capita personal income across the 381 MSAs nationwide was 2.04 percent in 2014.  The Hanford-Corcoran, California, MSA had the highest growth rate at 7.5 percent; the Danville, Illinois, MSA the lowest growth rate at -3.1 percent.

From the table we see that real per-capita personal income growth in Missouri’s MSAs lags behind most of the nation’s other metro areas.  Only Springfield and St. Louis are at or above the national average, though Cape Girardeau and Kansas City are close to the average.  Columbia basically saw personal income in 2014 remain at its 2013 level. 

The upshot is that the majority of the MSAs in the country had better personal income growth in 2014 than Missouri’s metro areas.  It might not be wise to look to urban growth to raise the state’s average.

(Source: Bureau of Economic Analysis)

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The chart below plots the average annual growth rate for each of the 50 states and for the United States as whole for the period 1997 through 2015. The good news is that Missouri’s average annual growth rate increased from 0.93 percent when computed over the 1997 through 2014 period to 1.02 percent when computed over the 1997 through 2015 period. Missouri reported a 1.29 percent growth rate in its real GDP between 2014 and 2015. No one really jumps for joy when growth rates are reported at 1.3 percent for a year; however, Missouri did manage to stagger its way one rung up the ladder, from 49th-fastest to 48th-fastest growing state economy over the period from 1997 through 2015.

Overall, the story for Missouri is little changed compared to a year ago. Since the late 1990s, Missouri’s economy has increased at half the rate of that of the United States as a whole. Eighteen years is not a terribly long time, and we all hope that Missouri’s future will be brighter. But the question remains: Why has the Missouri economy reported such slow growth over the past eighteen years?

The answer is not simple. Note that the ten fastest growing states are: North Dakota, Texas, South Dakota, Oregon, Utah, Colorado, California, Idaho, Arizona, and Oklahoma. There is no one clear feature shared by these ten states that can account for their economic success. Some of them do have natural resources and have benefitted from being able to dig a hole in the ground and extract things that are valuable to the rest of the world. But that is not the only explanation. For example, Arizona, Idaho, Oregon, and Utah (at least) do not fit the oil/natural gas story. Alternatively, the ten states with the lowest growth rates are Michigan, Louisiana, Missouri, Mississippi, West Virginia, Maine, Ohio, Kentucky, Illinois, and New Jersey. No single attribute these states might have in common would account for their struggles, either.

Income tax rates cannot, alone, explain the differences in growth rates. The nine states with no earned income taxes (followed by rankings) are: Alaska (40), Florida (20), Nevada (16), New Hampshire (25), South Dakota (3), Tennessee (30), Texas (2), Washington (13), and Wyoming (11). The nine states with the highest marginal income tax rates (followed by rankings) are: California (7), Hawaii (37), Oregon (4), Minnesota (17), Iowa (23), New Jersey (42), Vermont (26), New York (29), and Maine (46). The mean rank for the nine states with no income taxes is 17.8 while the mean rank for the nine states with the highest income tax rates is 25.7.

Overall, the evidence does not prove, but does suggest, that income tax rates do matter for economic growth. Of course, a host of other factors matter as well. In order to assess the role of income tax rates on growth, the ideal test would involve holding everything else constant. In other words, you would want to examine a parallel version of New Jersey, for example, but one with a lower income tax rate. Holding everything else constant, economic theory suggests that New Jersey would grow faster.

The broader message is that lots of factors that influence a state’s economic growth rate. Each state is an experiment in which tax rates, school quality, and various government services are provided endogenously by state policymakers. The bundle of policies and regulations is too large and complicated for us to identify how each one matters. And on top of the political attributes, there are the things that lie underground, or on the ground itself (or the ocean front—or lack thereof), that people living in each state can consume. All policymakers can do is to try and manage the factors they can influence in a way that will help their state grow faster.

In case you are wondering, Kansas ranked as the 29th-fastest-growing state over this period. So, why can’t Missouri grow at least as fast as its neighbor? It’s a frustrating question, because we have a Gordian knot of regulations, laws, and policies that make it difficult to determine specific causes of our stagnation. Not only have policymakers failed to move Missouri in the right direction in the 21st century, but the complexity of our state’s problems prevents us from understanding why various initiatives have failed to produce their intended results. In my view, it seems like a good time for Missouri to review its entire spectrum of policies. For instance, we have not had a constitutional convention in this state since 1947. Maybe it is time for an institutional overhaul.

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Can’t we just enjoy the fact that income rose? Increases in income unadjusted for price changes—what economists call nominal income—can give a false signal of prosperity. Think of it this way: If your wage doubles, are you better off? If the prices of things you buy haven’t changed, then, yes, you are. But if the prices of goods and services also doubled, your higher wage buys no more than it did before your raise. So we really should compare changes in real personal income—the equivalent to your wage relative to what it can buy—to see if we actually are better off.

The table below reports the 2013 growth rates in real personal income, nominal income, and inflation for the United States, Missouri, and its neighboring states. The percentage change in real income is equal to the difference between nominal income and the rate of inflation. How did Missouri fare when comparing growth in real personal income?

Real personal income in Missouri increased at a 0.5 percent rate in 2013. This reflects the fact that even though nominal income increased at a healthy 2.2 percent rate, prices increased at a 1.7 percent rate. Though Missouri’s nominal income growth exceeded the national average (2.2 vs. 2.0 percent), the fact that the rate of inflation in Missouri was higher than the U.S. average (1.7 vs. 1.2 percent) explains why real personal income in Missouri rose slower than the national average (0.8 percent). This combination of income growth and inflation also explains why Missouri’s increase in real personal income was slower than in four neighboring states, about as fast as in two, and exceeded that for two others. Among the neighboring states, Nebraska was the clear winner, with Kentucky trailing the pack.

The story from the latest data is that while Missouri’s economy continues to grow, the pace of improvement lags the national average and many of its neighbors.

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Yet should we really be all that excited? I guess it depends on your standards.

Sure 35th is better than 36th and it is a lot better than 49th or 50th, but we’re still below the national average. Nor are we in the top half of states in economic growth. Looking at the data, the most encouraging sign I see is that at least we’re growing faster than a few of our neighbors (Nebraska, Arkansas, and Iowa). You’ll notice Kansas isn’t on that list. That should give critics of the Kansas tax cuts at least a moment of pause before declaring the whole thing a disaster. 

So how does Missouri do better? Well, here are a few suggestions. How about abolishing the Department of Economic Development and using the millions it hands out in economic development tax credits to cut taxes on businesses? How about shrinking the public sector while delivering better services through privatization? How about making sure we have a well-developed infrastructure that benefits all of us?

Those are a few suggestions. You can always find more on our website at showmeinstitute.org. I am glad that Missouri is seeing some improvement in its economic performance, but I wouldn’t put us in the winner’s circle just yet. Missouri needs to do better and there are lots of places it can improve.  

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The BEA now adjusts nominal incomes at the state level for price-level differences across states. This is made possible by the development of regional price parities (RPP). Basically, the state RPPs measure geographic differences in prices; that is, comparable costs of living. The 2014 release marks the first time these series are being recognized as “official” statistics. What do the new data tell us about Missouri?

The chart below shows that growth in Missouri’s real personal income for 2011-12, the most recent years for which the data are available, falls in the next to lowest quintile of states. We have eight other low-growth cohorts, including neighboring states Nebraska and Kentucky. But the vast majority of states (and most of our neighbors) experienced faster growth in real personal income compared with Missouri.

The income data is disheartening. But the evidence about Missouri’s cost of living compared to other states strikes a definite positive note. The chart below shows that Missouri’s RPP in 2012 places it near the bottom of the ranking. And being at the bottom of this ranking is good news for a change. This means that the general level of prices in Missouri is below the national average and lower than all but three states.

Translation: While Missourians’ real incomes still are not rising as fast as we’d like, the cost of living in Missouri is less than nearly every other state. Maybe the BEA’s next release of this data, scheduled for July 1, 2015, will provide positive news on both fronts.

The post Some Good Economic News (Well, at Least About Cost of Living) appeared first on Show-Me Institute.

It’s interesting when there are two wildly different takes on the same thing. For example, take me vs. the general public on Dances With Smurfs or Michael Burry vs. the rest of Wall Street on the value (or lack thereof) of sub-prime mortgage bonds. Another instance—one that is costing all of us—is the State Tax Commission vs. everyone else on the value of farmland. This difference can affect many our tax rates.

In a recent paper (H/T David Nicklaus), David Larson of the Bureau of Economic Analysis performed a valuation on all land in each of the lower 48 states for 2009. Based on his calculations, Missouri farmland is worth $64.236 billion. Based on my calculations, using data contained in the State Tax Commission’s 2009 Annual Report, the total value of Missouri agricultural property in 2009 would come out to $13.3 billion. That’s a gap of more than $50 billion!

A reason for this big difference is that, instead of assessing all agricultural land at a flat 12 percent rate, actively farmed land receives a different assessment rate depending on its productive capacity. This practice results in an effective assessment rate of around 2-3 percent.

Such low assessments erode the property tax base. Even if the true value of farmland in Missouri was half of Larson’s estimate, if it were assessed at a flat 12 percent rate, the state would have an agricultural property tax base nearly two-and-a-half times the size of its current base. This larger tax base either could allow property tax rates in some areas to be cut or some localities could see an influx of new revenue.

I don’t want farmers’ property tax bills to skyrocket. However, the truth is their property is under assessed to such an extent that governments are forced to rely on other more destructive forms of taxation (i.e., income taxes), which the rest of us have to pay, in order to fund essential services. We should value farmers for the work they do, but we should also properly value the land they work on lest we pay more than we should.

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Read the full essay: .

The post The 49th State: Revisiting Missouri’s GDP Sector by Sector appeared first on Show-Me Institute.

They range from large programs, such as the historic preservation tax credit and the Quality Jobs program, to the small, such as the state’s film tax credit. There are at least half a dozen more state-authorized local tax incentive programs, such as Tax Increment Financing (TIF). Missouri, like many states, aggressively uses these programs to encourage investments the government deems desirable.

But do these programs work? Do they accomplish their various goals, which have many different angles but all fall eventually into the categories of economic growth and job creation? These programs may not be as intense as a Soviet Five-Year Plan, but they are centralized economic planning nonetheless. Any time the government takes tax dollars and directs them to other areas of a market economy, it is engaged in central planning. Some planning is essential, but has this type of economic planning benefitted our state or our local communities?

This study relates closely to the current debate over Enhanced Enterprise Zones (EEZs) in Missouri.

Note: The data source for Personal Income, Per-Capita Income, and Total Employment is the U.S. Bureau of Economic Analysis. The source for Labor Force is the Economic & Policy Analysis Research Center at the University of Missouri-Columbia. The source for Assessed Valuation is the Missouri State Tax Commission.

Related Links

Commentary: Why Enhanced Enterprise Zones Are A Bad Deal For Missouri Cities

Commentary: EEZs Are An EZ Path To Corporate Welfare

Commentary: Callaway County Does Not Need An EEZ

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As you can see, Missouri is in the bottom 10 in terms of economic growth. From 2010-11, the latest year for which data is available, Missouri also ranked second to last in terms of employment growth.

What are Missouri officials doing to catch up with the rest of the country? They expanded a small business tax deduction, but compared to Kansas cutting its personal income tax rates, Missouri’s actions seem . . . underwhelming.

My colleague Patrick Ishmael and I have called for eliminating the state’s corporate income tax and replacing the lost revenue with the elimination of economic development tax credits. This would serve to both a.) make Missouri more economically competitive with other states, and b.) get Missouri out of the business of picking winners and losers. The state would also benefit from other solutions such as reforming occupational licensing.

Missouri’s economic performance has been abysmal. It needs to change course. Repeating the same things over and over again will not somehow miraculously turn the state around.

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In our new report Rich States, Poor States, prepared for the American Legislative Exchange Council, we compare the economic performance of states with no income tax to that of states with high rates. It’s like comparing Hong Kong with Greece or King Kong with fleas.

Every year for the past 40, the states without income taxes had faster output growth (measured on a decadal basis) than the states with the highest income taxes. In 1980, for example, there were 10 zero-income-tax states. Over the decade leading up to 1980, those states grew 32.3 percentage points faster than the 10 states with the highest tax rates. Job growth was also much higher in the zero-tax states. The states with the nine highest income tax rates had no net job growth at all, and seven of those nine managed to lose jobs.

There are many excellent analyses and anecdotes in Rich States, Poor States. From state-specific stats to broader policy discussions, RSPS serves as a fine starting point for assessing our states’ economic health.

But some RSPS history needs to be noted regarding the book’s specific discussion of Missouri’s “economic outlook” (RSPS‘s forward-looking metric). Laffer and Moore’s observations about states without income taxes bears repeating — they have grown significantly in contrast to other income tax-reliant states — but from the perspective of policymakers and legislators here, the view RSPS paints of the Show-Me State is starting to diverge from the book’s own backward-looking “economic performance” metric.

How has Missouri done according to RSPS‘s metrics over the book’s last five editions? Well, the state has risen to seventh from 25th of the 50 states in “economic outlook” over the last five years, even as its actual performance has languished by RSPS‘s standards around 40th (roughly consistent with BEA and BLS statistics).

As the chart shows, the disparity between “where Missouri is going” and “where Missouri has been” has never been greater. I think that is a problem with RSPS‘s “outlook” metric, not the policy Laffer and Moore advocated in the Wall Street Journal. More to the point, the state has continued to flail in growth, arguably in part because the state continues to cling to its income tax and tax credit system, rather than shifting to a more effective, and less destructive, taxing system that does not pick winners and losers and does not penalize income.

Unfortunately, that hugely important point could get clouded when people see Missouri’s “outlook” ranking, which only considers the impact of income taxes as fractional, evenly-weighted components among more than a dozen factors of varying real-life importance. Missourians across the ideological spectrum do not agree on much, but what they certainly do agree on is that Missouri’s economic status quo is unacceptable and is not improving. In substance, Laffer and Moore agree with that assessment, despite what RSPS‘s “outlook” metric suggests.

The pathway to state growth that Laffer and Moore articulate is a clear one; Missouri is lacking only the political will and leadership to take it over the finish line. The outlook for finding that sort of political leadership, unfortunately, is decidedly more mixed, and while it remains mixed, Missouri’s economic performance will continue to suffer.

The post Laffer’s Important Lessons For Growth, And A Note About Missouri appeared first on Show-Me Institute.

In all three indicators, Missouri compares poorly to other states and the country. According to data from the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS), Missouri under-performs when compared to the U.S. as a whole in all three categories. Missouri ranks 48th out of 50 states in state GDP growth, 45th in per-capita real GDP growth, and 45th in total employment growth. In fact, when one compares Missouri with the three best and three worst performing states for each indicator, Missouri’s performance nearly mirrors that of the bottom three states (and in the case of state GDP, Missouri IS one of the bottom three performing states). Missouri’s troubles also cannot be blamed on the most recent economic troubles. Over a period spanning from1997 to 2010, Missouri consistently under-performed the national average and was close to the bottom in all three indicators.

Considering how Missouri is ranked relative to the rest of the country, the question should be asked, “How about a new line-up?” The Show-Me Institute has conducted research on ways Missouri can improve its economic standing. Given Missouri’s current situation, how much worse can the state do if it considers implementing some of these suggestions?

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Missouri state workers are not a privileged class. They are the lowest-paid of any in the country. The median pay for state employees providing direct care services in Missouri is about $22,700 annually. That’s $22,000 a year for citizens who give treatment and dignity to those with severe disabilities at the Nevada Habilitation Center.

In reality, state workers are paid more than the author claims. Using Show-Me Living to find salary data for public employees in Missouri, I found that the median earnings of public employees is actually much higher — it’s $29,923. Plus, in 2009, 38 percent of percent all state workers (including full-time and part-time workers) made more than $40,000. There are 560 employees on the government’s payroll who earned more than $100,000 in 2009. Gov. Jay Nixon himself made $123,970 that year. On the list of highest paid public employees, he only ranks 101.

2009 Gross Pay for State Worker In Missouri (includes FT and PT)
(Source: Show Me Living, n = 65,535)

In the editorial, McEntee gets the $22,700 figure by restricting his view to “those providing direct care services” in Missouri. The author makes a mistake by focusing on a small group of state workers. He doesn’t take into account the wages and salaries of all public employees in Missouri. It’s not possible to determine from the article which job roles he is lumping into this category, nor is it possible to determine whether they are full- or part-time positions.

There are many, many types of workers who provide direct care services and who have salaries higher than $22,000. In fact, the highest-paid people on the state government’s payroll work in a direct care capacity. In 2009, the highest-paid person by the state government was a physician in the mental health department, and this person earned $301,991. He’s certainly not alone in his income bracket. In 2009, six individuals earned more than $200,000: three physicians, a medical director, and two health administrators. (I used the Show-Me Living web tool for government payroll to find this information.)

Overall, public employees are making more than employees in the private sector. According to data from the Bureau of Economic Analysis:

Compensation by Industry — Year 2009
(Source: BEA)

I haven’t studied the strict definitions of “compensation” and “wage and salary disbursements,” but I suspect that the difference between these two figures likely includes the cost of pensions, health insurance, etc. In either metric, workers in the public sector make more than workers in the private sector.

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$500 million may be only 0.27 percent of GSP, but how does it compare to Missouri’s budget? If this is all money the state spends, I would think a better comparison would be to the state budget. My guess is that’s a higher percentage…

Her suspicion is correct. During the period between 2002 and 2008, the amount of subsidies to private industries equals 3 percent of the state government’s total expenditures on governmental activities.

The subsidy data come from the Gross Domestic Product by State data from the Bureau of Economic Analysis (BEA). The total expenses for government activities data come from the Comprehensive Annual Financial Reports from the Missouri Office of Administration.

Another commenter requests a breakdown of this data to understand where these subsidies go. Here it is:

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