Witness an incredible turn of events:

We now hear the proudly progressive governors of California and New York howling in outrage at the removal of a substantial tax break for those at the highest level of income – the top 10 percent, and, especially, the top one percent.

Under the Tax Cut and Jobs Act that went into effect on Jan. 1, taxpayers may no longer count all of their state and local income tax payments, plus property taxes, as deductible expenses on their federal returns. The new law caps the deductibility of these state and local taxes (the so-called SALT deduction) at $10,000 per taxpayer. What follows is a rough calculation of how the cap will impact people at several different levels of income (focusing only on California, where local income taxes are not as important a factor as they are in New York, and disregarding property taxes).

Based on California income tax tables, a couple earning $150,000 in 2018 will owe $8,797 to the state of California – with the consolation of knowing that every cent will be deductible. The couple will save about $2,000 on their federal return.

A tipping point occurs at $164,000 in adjusted gross income. Exceeding that, a California couple filing jointly runs out of cap room and gets no further benefit from the SALT deduction.

The top one percent in California starts at about $500,000, according to the latest available data from the Internal Revenue Service. With that income, an entry-level couple in the one percent club will owe $41,347 to the state. Since all but $10,000 of the state tax is nondeductible under the new law, it has the effect of bumping up the adjusted gross income on their federal return by $31,347. Applying the top federal rate of 37 percent to that sum, the couple will owe an additional $11,598 to Uncle Sam.

The average income for families in the top one percent in California is $1.6 million, or more than three times the starting income. So how does the “average” ultra-rich family fare under the new tax regime? In 2018 it will owe $165,072 to the state – with a whopping $155,072 no longer counting as a deductible expense. Consequently, the family will take a hit of a little more than $57,000 in what it owes to Uncle Sam.

In a nutshell, the top one percent of filers in California are about to lose a huge tax break. No longer will they be able to reap one dollar in federal tax savings for every three or four dollars going to the state government.

No wonder the governors of the two states are worried. At 13.3 percent, California has the highest marginal income tax rate of all the states. New York State’s top rate is 8.82 percent, and that jumps to 12.7 percent in New York City. Each state garners nearly 50 percent of its total income tax revenues from the top one percent of earners.

Who has compensated for the outsized deductions that the highly paid denizens of Hollywood, Silicon Valley, and Wall Street have been able to claim on their federal returns due to exceptionally high state and local taxes?

Taxpayers in low-tax states and less affluent regions have done so. In the process, they have helped to subsidize the growth in public spending that has occurred in Sacramento, Albany, and New York City.

The situation will soon change. In early 2019, when people file their local, state, and federal tax returns for the 2018 tax year, the cross-subsidies, of a reverse Robin Hood nature, will largely disappear.

At the same time, taxpayers outside the top ten percent of filers will appreciate the positive impact of a near doubling in the standard deduction – to $12,000 for individuals and to $24,000 for couples. According to the nonpartisan Tax Foundation in Washington, D.C., a married couple with two children and a combined adjusted income of $85,000 will reap a $2,254 tax savings in 2018 as a result of provisions in the new law.

So, what about the vociferous complaints coming from progressives, who say that the new law only serves to make the rich richer and does nothing to help working people?

But the tax tables tell an entirely different story.

The post Tax Reform and Tax Hypocrisy 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.

The post Getting the True Value of Farmland appeared first on Show-Me Institute.

Plainly, it is more than the exercise of peaceful assembly and free speech. The protesters have had almost two months to express their complaints about corporate greed, income inequalities, and the whole notion that life isn’t nearly as fair as it ought to be. What more can they possibly say that they haven’t already said (however obtusely) a hundred times?

In the root sense of the word, to ‘occupy’ a place is to seize it from someone else. In just that sense, the Soviet Union ‘occupied’ Poland in September of 1939.

In the public theater going on in our cities today, the occupiers lay claim to the ground that they occupy — chanting “Whose Streets? Our Streets” and refusing to leave, regardless of city ordinances forbidding the pitching of tents in public places and regardless of the entreaties of elected officials asking them to leave.

According to their argument, the occupiers have reclaimed public space for the “99%” — meaning everyone outside the tiny group of people (the richest “1 percent”) who supposedly control almost all wealth and power. Of course, it is preposterous for the protesters to claim that they speak for 99% of the country — or, indeed, for anyone other than themselves.

Nevertheless, in cities across the country, mayors and other public officials have gone along with this fiction and bent over backwards in trying to accommodate the occupiers.

That was the case in my home city of Saint Louis, where 60 or so protesters were camped at Kiener Plaza, two blocks away from the city’s baseball stadium. At first, Saint Louis Mayor Francis Slay, a Democrat, went out of his way to welcome the “Occupy residents,” as he called them. He offered the occupiers a free permit to gather at the plaza and openly expressed his willingness to overlook the violation of various city ordinances.

Said the mayor in a blog post on Nov. 4:

During the weeks it has been camped here, Occupy St. Louis has had the opportunity to make its points heard during some very high profile events, including a presidential visit (on Oct. 5) and the World Series.

I emphatically disagree with those who say that allowing the encampment to remain during those events showed St. Louis in a bad light . . . Moving the Occupy residents simply to deny them a chance to tell their story to a large audience would have been wrong-headed and wrong-hearted.

But with the Christmas season drawing near (a big event at Kiener Plaza), the mayor wearied of the street theater. He announced that he would put an end to the occupation — promising only to give the group 24 hours’ notice before police would be called. In response, the Occupy St. Louis group accused the mayor of bending to the will of corporate leaders — the dreaded 1 percent. At a meeting with the mayor’s staff, occupiers expressed their outrage by showing up with money taped to their mouths.

The drama ended in the early morning hours of Nov. 12. That is when Saint Louis police arrested 27 remaining protesters and cleared the plaza of tents and signage.

If any moral may be drawn from the “big-hearted” mayor’s falling out with those he so recently lauded as having “important things to say about the direction of the country,” it is this: You can please professional agitators and self-proclaimed victims some of the time, but you will never be able to please them all of the time.

In truth, the protesters in Saint Louis and other cities have no claim to special treatment in the use of parks and other public places — apart from their willingness to flout the law.

The violation of city ordinances may sound like no big thing — against the immensity of the First Amendment guarantees of free assembly and free speech.

But no one ever denied free speech to the protesters. It is they who put the liberty of others in jeopardy. City ordinances that prohibit the pitching of tents in public places ensure that no one group can seize these places and deny or inhibit others in the use and enjoyment of the same space.

In other places around the country, city officials should follow the Saint Louis mayor’s example: They should strike the tents and stop coddling the occupiers.

Andrew Wilson is a resident fellow and senior writer at the Show-Me Institute, which promotes market solutions for Missouri Public Policy.

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I have been reading quite a bit about the protests going on in New York City, in the rest of the country (my cousin participated in Occupy Omaha, he’s the one in the suit near the center) and even around the world. The protests and the protesters are not totally united in their goals or their beliefs, but there are certain common threads that bind the movement and represent a shared objective. One of the most common complaints you’ll hear is anything along the lines of “get Wall Street out of Washington.” This is an expression of the idea that business and government should not have such cozy relationships. The word for this concept in popular usage is “corporatism,” and although the protesters may not realize that a free-market think tank represents an ally in their fight, we have published countless studies and commentaries asserting that government should not be in the business of picking winners and losers in the marketplace.

We oppose tax credits such as the Aerotropolis subsidy package, film tax credits, and other publicly-funded business incentives. Indeed, so strong is our stance against corporate welfare that it’s one of our six main policy areas.

The Occupy protests and the people calling themselves the 99% are fired up and out on the streets for a reason. H.L. Mencken said “Every decent man is ashamed of the government he lives under,” but when left and right are aligned in opposition to pervasive policy that hurts all but a very few well-connected people, and when thousands take to the streets to voice their disillusion, there’s a glimmer of hope for real change to the status quo.

The post We’re Not All That Different appeared first on Show-Me Institute.

Rainford asserts, in contradiction to the “China Hub” proposal’s own experts, that the “Big Idea” (as he calls it) is designed to “sustain 20 to 30 international cargo flights per week.” Thanks to a Sunshine law public records request of email records related to the China Hub, we know that the current $60 million tax credit proposal would require quote “volcanic demand” to reach just the 20-flight level. It’s more likely, documents reveal, that the credits would attract half that number. It is not clear whether Rainford was aware of this March reassessment.

Rainford says that the credits will result in “thousands of new jobs.” He does not justify his claim on any grounds whatsoever. Are these jobs saved and created? And what of the jobs at the warehouses already vacant in Saint Louis, encompassing 18 million square feet of unsubsidized real estate?

Rainford evokes imagined ownership of the Lambert–St. Louis International Airport by “a Wall Street hedge fund, Carl Icahn or the Chinese” as stark warnings against proposed privatization plans. Setting aside for the moment the stunning slam that Rainford levels at the very Chinese trading partners he wants to do business with, the idea that the airport under public management has been a success over the last few decades is a stunning delusion. Lambert’s flights have been reduced to a fraction from their highs only 20 years ago. In the private sector, that would spur a change in management. In the world of government bureaucrats, it apparently means throwing good money after bad, leaving the historic fundamentals unchanged.

Moreover, Rainford tells us that the bill’s supporters “are not gambling” by pushing the Aerotropolis legislation in its current form. He’s right. Gambling suggests that Missouri’s taxpayers might win by fronting the money for this exclusive group of developers. They won’t. The present bill — 85 percent of which is geared toward building unneeded warehouses, not even subsidizing flights, and 100 percent of which is funded by taxpayers — raises a couple of obvious but apparently overlooked questions. If this proposal is so dynamic and rich with potential profits, why haven’t private developers been pushing such a lucrative deal on their own? And why then are tax credits needed at all?

We certainly understand the desire to jump start the Saint Louis and Missouri economies, but we believe that public officials have taken off on a “flight of fancy” when it comes to the Aerotropolis bill.

The post It’s Still a Flight of Fancy appeared first on Show-Me Institute.

During the question and answer session afterward, a questioner who identified herself as a longtime teacher took issue with the merit pay suggestion. She argued that teachers do their jobs because they love their work and are passionate about it, and are not motivated by “greed” like people on Wall Street. There is some truth to this. Certainly, no one goes into teaching expecting to become fabulously wealthy. Still, I was reminded of what my cooperating teacher used to say when I was going through student teaching: “I’m doing it for the money … if they stopped paying me, I’d stop showing up.” Unless someone is independently wealthy, the money matters, and if school districts could pay more to the best teachers, they would likely attract and retain more highly skilled individuals to the profession.

In Superfreakonomics, Steven Levitt and Stephen Dubner argued that one of the major factors for America’s falling educational achievement over the last half century is the movement of educated women into fields outside of teaching, such as law and medicine. That is not a reason to lament women entering the wider workforce, but if there were more upward mobility possible in teaching, far more qualified people — both men and women — would have opted for teaching. Teaching can be an inherently satisfying profession, but it would be foolish to pin the hopes of our educational system on pure altruism.

The post We’re Only in It for the Money appeared first on Show-Me Institute.

Hilton asks, “Greedy Or A Coincidence?”

I respond “hypocritical,” largely for the following two reasons:

(1) Moore is doing exactly what he is condemning in his film: accepting taxpayer money.

In the film, he assails Wall Street executives for their greed and for accepting bailout cash, but apparently he is not opposed to accepting tax credits himself. From a Fox News article on the subject:

Any amount of taxpayer subsidy is a potential black eye for Moore, who argued emphatically in “Capitalism: A Love Story” that Wall Street banks and other big companies didn’t deserve the bailout money they received from the federal government as the economy was tanking.

(2) Moore was vehemently opposed to film production incentives such as tax credits before he was a recipient.

At a conference in July 2008, Moore said what I’ve been saying all along on this blog:

“These are large multinational corporations — Viacom, GE, Rupert Murdoch — that own these studios,” said Moore at the Traverse City event. “Why do they need our money, from Michigan, from our taxpayers, when we’re already broke here? I mean, they play one state against another, and so they get all this free cash when they’re making billions already in profits. What’s the thinking behind that?”

The post The Tragic Ironies of Capitalism: A Love Story appeared first on Show-Me Institute.

Yesterday, I intended to link to this excellent Post-Dispatch piece about recent controversy over Poole, written by David Nicklaus — but I just didn’t have the time to say anything substantive about it. The article is still worth highlighting, though, because it makes a few points that deserve ongoing public attention:

When people start calling Bill Poole names, you know things are getting rough in the financial markets sandbox.

The amiable, bearded president of the Federal Reserve Bank of St. Louis makes an unlikely villain, but he’s become a regular whipping boy for market commentator James Cramer, and now Sen. Kent Conrad is calling for Poole to resign.

His sin? All Poole has done is to advocate the same careful, data-driven approach to monetary policy that has served the nation well in recent years.

Being cautious with Federal Reserve policy is no small thing. Any good student of 20th century economics knows that Fed policy was one of the largest factors (among many others) contributing to 1929’s Wall Street crash and the onset of the Great Depression. Any number of books on the subject reveal variants of this extreme example of cause and effect — the important thing is, the people running the Federal Reserve today understand the damage that irresponsible Fed policy can bring. Ben Bernanke, current Fed chairman, outlined the role of the Federal Reserve in spurring the Great Depression in a 2004 speech:

The market crash of October 1929 showed, if anyone doubted it, that a concerted effort by the Fed can bring down stock prices. But the cost of this “victory” was very high. According to Friedman and Schwartz, the Fed’s tight-money policies led to the onset of a recession in August 1929, according to the official dating by the National Bureau of Economic Research. The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October. In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it. Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930.

Bernanke acknowledged the Fed’s role in causing the Great Depression even more explicitly in an earlier speech from 2002:

The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman’s words, a “stable monetary background”–for example as reflected in low and stable inflation.

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

Current Fed leaders tend to credit economist Milton Friedman as the intellectual source for much of today’s practical monetary policy. As Bernanke said in yet another speech:

In preparing this talk, I encountered the following problem. Friedman’s monetary framework has been so influential that, in its broad outlines at least, it has nearly become identical with modern monetary theory and practice. I am reminded of the student first exposed to Shakespeare who complained to the professor: “I don’t see what’s so great about him. He was hardly original at all. All he did was string together a bunch of well-known quotations.” The same issue arises when one assesses Friedman’s contributions. His thinking has so permeated modern macroeconomics that the worst pitfall in reading him today is to fail to appreciate the originality and even revolutionary character of his ideas, in relation to the dominant views at the time that he formulated them.

And Bill Poole, of the St. Louid Fed, gave the keynote speech at a July 31 event honoring Milton Friedman’s legacy, co-sponsored by the Show-Me Institute:

Although Milton did not prevail in his quest to have the Fed maintain a constant money-growth rate, he did prevail in his insistence that policy be apolitical and rely to the maximum possible extent on market judgments. He lost a battle but truly did win the war.

It’s remarkable the extent to which Friedman’s views have influenced today’s Federal Reserve, but Friedman himself was so acutely aware of the potential danger Fed policy can cause that he’s on record as wanting to abolish the Federal Reserve altogether:

[… T]hough I want to know what my ideal is, I think I also have to be willing to discuss changes that are less than ideal so long as they point me in that direction. So while I’d like to abolish the Fed, I’ve written many pages on how the Fed, if it does exist, should be run.

Bill Poole and other Federal Reserve leaders deserve tremendous credit for standing up to demagogues who call for intervention by central banks in every momentary fiscal crisis. As David Nicklaus said in his Post-Dispatch column:

Someone needs to remind Conrad what the Fed’s real job is. As the nation’s central bank, it’s supposed to keep inflation under control while creating a climate that allows for steady employment growth. It’s not, or at least it shouldn’t be, in the business of propping up stock prices or bailing out hedge funds that invested in subprime mortgages.

[…] Poole’s point was that the Fed shouldn’t act rashly just to placate Wall Street, and it was a point that needed to be made.

This is exactly right. Bailing out market players who face the prospect of financial loss only reinforces the poor decisions that led to economic crisis in the first place. The Fed is there to help stabilize the economy as a whole, not smooth out bumpy rides for particular investors.

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