Waiting for the Nobel Prize

Today we want to recognize an important first step in re-shaping economic thinking so significantly that reducing or eliminating the national debt could be done easily, a concept so brilliant that—if appropriately expanded—could merit international recognition.

The tax bill recently approved by the House of Representatives in Washington proposes to tax graduate student tuition waivers.  For those of us who never got far enough in our higher education to be offered those waivers or who came along before they were widespread in higher education, here’s how they work:

A University tells a student pursuing a master’s degree or a doctorate they will not have to pay tuition if they help teach or do research beneficial to the university.  The university pays those students a small stipend for their work so they can eat and pay their rent.

The House bill wants to consider the tuition waiver as income.   And to tax it.

It is a matter of considering money a person never has and does not spend as income and then levying an income tax on those never-had and unspent funds.   Think of the possibilities!

Paying a tax on the raise you did not get could provide millions of deficit-reducing dollars to the federal government.  Paying a tax on a stock dividend that did not materialize would add even more.  Considering the difference between what you wanted on a car trade-in and what the dealer gave you as income and taxing that amount would add to the deficit-reducing federal income.

Here’s one we thought of the other day when we went to Columbia where the gas price that day was nineteen cents less per gallon than the price in Jefferson City.  We used our grocery store gas rewards card to knock another forty cents a gallon off of the fuel we put in our tank.  Think how much the federal government could collect if it considered supermarket gas refunds as part of our personal income.

Soon the pre-holiday price reductions we are seeing in our stores will give way to the post-holiday sales prices.  If Congress were to take the simple step of taxing the hundreds of millions of dollars that are not spent because of those pre-and-post-holiday price reductions, the annual federal deficit could be eliminated and bites could be taken out of the total national debt.

The car companies are offering multi-thousand dollar incentives to clear their lots of 2017 models.  If Congress were to consider those price reductions as income and tax it, another important debt-reduction step could be taken.

Think of how much money is saved every single day by people who shop at the day-old bread counter at the grocery store.  It might seem like pennies for each loaf, but when applied nationally and for an entire year, taxing the savings on all of those loaves of day-old bread will add up to millions of dollars a year in tax collections.

Oh, and here’s a biggie.  An industry that decides to build a factory, a warehouse, or any other facility in a foreign country instead of in the United States because it can save millions of dollars in construction and operation costs:  If those savings were considered corporate income and taxed—even at the proposed lowered corporate tax rate—the economic benefit would be enormous.

And—oh, wait, there’s one more and it’s particularly appropriate at this time of year.  Further, it’s pretty comparable to the tuition waiver.   We are awash in online and catalog offers to provide customers with a benefit if the customer provides something of value to the merchant in return for which the merchant waives a fee or charge.  Give us money, says the merchant, and we will give you a sweater but we will waive the shipping charge.  Since the customer receives the benefit–a sweater—but spends no money to receive it, the shipping charge is thus income and can be taxed as such, just as a graduate student receives a benefit—an education—by providing something of value to the university (teaching or research assistance) but does not pay the equivalent of a “shipping charge” to get it and therefore faces paying income taxes on money never possessed or spent.

Think of the incredible benefits this economic philosophy of turning unspent dollars into taxable income could provide if applied widely, assuming the federal government doesn’t just increase spending to or beyond the amount of additional funds it would collect.  Congress could wipe out the national deficit and it could provide billions of dollars that could trickle down throughout America in programs and services beneficial to the poor, the hungry, the sick.

And to graduate students.

We’ll be watching for next year’s announcement of the Nobel Prize for Economics to see if this great advance is deservedly rewarded.

The gauge

For years and years The Missourinet has gotten a monthly economic report called The Rural Mainstreet Economic Index. The survey contacts dozens of purchasing managers who fit in the middle of the supply and demand cycle and bank CEOs in rural areas who keep an eye on local financial trends. It covers several Midwestern states but it also provides breakouts on a state-by-state basis. The index measures whether the strength of the economies in each state and has been useful in reporting on the strength of Missouri’s economy that cannot be measured only by looking at the monthly employment/unemployment reports from the state.

The index is compiled by Creighton University economist Ernest Goss, who heads the school’s Institute for Economic Inquiry.  He’s also worked with the Congressional Budget Office and NASA—among others.

Ernie Goss’ index is a nonpartisan gauge but it’s only one of the gauges used to measure the economic status of Missouri.

Your friendly observer has seen numerous proposals made, and many passed, that promise big economic improvements and job growth. Some have focused on preventing companies from moving to other states. Some have focused on making Missouri a more welcoming climate for industries IN other states.  Some have aimed at keeping people in certain professions from fleeing to other places where they won’t face big lawsuits. Some are tax incentives. Some of these issues and their accompanying justifications are before the legislature again this year.  Economic development is, after all, a highly competitive business and Missouri needs to be a force on this playing field. People here do have to work and they prefer to work at good jobs.

In all the years of watching these mostly well-intended efforts we have never seen a nonpartisan assessment of the results. Is Missouri an any greater magnet for jobs because of these efforts?  Are the jobs being created actually improving the economy?  Why is this or that working or not working?  Do some efforts need to be repealed because they’re ineffective instead of getting new programs layered on top of them?  Various interest groups have persuaded or tried to persuade the legislature to pass laws that will allow them to flourish—or so they claim.  Have those programs actually allowed them to flourish?  Or have they just protected those groups from competitors? Is passing economic development legislation without taking steps to finance the infrastructure system to support economic development enough?

We need more than Dr. Goss’ surveys to gauge whether all of the things passed have worked or whether familiar ideas are realistic.  We have competing groups offering competing evaluations and assessments. The Missouri Chamber of Commerce and the Missouri Budget Project see economic growth and funding for public programs through distinctly different lenses, for example.

But suppose the heads of the economics departments at our state and private universities formed an informal Council of Missouri Economic Assessors that could regularly release studies indicating how well various initiatives of the state are working. Not a council of advisers.  A council of economic assessors. 

There is no question Missouri must be competitive.  But could we reach a point where the value of new initiatives is less than their costs to public services and programs?  When everybody else is doing the same thing Missouri is doing, are promises of positive results of a new policy hollow?

Economic development initiatives are seldom intended to produce instant results.  We recall that the special incentives offered to Ford to keep its production lines moving at Claycomo did have a pretty immediate impact.  But most of the others envision something long-term.   How long is long enough?

How many times have we heard how many governors say in one way or another what Governor Greitens says in his first state budget message: “Missouri’s budget is suffering from reduced revenue due to poor economic growth.”  How many times have we heard governors say, as Governor Greitens says in his message, that the governor “is committed to making the budget cuts necessary to balance the state’s budget and retain Missouri’s AAA credit rating.”

Underlying all of this are the questions of whether these job-growing efforts are really beneficial to working Missourians, creating employment or opportunities for meaningful employment for those without jobs and whether these steps wind up undermining other capabilities citizens should be getting.

Maybe a Council of Economic Assessors isn’t the unaffiliated body we need to tell us if all of these efforts are paying off and to what degree.  But an educated non-affiliated review of these efforts could be a gauge of where we are, where we might be going if we maintain this course, and whether there are additional facets of the issue that need support, too.

We’re just tired of hearing year after year the repetition of the phrases “job creation,” “withholding,” “triple-A bond rating,” “job-killing tax increases,” “cut,” and “poor economic growth.”  And we’re pretty sure a lot of the people at the capitol on both sides of the aisle are fatigued, too.  Isn’t it time a governor didn’t have to worry about retaining Missouri’s AAA credit rating?

We’ve thrown an idea out there. You might have a better one and we hope you share it.