Category Archives: economy

A t-shirt story

Posted on by
Reply

I have a t-shirt that says “Missouri. It’s not all that bad.”

Some folks laugh at it.  Others just shake their heads.

A new survey indicates why those opposite reactions are both accurate.  A new survey says we’re keeping our money (“because the people know better how to spend their money than government does,” as the legislative cliché goes).  But what’s it costing us?

A personal finance company in Washington, D.C. peppers our mailbox regularly with surveys on local and state issues. One of the most recent looks at where Missourians rank when it comes to return on investment of their tax dollars.

Wallet Hub says Missouri is the sixth-lowest in total taxes per capita (meaning the population 18 and older).

But we don’t rank as highly in some key things the company also measured.

Our economy isn’t bad—19th, rated on the median household income, annual job-growth rate, the share of people living below poverty line, economic mobility, unemployment and underemployment rates.

We’re 25th in education, a measurement of the quality of our public university system. The company ranked 500 of the 951 public and private universities in another survey.  Truman State was the highest ranking public university in Missouri and it ranked 107th among the private and public schools. Missouri University of Science and Technology in Rolla was 140. UMKC was 200th, the University of Missouri (apparently Columbia) was 223.  Schools were measured on Student selectivity, cost and financing, faculty resources, campus safety, campus experience, educational outcomes, and career outcomes.

We were 29th in public schools rankings.  Among categories in that ranking were the number of blue ribbon schools per capita, high school graduation rate among low-income students, projected high school graduation rate increase between 2017-18 and 2031-32 school years, dropout rate, math test scores, reading test scores, median SAT and ACT scores, and pupil-teacher ratios.

Missouri ranked 35th in health, measured in terms of hospital beds per 1,000 people, the quality of public hospitals—using data from the Centers for Medicare and Medicaid Services, average life expectancy at birth, births, infant mortality rate per 1,000 live births, average health insurance premium, and the quality of health care.

The numbers for safety are worse. We’re 42nd in safety. The ranking is based on our per-capita violent crime and property crime rates and vehicle fatalities per 100-million miles traveled.

In infrastructure and pollution quality—only seven states are worse. The poor quality of our roads and bridges is well-known.  But other factors enter in: average commute time, parks and recreation expenditures, highway spending per driver, air pollution, and water quality and the share of the population that receives fluoridated water through public water supplies.

Not sure what we should expect as the sixth lowest in total taxes per capita.  Probably not surprising that we’re only average at best in some categories and among the worst in others.

But everybody has to be someplace.  And Missourians seem to be happy to be in the lower third of state in some important areas.

King Canute, Charles Wilson, and the dangers of rejecting change

Posted on by
Reply

We have a lot of misquotes that we like to quote to prove our points in arguments and discussions.

One arose when Charles E. Wilson was appointed by President Eisenhower as Secretary of Defense. Wilson was the President of General Motors and his position triggered intense questioning during his confirmation hearing.  When he was asked if he could, as Secretary of Defense, make a decision that would be bad for GM, he said he could although he could not think of such a situation happening because “for years I thought what was good for our country was good for General Motors and vice versa.”

Through the years his statement has been turned into the rather arrogant and erroneous quote that “What’s good for General Motors is good for the U.S.” It came to mind recently when GM announced layoffs and plant closures affecting thousands of workers in the United States and Canada.

The President has threatened GM with various penalties if it doesn’t reverse course and keep running factories and keep employing people making vehicles that consumers aren’t buying in enough quantity to justify their continued production.

It’s the equivalent of President Woodrow Wilson in 1915 ordering the thirteen-thousand manufacturers of wagons and buggies and their supporting industries (horseshoes, harnesses, buggy whips) to maintain production while people drove by their factories in Model T’s.

Paul Turner has recalled in his Adaptive Insights Blog that there were 4,600 carriage manufacturers in 1914, the year after Henry Ford fired up his first production line.  About a decade later there were only 150 of those companies and just 88 in 1929.  “Companies that tried to hang on to the past, or simply apply old world skills and technology to the new world simply failed to exist,” he wrote. One company that recognized the future and embraced the idea that it was not in the business of making wagons and buggies, but was in the transportation business was Studebaker. But changing economics, market demands, and public taste eventually drove Studebaker out of business, along with its late partner, Packard.

Think of the badges that have disappeared in recent years—Plymouth, Oldsmobile, Saturn, Mercury.  We let them slip away with some minor mourning, not paying as much attention as we might have to what their disappearance meant.  But now Ford has announced it’s getting out of the passenger car business because of changing public demand. And General Motors has ignited public awareness dramatically with its announcement that the products it makes, while good products, are not what the public wants in enough numbers to justify continued production and before GM becomes another Studebaker-Packard, it has to reprogram itself for what tomorrow’s consumer wants.  And tomorrow’s consumer appears to be leaning more toward being a rider than a driver and increasingly turning attention to electricity rather than gasoline.

We have lived through numerous non-weather climate changes and that is happening with the auto industry—worldwide—might just be the most eye-catching example.  The sprouting of big windmills and wind farms is an unmistakable indication that the way we get our energy in ten years will be much different from the way we get it today.  A former Sierra Club CEO, Carl Pope is quoted by Theenergymix.com saying “Real markets are poised to savagely strand assets, upset expectations, overturn long-established livelihoods, and leave a trail of wreckage behind them.”

Some will see the words “Sierra Club” and immediately dismiss Pope’s observations as drivel. But remember how quickly the wagon makers and their extensive support industries that employed thousands of people disappeared.  Pope wrote in 2015, just three years ago of, “fossil fuels, with coal companies declaring bankruptcy at the rate of one per month, stock exchanges delisting their stocks, and oil and gas beginning to lose market value.”

Woodrow Wilson probably could have gotten a lot of votes in some places if he promised to revitalize the horse-drawn wagon industry. But by then, Lydston Hornsted had driven his 200 hp Benz faster than 124 mph, pretty well proving one horsepower was not the future of transportation.

Change is not coming in transportation and energy alone, it is here and it is gaining momentum.

Paul Turner set forth three lessons from the transition to the car:

  1. “Only those who embrace creative destruction will make the shift…The carriage makers that didn’t invest in retooling their production failed. Most were too busy protecting their existing, dying, revenue streams. The same holds true today….”
  2. “The transition is much faster than anyone expects.” He cites the death of the wagon industry 1914-1929 and remarks, “That’s akin to a staple of the year 2000 sliding into the dust today—or perhaps today’s cars essentially being replaced by self-driving cars by the mid-2020’s. The pace of change can be disconcerting. Those that have spent their entire careers in a single industry invariably underestimate the breadth, depth, and speed of change. The speed of disruption and the unwillingness to put aside antiquated technology is a potent combination capable of bringing organizations to their knees much faster than thought possible. Innovators like Google with a self-driving vehicle, and Tesla Motors with an electric vehicle designed from the ground up understand this, while the old automakers do not.”
  3. “New innovators emerge out of nowhere, faster than the old world leaders expect.” Forty-six hundred carriage makers were in business in 1914. A dozen years later there were 3.7-million cars and trucks on the roads, some of them driving past a lot of shuttered carriage factories.

He concludes, “Holding on to the past is more risky than embracing the future.”

The Twelfth Century English Historian Henry of Huntingdon told of King Canute setting his throne by the seashore and commanding the tide to stop before it wet his chair and his robes.  Moments later the wet king rose and turned to his followers and told them, “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.”

The tide is here and it is going to keep coming and General Motors is the latest “king” to realize sitting still is to become submerged by the future.  There is pain in change but history tells us that ignoring change or ordering us to ignore that change is asking for a mouth of salt water at best, drowning at worst.

“Two roads diverged—”

Posted on by
Reply

“In a yellow wood,” wrote Robert Frost

“And sorry I could not travel both and be one traveler, long I stood and looked down one as far as I could to where it bent in the undergrowth.”

Two years ago, Missourians elected a charismatic young man who promised to make his state office something special, something different, something clean.

Two years ago, Missourians elected another charismatic young man who promised to make his state office something special, something different, something clean.

One of those young men took a road that has led him downhill into the darkness of the undergrowth, out of sight, and probably away from his dream of much bigger things—although there have been reports of some sounds coming out of that darkness that he’d like to come back for another trip.

The second young man last Tuesday took a road that is leading him up, to a sunny future, and perhaps an opportunity to reach the destination the first man thought he was going toward.

Poetry can take some interesting political turns.

—

Two roads.  One paved, one gravel.  One that would have been important to maintaining and bringing jobs.  One that is paved now but facing reduction to gravel in the future. Missourians have chosen the gravel road into uncertainty’s undergrowth with their rejection of the latest gas tax increase.  Our state legislators and other state leaders who have made economic development a constant theme of their work have failed to convince voters that a tax increase would result in the good roads necessary to encourage economic growth.

They have sewn the wind by preaching the evils of taxes and the blessings of tax cuts and tax breaks, particularly for businesses that presumably will create more jobs.  But industry wants good roads to ship in manufacturing materials and equipment and good roads to ship products out.

“The people know better how to spend their money than government does,” we have heard them say repeatedly.  Again, the people have decided to keep their money and spend it for things better than building roads and bridges and interchanges to companies that might have provided jobs to those same people and their relatives and friends.

The people have decided they want a higher minimum wage, meaning many of those who might benefit from better roads and the better jobs they could help create will have more money for themselves.

Two roads.  Two men.  Two political philosophies.  But we travel with them and we are the ones who often decide which road they, and we, take—a road rising to the future or a gravel road descending into the dark undergrowth.

“And that has made all the difference.”

—or will, perhaps.

Political fashion statement

Posted on by
Reply

Overalls.

There was a time in our younger years when it was easy to identify the farmer boys at school.  They were the ones wearing the bib overalls.  The rest of us wore Levis or Lee Riders or just denim jeans from Monkey Ward or Sears. The rich kids wore slacks, eventually the kind with buckles in the back.

For a while not long ago, bib overalls became fashionable, especially for girls.  They came in bright colors—which made them fashionable.  Some even had short legs. Can’t recall any of the green or pink overalls with the “Big Smith” label.  Big Smiths had loops to hold hammers and were built for working comfort not for style.  And, like all REAL bib overalls, they were blue.

Almost a hundred years ago, however, overalls were political statements.  There were overalls clubs formed.  The craze started in the southern and southwestern states.  In April, 1920, W. H. Pahlen, an automobile accessory salesman walked into the St. Louis City Hall and announced he was a representative of the American Overall Club.

Pahlen met with F. W. Kuehl, the head of the Municipal Employees Union, and got permission to circulate lists for city employees to sign up as club members. Workers in Kuehl’s office, the Water Rates Office, quickly signed up, promising to wear overalls “whenever possible” until the prices of clothing had been lowered to a fair level.

That’s what the movement was all about.  Clothing costs had taken off (to coin a phrase) in the post-war years and a lot of folks thought the situation was out of hand.

Mayor Henry Kiel refused to pledge to wear overalls but he didn’t object to employees showing up at city hall in denim.  “I have lots of old clothes at home which I can wear in the time to come if I find the prices of new clothing too high…I have no objection to overalls; in fact, I have worn them myself long enough and I might wear them again but I have no interest in the overall club.”

City Sewer Commissioner William Clancy said his workers already had organized an overall club.  In fact, his statement sounded like a mandate. “Until the cost of men’s clothing is reduced to a price commensurate with the ability of the employees of the sewer division to pay for same, all employees in the future will wear overalls.”

Real estate salesmen peddling lots in a new subdivision pledged to greet possible purchasers while wearing overalls until clothing prices came down.  Other real estate salesmen were considered likely to follow suit (to coin another phrase appropriate to the discussion).

Ninety men at the Wagner Electric Company had formed a club, pledging to wear a standard khaki uniform each work day.

The members of the Central YMCA announced they planned to attend church services that day dressed in blue denim.

The Financial Corporation and Development Company chartered, under the common law, an Overall Club to solicit membership from “white-collared” citizens.  Company Secretary E. Kreyling told a reporter, “Lawyers, office men, business men, are all getting in line with the army of blue denim-clad fighters against the profiteers. The association will equip its members with the uniform of the overall brigade and muster them in as high privates in the antiprofiteering army.  There are no generals or colonels or other officers; all are privates.

Three-hundred students and three professors at Washington University signed the agreement to organize the Overall and Old Clothes Club at the school, promising to wear overalls or old military uniforms “or any other cast-off apparel” until “the objective of the national overall movement is attained.”  A dance was scheduled at the school gymnasium with entrance restricted to those wearing old clothes.

About forty Wash-U coeds pledged to refuse to speak to any “gentleman friend” and refusing to be escorted to any event by any guy not dressed in overalls, old military uniforms, or old clothes.

In Washington, D. C., Congressman William D. Upshaw of Georgia caused something of a sensation when he showed up in the House of Representatives wearing overalls.  Nothing unusual about it, he claimed.  It was just a move “to strike at the high cost of clothing.”

But the movement had detractors.  President Robert K. Rambo of the Southern Wholesale Dry Goods Association, not surprisingly, thought the whole thing was foolish because, “It will run the price of overalls up to a figure that cannot be paid by those who of necessity must wear them.”  He thought it made as much sense for overall club members to refuse to buy cars until prices dropped 25 percent. “So long as people are willing to pay any price for the things they want and are not willing to practice self-denial, all talk about cutting down the high cost of living is gabble,” he said.

Owners of cotton mills in New England charged southern cotton-growers had started the whole thing in an effort to drive up the prices of cotton.

Our governor, Frederick Gardner, refused to join the overall club when it was formed in Jefferson City.  He preferred to be a member of the W. Y. O. C., the “Wear Your Old Clothes” Club.  One newspaper observed that it was hard to believe the governor’s claim that his newest suit had been made in 1914, six years earlier.

The Jefferson City Democrat-Tribune was an even harsher critic. It noted a week after the formation of the city’s club that it had not seen any of the signers of the pledge going around “in their best blue denim bib and tucker.”  Instead of driving up the price of denim clothes, said an editorial, “Wear out you old clothes.  Send them to the cleaner. Let’s wear patched clothes as we did in our youth, and we will do more to reduce the price of clothes than all the overall clubs in the world. Cut out useless spending and extravagance and the price of living in every community will be reduced.”

And a few days later, it called the overall movement the latest example of American “pinheadedness” and observing, “Why any sane-headed citizen, whose occupation does not require the wearing of apparel of this kind, should wear overalls to bring down the high cost of living is about as clear as a mud puddle.”

The movement played out in a few months—midsummer, probably.  Its legacy might have been expressed by American Medicine magazine in April, as the movement was gaining momentum. “It is the first indication of protest to come from a class which has been a silent and patient sufferer during all the clashes that have taken place between capital and labor in recent years,” said an op-ed article.

Capital and labor remain part of our national dialogue today. We wonder what new clothing statement will emerge.

Let’s just end it

Posted on by
Reply

Bought something on the internet the other day.  Clicked on an icon that said, “calculate sales tax.”   It was optional, but I clicked on it and was told my purchase would entail $1.79 in sales tax.

Did I regret clicking on that icon?   Not at all.  Just a half-hour earlier I had shopped for a similar item at a brick-and-mortar store and hadn’t seen anything I liked.  If I had bought that item at that store, I would have paid about that much in sales tax anyway.  So by clicking on the internet icon, I—to use a cliché—levelled the playing field.  And I remained a law-abiding citizen.

Please don’t congratulate me for my fairness.  I’m sure I could have found something better to do with that $1.79 than give it to the government which—to use another cliché recently spoken—doesn’t know how to spend my money as well as I do.  I just felt that since the U. S. Supreme Court has said states can collect sales taxes from out-of-state internet vendors I should respect the majority opinion of our highest court.

It has not been a surprise that a member of the legislature quickly has come to my rescue. And his reasoning is no surprise, either.  This legislator considers imposition of the Missouri sales tax on internet purchases made by Missourians to be a sales tax increase and thinks the state needs to provide some relief for such an onerous imposition.

Pardon us, however, if we have trouble understanding how the state collection of sales taxes on internet purchases is a tax increase. But if we accept that line of thinking, why accept the  convoluted solution that goes with it?   We have a far better one and one that without doubt would be much more politically popular.

The idea put forth in the proposed legislation is to cut individual income tax rates even more to offset the internet sales taxes that income taxpayers might soon have to start paying. The idea seems premature because it’s going to take some time to make it legally and mechanically possible to collect those sales taxes. Then it will take some time to get a consistent measurement of how much those collections will be and how Hancock limits affect them.  A little less enthusiasm for immediate remedies to the “problem” of collecting internet sales tax might be advisable because there are other issues to be considered.

Think of all of the Missourians who shop locally and pay the state sales tax.  They are good citizens. They follow the law.  The law says those Missourians will pay sales taxes.  They obey the law.

Where is their outrage or political outrage on their behalf—the good citizens—when other citizens avoid following the law by using the internet to avoid paying the sales tax on the things they buy?   Tax avoidance often lands some people in the pokey—unless its sales tax avoidance by using the internet.  It seems this early legislative proposal legitimizes their tax avoidance.

I’d be willing to bet that many Missourians intentionally avoid paying state sales taxes at felony levels each year.  They keep their $1.79 and are never prosecuted for avoiding the sales tax law.

Let it be clearly stated:  Requiring citizens to pay a tax they have avoided paying is NOT a tax increase.  It is a matter of fairness.  It is requiring the sales tax scofflaws to live by the same standards with which their shop-local fellow citizens live.

Here is an idea that is eminently fairer:  Eliminate the sales tax for everybody.

Clearly, there is within the philosophy that the state should not recognize additional funds by collecting taxes from people who should have been paying them anyway, an implied acknowledgement that adequate funding for state programs and services and bureaucrat salaries is not a matter of concern.

So let’s just level the playing field by eliminating the sales tax on everything.  That puts our local businesses on an equal footing with internet sellers—in fact, it might give them an advantage because they don’t charge shipping fees for local purchasers.

To carry out contemporary political thinking: Eliminating the sales tax will trigger a boom in local retail sales, thus providing more jobs that generate more income taxes that will offset the loss of sales tax revenue.

Let’s not make this thing more complicated than it is.  There’s no reason to start calculating income tax cuts.  Just get rid of all sales taxes, period.   That makes everybody equal.

After all, I could have done a lot of good things with that $1.79 if I hadn’t been honest enough to pay a sales tax.

A tax gift, if we want it

Posted on by
Reply

The U. S. Supreme Court has shown it can change its mind and a new ruling that lets states collect sales taxes from out-of-state internet retailers gives Missouri government a new opportunity as well as some new issues to confront.

All reasons for NOT collecting taxes on out-of-state internet sales seem to have been eliminated by the court’s narrow decision to throw out a 1992 ruling saying out-of-state internet merchants would not have to collect state sales taxes and pay them to the purchaser’s state unless the company had a substantial presence in a state.

That ruling in the early days of internet commerce put brick and mortar businesses in Missouri and other states at a disadvantage and they’ve been aggravated for years that the legislature hasn’t corrected the problem.  The legislature has said its hands have been tied by the 1992 ruling.

The ropes are off now.  We’ll be interested to see if state leaders next year call for passage of a law requiring collection of that sales tax.  There is no doubt the state could use the money.

The legislation will not be easy to write although the court ruling does provide some hints about what will work.

It would not be surprising to hear some voices claim—as they have in the past—that imposing sales taxes on internet merchants would be a tax increase on purchasers and therefore not something the state should lay upon the shoulders of taxpayers who have avoided sales taxes on certain purchases up to now.  We’ll have to see if that lame argument still has any legs in a state that continues to rank in various studies in the lower third of all states for overall tax burden.

The court ruling makes it harder to justify saying, “We’re pro business” while maintaining a sales tax policy that puts our home-town merchants at a sales disadvantage to businesses that exist on our computer screens.

And where do we get the idea that the computers on our desks or in our pockets are not some kind of a “physical presence” in our state? Let’s be honest and admit that the internet long ago became more a physical presence in our lives than Wal-Mart. We don’t have to drive across town to buy something on the internet, after all.

Checking out through Paypal is no different from checking out at the local counter.  The buyer doesn’t  physically stick a credit card into a slot at a cash register with Paypal.  But internet merchants do have a cash register right in front of us—the computer that is a very real physical presence. My brick and mortar house becomes an internet merchant’s physical presence in my town and my state every time I check out with Paypal or some similar system.  (Ohio tried to address the issue with a law saying the use of cookies on consumer’s computers by internet retailers constitutes a “presence.” The retailers are fighting the idea in court.)

The danger, as some might see it, to requiring sales taxes to be collected on internet purchases is that state revenue might increase to the point that some lawmakers will decide to once again ease the overall tax burden on Missourians again.

That idea is getting pretty old. And shaky.

Political commentator Josh Barro, a former staffer at the Tax Foundation (considered a conservative think tank) who contributes to Business Insider, observes in a new article that the court decision reminds states of the Constitution’s Commerce Clause that says states cannot unduly burden or discriminate against businesses from other states.

South Dakota, which brought the lawsuit, avoids that pitfall by providing those retailers with computer software that makes it easier for them to pay sales taxes.  It does not require those retailers to deal with the state and every political subdivision within it that charges sales taxes.  The money goes to a central state agency.  Our Department of Revenue, which collects sales taxes collected by our local businesses and then sends proper amounts to local governments, would fill that role with internet sales taxes.

Missouri has not joined the twenty-or-so states that have signed on to the Streamlined Sales and Use Tax Agreement.  Those states have agreed to some common rules dealing with their sales taxes.  This ruling might encourage a new legislature (The 2019 General Assembly will have new leadership and several dozen new members) to take a new look at the SSUTA as it considers what to do to capitalize on the ruling.

One of Barro’s former colleagues at the Tax Foundation, Joe Henchman, says, “If you want to be absolutely sure that your statute is valid under these rules, you should try to emulate South Dakota as much as possible.”  So that’s a starting point.

Barro makes an important observation that some Missouri leaders seem to have been going against for some time: “It is important for a tax system to be adequate—that is, revenues should grow on pace with the economy, so the government can keep pace with the demand for services as the economy grows.”

He notes tax-free purchases from internet retailers distorts the behavior of purchasers by encouraging them to buy online when they otherwise would buy at a local store, thus reducing local tax collections and that means “the government either has to cut back on services or it has to raise taxes on something else.”   The resulting erosion of sales tax income at the state level has put a heavier burden on property taxes and “taxpayers have revolted against increases in this inflexible tax, voting to impose caps that have in some states kept revenue growth well below economic growth.”

Add to that the penchant government has to lower various taxes under the philosophy that lower taxes will mean more jobs that will stimulate the economy and you can get a state that reduces services that industries and employers would like to see before they commit to creating jobs.

So Missouri has an opportunity because of the court ruling.

Justice Anthony Kennedy, writing for the majority in the Supreme Court decision, estimates the ruling could mean eight to thirty-three Billion dollars in annual tax revenues for the states.  The federal Government Accountability Office thinks Missouri’s share would be $180-275-million a year in state and local sales taxes.

Missouri could do a lot with that amount of money at the state and local levels.  Except—

We have the crippling Hancock Amendments.

Those parts of our state constitution put a ceiling on how much new taxes can be collected without a statewide vote.  State Auditor Nicole Galloway, a little more than a year ago, estimated that taxes at the statewide level could not increase by more than $94-million without such a vote. We’re not sure how much of the figure from the GAO would go to the state and how much would go into local government revenue accounts, but Hancock appears to put a cloud over the issue at the state level.

Before the passage of what was called Hancock II, the state had to make refunds to income tax payers if state revenue growth exceeded the original Hancock limits. The state did make those refunds for a couple of years before adopting the first of a series of tax cuts to make sure the state did not to go to the inconvenience of mailing out checks.  The state hasn’t come close to hitting the refund threshold since Hancock II. In fact, Auditor Galloway says Missouri is four BILLION dollars under that limit now.

Will voters support the new authority given Missouri by the U. S. Supreme Court to collect more than $94-million in internet sales taxes?  Will collecting six or seven or eight cents per dollar from an out-of-state internet seller increase state revenue so much that a statewide vote will be required, giving Missourians a chance to reject the proposal?  The GAO and the state auditor have put forth figures indicating that vote might be needed.

We have had about two decades of leadership telling voters their taxes are too high. We’ve seen voters who travel to the polls on increasingly bad roads that go across increasingly crumbling bridges refuse to support gas tax increases to make their journey smoother and safer. And the legislature has taken steps year after year to reduce the state’s financial ability to “keep pace with the demand for services as the economy grows.”

The court has presented Missouri with a gift.  Will Missourians decide to leave it unopened?

(You can read Josh Barro’s article at https://amp.businessinsider.com/supreme-court-wayfair-internet-sales-tax-decision-good-for-consumers-2018-6)

Keeping their own money

Posted on by
Reply

There’s nothing wrong, really, with letting taxpayers keep more of their money.  And there’s something to the idea that letting taxpayers spend more of their own money generates a better economy.

Let’s open a discussion on this topic because, as in much of government, things are seldom as simple as they seem. The question today focuses on WHEN many taxpayers can spend more of their own money to fuel a growing economy and whether some steps seem to run counter to that goal.

There’s an overlooked segment of the economy that seems to this amateur economist  disadvantaged by the way the idea is carried out.  We mention them, not because we particularly disagree that more tax reductions are needed but because some people might become even more disadvantaged when the state lets them keep more of their own money.. We invite your participation in this discussion (there should be a box at the bottom of this entry for your comments).

We’ll be mixing some apples, oranges, pears, and peaches in our comparisons but we’ll excuse ourselves to suggest a point.

Here’s one of many places to start the discussion.

Any discussion of the size of government has to involve what government’s role should be.  Our United States Constitution says it is “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,” general wording that leaves plenty of room for definition, discussion, and disagreement—and there HAS been plenty of all of that in the 230 years or so since those words were written.

Let’s narrow our focus to “promote the general welfare.”  Most of us at this meeting probably would agree that one of the major factors in achieving this goal is education.  Thomas Jefferson told Littleton Walter Tazewell in 1805 that “every member of society” should be able “to read, to judge, and to vote understandingly on what is passing.”  From such sentiments by Jefferson and others emerged the concept of an education system open to everybody, financially underwritten by everybody for the common good.

Our Missouri Constitution requires a certain minimum percentage of state tax collections to be set aside for elementary and secondary education.  However, there is no requirement for support of higher education and the state’s commitment to higher-ed has dwindled markedly.

A 2015 report by the State Higher Education Executive Officers Association found that since the 2008 recession, state and local funding per fulltime college student had declined almost 28 percent at a time when enrollment had increased by 20 percent.  Missouri, at that time, was found to be twenty percent below the national average in per-student funding.  State funding for higher education has taken some hits since then as anticipated tax collections have fallen below anticipated levels because of withholdings and vetoes to keep our state budget balanced.

Those actions do not necessarily mean that state government has become anti-higher education. The higher education budget is a huge pot of money and when it is necessary to make significant general funding reductions, those responsible for balancing the budget look at the biggest pots of money to make the biggest impact.  They can’t, for example, cut spending by $200-million by making big cuts in agencies with total budgets of $20-million.

So higher education becomes one of the usual targets.

And that means the institutions have to charge students more for their educations, bringing us to the nub of our observation. The Federal Reserve System says student debt has become the second largest kind of debt in the country.  The Institute for College Access & Success thinks fifty-seven percent of Missouri college graduates in 2016 left school with an average student debt of $27,532.   The same organization said the average debt of new college graduates increased at double the inflation rate between 2004-2014.

We’ve seen figures from the University of Missouri-Columbia saying forty-nine percent of incoming students take out loans averaging $7,059 per student to get through their freshman year.  The figure includes both private and federally-backed loans. And the loan amounts pile up on each other each year until graduation or drop-out.

There are those who wonder if the return on investment makes that student debt worthwhile.  Some of those students just walk away from paying off the debt. Of the 5,465 UMC students who began paying off their college debts after graduating in 2013, 4.2% had defaulted on their loans just three years later.  That’s lower than the national average but not something to be especially proud of.

Since we’re talking about education, we looked at the average salary for Missouri teachers.  Indeed.com put out an updated list on January 3.  The state requires school districts to pay salaries of at least $25,000.  The average elementary teacher salary in this survey was $36,847 which the survey said was twenty percent below the national average.

If the average elementary teacher salary is a little shy of $37,000 (before taxes and retirement withholdings) and the average college student debt is $27,532, it seems pretty clear that the economic impact of these teachers is severely reduced. They cannot fully contribute to the economy because their disposable income is reduced for many years by debt payments.

A Missouri State Teachers Association study for 2015-16 says the state requires districts to pay teachers with a master’s degree and ten years of experience at least $33,0001.  The average maximum salary in this study for a teacher with a master’s plus ten years’ experience was $48, 873.

We think we have the figures straight. Feel free to correct us if we have confused ourselves.  But if we were a teacher with a $27,000 student debt we’d have to seriously consider whether we want to borrow even more money to get an advanced degree that would increase our average salary only $11,000 with ten years experience—-at a time when we also might be starting a family that someday will want to go to college.

Or should we give up on a profession we might love (and you better love, really love, being a teacher to walk into a classroom of twenty children from all economic and social conditions every morning and try to teach them “to read, to judge, and to vote understandingly on what is passing.”) and go sell insurance or real estate or something with much less stress but much better benefits?

We’ve drifted away from our point. But here it is: Teachers—and other college graduates who come into the real world saddled with a lot of college debts—cannot be a significant part of economic growth as long as significant parts of their incomes pay off the debts they incurred because tax reductions have led to less broad public support for “the general welfare” of the state.  “Their own money” cannot be spent in a consumer-driven economy because it is spent to pay for the higher education that is increasingly needed in our changing world but is suffering from declining public financial support caused to a great degree by a desire to let Missourians keep more of their own money.

Irony is an incongruity between what result is expected and what the actual result is. This situation seems to fit that definition.

We’ve seen a news story that some of our lawmakers are studying college affordability.  Their job is not an easy one, especially when it is politically popular to limit resources that might alleviate the problem they want to address.  But it’s good that they are looking into these issues including the degree to which new efforts to let people keep their own money are to a significant degree counterproductive for thousands of others.

We wish them well in their difficult task.

Waiting for the Nobel Prize

Posted on by
Reply

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

Posted on by
Reply

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.