Benefits of China Hub Focused on Saint Louis; All Missouri Taxpayers Forced to Pick Up $480 Million Tab
Tax credit programs like the proposed China hub are a form of wealth redistribution: Only the favored few benefit, and everybody else bears the cost. Because the China hub project will be located in Saint Louis, Saint Louis residents will receive more of the benefits of the policy than Missourians that live elsewhere. Even though the majority of Missourians (64.8 percent) do not live in the Saint Louis region, they will still have to shoulder the costs of this program through their tax monies. It’s yet another example of concentrated benefits and diffused costs — an important concept that lawmakers too often overlook.
Consider that, according to the 2010 U.S. Census, 3,879,695 Missourians currently live outside of Saint Louis. Consider further that, as my colleague Audrey Spalding recently calculated, the proposal would cost at least $80 for each person living in Missouri. This means that Missourians living outside of Saint Louis will be forced to spend $310.4 million on the project. In other words, this policy would remove $310.4 million from the economy in the rest of the state, and funnel it into Saint Louis.
The editorial board at the St. Louis Business Journal certainly seems to get it:
That this is essentially a St. Louis-only measure is an insult to the rest of the state, making us look like the greedy urban jerks the outstate legislators love to hate. Not to mention our colleagues in Kansas City.
Speaking of our friends in Kansas City, they in particular will see more costs than benefits. Kansas City residents will collectively pay $36.8 million for this policy. However, they are unlikely to receive direct benefits from the policy because they live 235 miles away from Lambert Airport. Is sending $36.8 million to Saint Louis the best use for their money? Could it perhaps be better spent on projects in Kansas City (e.g., education, transportation), or returned to Kansas City residents to spend, save, and invest in the private sector?
Supporters of large publicly funded projects tend to argue that they generate lots of economic activity that resonate across the economy. These, however, are mere conjectures; I am aware of no study that proves it. On the contrary, the evidence suggests that few, if any, spillovers or multipliers arise from targeted tax credit programs. I will elaborate on this point in a future post. (Stay tuned to the blog!)
The money that is spent in this program could otherwise benefit Missourians through a tax reduction or another form of state spending. If the China hub project doesn’t happen, taxpayers will be able to keep a greater percentage of their earnings, which they can then spend on additional goods and services. Much of this economic activity (e.g., hotel stays, restaurant meals) would be generated by individuals in the private sector. However, if the government takes half a billion dollars out of the economy, Missourians won’t be able to spend and invest it themselves, and this economic activity will be lost.
How China Hub Costs Are Diffused, by Region
| Region | 2010 Population | Percent of MO Total | Share of Est. Total Cost |
| Total Missouri | 5,988,927 | 100% | $479,114,160 |
| Saint Louis MSA* (Missouri Side) | 2,109,232 | 35% | $168,738,560 |
| Total Missouri, Less Saint Louis MSA* | 3,879,695 | 65% | $310,375,600 |
| Kansas City, Mo. | 459,787 | 8% | $36,782,960 |
* Metropolitan Statistical Area, defined by U.S. Census
The St. Louis region is Missouri’s economic engine. 45% of the state budget comes from money made in St. Louis. Outstate Missourians are net beneficiaries. They receive more in state funding than they pay in taxes. Courtesy of the St. Louis taxpayers.
Further: if you use MSA numbers for St. Louis, shouldn’t you have used the Kansas City MSA numbers as well? Now you’re comparing apples with oranges.
Comment by Frank DeGraaf — April 12, 2011 @ 4:42 p.m.
Did you read the St. Louis Business Journal on Friday? The editorial board wrote (emphasis mine):
Additionally, by no means am I comparing apples with oranges. Any way you slice it, I’m still looking at 2010 population data.
By using the population for Kansas City, MO instead of the Kansas City MSA, I am being generous. If I were to multiply the population of the Kansas City MSA by $80, then the figure would be much larger than $36.8 million. Perhaps I will use that figure next time to demonstrate the diffused costs of the program.
Comment by Christine Harbin — April 12, 2011 @ 5:01 p.m.
I propose a compromise. We’ll give rural Missouri control of a reasonable allowance for maintaining roads and potable water. In exchange, St. Louis and KC get control of their police forces back from the state.
Comment by Eubulides — April 12, 2011 @ 5:35 p.m.
Christina, thank you for your reply. Allow me to ask you a few more questions.
You quoted the St. Louis Business Journal:
“Yes, we understand, St. Louis is the economic engine for Missouri, but even an engine needs fuel.”
A one-liner. Please explain what this means.
You wrote:
“Perhaps I will use that figure next time to demonstrate the diffused costs of the program.”
Please do so. Demonstrate the diffused cost of the program. Feel free to use the Kansas City MSA figures if that works better.
The facts: Missouri is a welfare state. Of every one dollar Missourians pay in federal taxes they receive about $ 1.30 in funding from the federal government. (A hand-out.) This is on top of the money outstate Missourians receive (more freebies) from the St. Louis area.
Have you ever heard of the saying: “to butcher the golden egg producing chicken”? St. Louis is the money-making machine for Missouri. Be careful what you wish for.
Comment by Frank DeGraaf — April 12, 2011 @ 11:05 p.m.
This article makes absolutely no sense. This is a tax credit program and the state will save exactly $0 if it is not enacted. The statement “if the government takes half a billion dollars out of the economy, Missourians won’t be able to spend and invest it themselves, and this economic activity will be lost” implies somehow money will be taken out of the economy, that will not happen either way. The only way someone can claim a tax credit is by generating new tax revenue. So kill the bill…and then go try to spend the $480 million that was never generated in the first place.
Comment by BRM — April 14, 2011 @ 2:21 p.m.
BRM, I encourage you to read this follow-up entry by Christine Harbin, explaning why your views about the cost of tax credits are mistaken:
http://www.showmedaily.org/2011/04/theres-no-such-thing-as-a-free-3.html
Comment by Eric D. Dixon — April 14, 2011 @ 4:26 p.m.
Thanks Eric, I read it and I am not impressed. You will have a tough time proving that $80 will directly come out of my pocket if they pass this legislation. If it passes, and for arguments sake we say nobody comes and starts a new profitable business and nobody generates new taxable income of which a portion would be credited…nobody, then I am $80 richer? Sounds like the time I told my broker I would give them 7% of the sale of my house if they sold it for me. Thank god they failed…I’m 7% richer! Hopefully this bill fails and nobody brings business here, we’ll all be richer. (now if you can prove this will not incentivize anyone to come here who wouldn’t otherwise…that is a different point altogether.) Of course there are no free lunches…but there is a such thing as an incentive. Heck, DirecTV offers me $50 if I sign up a friend…costs them nothing (your free lunch) if I fail. But I guess that is what they are hoping for so they can keep the $50 to spend on hotel stays and restaurant meals.
Comment by BRM — April 15, 2011 @ 2:27 p.m.
These programs are economic alchemy. If they are so great, we should have lots of them, and to the point where most anybody that is to succeed needs these deals, or the playing field is tilted against them.
STL area gets its “fuel from many sources, not least of which it’s geography: being close to water (for people, animals and crops), and being at the intersection of the largest two rivers on the continent, the trade routes and population and economies of scale that came out of that over time. roads, and airport, lots of telecom infrastructure, business organizations, the fuel of ingenuity from people that are attracted there for all kinds of reason. the China hub and like gov’t-granted supports of favored projects are basically the proponents saying either they are not good enough to do such a thing normally, they might as well ask because gov’t officials might take the bait, or it’s so ingrained in the way business is done that it’s just “normal” these days.
If the project is not profitable without tax help, that says something about its prospects: that its there are not enough potential users that would find it valuable enough to pay users fees (or however they charge for service) to make it profitable. Profits are the market’s signal that something is worthwhile. Rent seeking is a signal that it is might not be otherwise.
Columbia is seeking another public parking garage that everyone knows will not pay for itself, so all downtown meter rates are being increased to subsidize it, for sufficient revenue to justify the garage (and likely satisfy bond holders and future bond purchasers).
Unprofitably is a signal that the community does not find such business projects to sufficiently serve humanity.
Comment by Steve Spellman — May 16, 2011 @ 7:30 p.m.