The Show-Me Institute has officially moved its offices into the city of Saint Louis. Personally speaking, it is nice to be right by my old apartment building: the Jackson Arms. Hopefully, they allow former tenants to use the pool, but I digress. … Our offices are located at 4512 West Pine, in the heart of the majestic Central West End, and our new phone number is (314) 454-0647. Call us if you are ever looking for someone to complain about the earnings-tax.

I’d just like to quickly promote the upcoming forum/debate on the proposed half-cent Metro tax for buses and light rail that will be on the ballot in April. The forum takes place this Monday, March 15, at 11:45 a.m., at the Center of Clayton — just west of downtown Clayton by the high school (on Gay Ave., just south of Maryland). Feel free to bring your lunch; it should last about an hour.

Mayor John Nations of Chesterfield will speak in favor of the tax increase, and John Burns, head of Citizens for Better Transit, will speak in opposition. I think they will both be very good, and it should be a worthwhile debate. The only thing I can personally guarantee is that everything will go according to the time schedule, because yours truly will serve as the timekeeper. The Clayton Chamber of Commerce is sponsoring the event, and everyone is welcome to attend. Please call the chamber at (314) 726-3033 if you have any questions, and to register.

Here are a few of the items that the Show-Me Institute has published about this important issue.

This month, the University of Missouri Food and Agricultural Policy Research Institute released its 2010 US Baseline Briefing Book (PDF). Among other topics, the report explores the effects of eliminating the credits and tariffs currently in place for corn ethanol. The current corn ethanol tax credit has many unintended negative consequences, and the United States would be better off if the program were scrapped entirely.

1. This production incentive encourages overproduction. This is undesireable from an environmental perspective, because it leads to deforestation. It’s also detrimental for the American economy because it results in an inefficient allocation of resources.
2. It increases the cost of fuel for taxpayers. Each gallon of ethanol that is produced costs them $4.18. This is separate from and in addition to the price that they pay at the pump. In a piece on The Huffington Post, Nathanael Greene explains how this happens:
   

   [N]ext year the oil companies will be required to buy 12.6 billion gallons of conventional corn ethanol, but because tax payers are giving them $5.85 billion they’ll consume 1.4 billion more than required. That works out to $4.18 per extra gallon.

3. It drives up the prices for corn, soybeans, and wheat. This is bad for consumers because they have to pay more for food. This is also bad for the environment because it leads to land-use change and further overproduction and deforestation. The FAPRI report quantifies that eliminating the tax credit for corn ethanol would cause the prices of these grains to fall. According to p. 64, if the production incentives were removed, the average corn prices would decrease by approximately $0.15 per bushel during the 2010-2019 period:
   
4. It discourages the development of biofuels that are cleaner and more renewable than corn ethanol. These alternatives are forced to compete at a disadvantage because they do not receive the financial favor that corn ethanol does.

The corn ethanol production incentive program is an application of the broken window fallacy. Politicians in Washington fail to consider the cost to taxpayers, and the aforementioned negative consequences. When taxpayers are forced to spend their money on subsidizing the overproduction of corn ethanol, they cannot spend it on something else, such as infrastructure or education or alternative renewable fuels.

Supporters of the production incentives will argue that discontinuing the program would hurt farmers’ bottom lines. However, government payments constitute a very small amount of their compensation relative to sales, as shown on p. 62 of the report. For this reason, eliminating the production incentives would not actually be detrimental to this group:

This notice may be too late for those of you who read our blog to tune in, but for those of you Columbia readers who encounter this blog entry right after I post it and find yourselves near a radio, be sure to tune in to The Eagle 93.9 FM at 4:33 p.m. to hear research assistant John Payne talk about unemployment and possibly our new study of the relationship between taxes and economic growth.

On Friday’s CBS “Early Show,” I saw a segment about a new government program that offers consumers cash rebates to replace their energy-inefficient appliances with new Energy Star–rated ones — “Cash for Appliances,” if you will. Sound familiar? Just like “Cash for Clunkers,” this program probably won’t increase the volume of sales significantly, but rather just shift the timing of these sales forward.

Some argue that this shift is the type of “stimulus” that the economy needs; after all, the money for this program was allocated from last year’s stimulus package. But will the effect of this program be worth the $300 million in taxpayer money that is being spent to finance it? I know “million” doesn’t sound like a big number anymore, with all of the billions and trillions being thrown around lately, but $300 million is still a lot of money — other people’s money. Using tax dollars to help people buy more energy-efficient machines is likely an inefficient use of funds, because purchases of these machines will become much more common within the next few years anyway, as older machines start to die. The fact that people can save money on energy costs by upgrading their appliances is already a significant incentive.

Each state has its own program, and Missouri has allotted $5.6 million in federal funding. The program will start on April 19 to coincide with the annual Show-Me Green sales tax holiday. If the funding only lasts for one day, which is likely given that Iowa’s $2.7 million ran out by 3 p.m. on the first day, no sales tax revenue would be generated. So, what genuine benefit will this expenditure have for our state? It will not add to the net state wealth, but is instead a mere transfer. Any benefit to appliance retailers will likely be very short-lived, and any arguable benefit to the state economy will be small at best. And, all the while, taxpayers will be able to watch their hard-earned money disappear down the drain into another ill-advised government program.

The Center on Budget and Policy Priorities released a report last week about state budget shortfalls, “Recession Continues to Batter State Budgets; State Responses Could Slow Recovery.” (Link via an article on the Wall Street Journal: Real Time Economics blog).

This made me wonder the the following: Are income taxes correlated with a higher mid-year budget gap as a percent of the FY2010 General Fund Budget? Do states that have no income tax have a lower incidence of mid-year budgetary shortfall?

In an attempt to answer this, I took Table 1 from the CPP report, and added the states that do not have a budget shortfall (Alaska, Delaware, Michigan, North Carolina, Oregon, Texas, and Wisconsin) and those that have a surplus (Montana and North Dakota). I sorted this table by the percentage of budget gap over the 2010 general fund budget. Next, I added the top marginal tax rates for personal and corporate income for each state. The green cells indicate states that assess zero income tax, and the red cells indicate states that have income tax rates of  9.0 percent or greater.

Projected Mid-Year FY2010 Budget Gaps as a Percentage of FY2010 Fiscal Budget by State

(Modified to Include Income Tax Rates and States With Zero Shortfall)

* Washington is reflected low in the list because the amount shown is for the two-year budget, ending in FY2011.

The states that have no income tax are disproportionately aggregated at the top of the list. This graph indicates that states without an income tax may be better at predicting their revenues in the future. I can think of a few reasons why this is, and I invite our blog readers to suggest additional reasons in the comments.

• Sales taxes are a less volatile source of revenue than income taxes.
• Income taxes are closely tied to the job market, and sales taxes are not. When a person loses her job, she then has zero earned income, and therefore generates zero income tax revenue for the state. During this period of unemployment, however, she continues to make purchases and pay sales taxes (either by using personal financial reserves or unemployment compensation).
• Sales taxes are more effective than income taxes in addressing budget shortfalls more immediately, because they are collected at the point of transaction. Income taxes, in contrast, are collected only once per year. States do not have to wait until residents file their income taxes in order to collect revenue.

Notice that Missouri is ranked 37. This means that 36 other states were able to forecast their budgets better than Missouri. Perhaps if Missouri repealed its income tax in favor of a broad-based sales tax, it could predict its revenues better, and it wouldn’t face such a shortfall in the future.

Rent seeking has been a major topic around here recently. I don’t need to provide links — if you’re reading this on the main page of the blog, you can just scroll down a bit for some excellent posts. Now we are going to do a little bit more rent seeking as a nation, by charging international visitors without visas (I guess this means residents of Windsor going to Detroit for a Red Wings game) a new $10 fee that will be used to market the United States internationally. Basically, it will be a national version of what just about every city (including St. Louis and [probably] Kansas City) does with hotel taxes: charge an extra fee and use it to promote the local travel industry. I think we can admit that there are plenty of worse examples of rent seeking than this, but it still entails private enterprise using the government and taxation in order to benefit one sector of the economy at someone else’s expense. (It makes it a lot easier to do this if the expense is borne by someone who does not live here.)

Now, I want to get into their numbers:

The association says the U.S. welcomed 2.4 million fewer overseas visitors last year than in 2000. And that, the group says, has cost it an estimated $509 billion in total spending and $32 billion in direct tax receipts.

We can presume that 2.4 million is for one year, and $509 billion is for 10 years. Taking 2.4 million a year for 10 years, and dividing that into the total spending amount, yields an average amount spent per visitor of just more than $21,000. This article states that the average spending per visitor is $4,500. I don’t think I believe the number put out with the bill signing, but the alternative would be to accuse the PR and lobbying group behind this effort of inflating their numbers. And we all know that would never happen. …

In the beginning of Economics in One Lesson, Henry Hazlitt describes classic rent-seeking behavior:

While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

To see this lesson applied, check out the personal blog of Jason P. Hunt, a film and television producer in Kansas City. He uses it to voice support for H.B. 1587, which would increase the cap of film production tax rebates from $4.5 million to $10 million. Although I’m getting bored of blogging about the production incentives program in Missouri, I want to refute the specific points that Hunt made in his most recent post, “An Open Letter to the Missouri Senate”:

I understand several in the legislative branch would question why we need to increase this cap.

I question this, too, especially since only one single production in Missouri has ever come close to the $4.5 million cap during the last 10 years. (That production was Up in the Air, which was awarded $4.13 million.) The second-highest amount ever awarded was $786,800. The “Show Me: Tax Credits” web tool shows that the average amount awarded is only $369,347.

I suppose Hunt’s implicit argument is that glamorous, large-scale productions won’t be motivated to film in Missouri unless the state coughs up even more cash. If Missouri awards more money to an activity in which it has a comparative disadvantage, it faces an increasing opportunity cost. This is money that the state could otherwise devote to other programs and/or return to the pockets of taxpayers.

Consider that for every dollar allowed as a tax credit under the program, three have to be spent within the state.

From what I understand, an economic multiplier of 3 is unrealistic. In estimating the activity generated from its film incentive program, Louisiana uses a demand earnings multiplier of 0.3982. Here’s a math problem: How much wealth do a $61,000 Range Rover and a $68,000 Mercedes generate in a state? Using Hunt’s logic, they would create $387,000 of economic activity within the state’s borders. I disagree that this is realistic.

That’s found money.

That money comes from other states. If a person is walking to her car in a parking lot and finds $20 lying on the ground, she may consider herself to be $20 richer. However, the person who dropped the $20 on the ground in the first place is $20 poorer. No wealth was generated. When a production company from another state spends $1,000 in Missouri, the money is not created out of thin air; it’s $1,000 that the company would have otherwise spent in a different state.

When states regard each other as antagonistic economies, it is a mutually detrimental situation. Targeted incentive programs result in dead-weight loss and restrict overall growth. In order to increase overall economic growth and prosperity, Missouri should focus on the activities for which it has a comparative advantage, and then trade amicably with the states that have a comparative advantage in producing films.

There’s another reason it’s a bad idea to regard this out-of-state spending as “found money”: Missouri doesn’t get to keep 100 percent of it. States that offer film production incentives get a raw deal, because they are poorer by the amount of money that they allocate in tax credits. For every $1,000 that a film production company spends in Missouri (up to the cap), the state economy only keeps $650. In other words, Missouri government pays the film company $350 for every $1,000 that it spends here. Raising the cap, as Hunt supports, would exacerbate this loss.

Charles Jaco just finished taping an interview with Show-Me Institute research assistant John Payne, about the Metro mass transit system in the St. Louis area. At least some portion of it is slated to appear in tonight’s FOX 2 news broadcast at 10:00. Be sure to tune in. [UPDATE: The video is now online.]

For more information about St. Louis transit, read Payne’s recent op-ed about MetroLink, which also ran on the Riverfront Times blog and in the St. Louis Business Journal. His commentary attracted some attention from a Metro board member, who responded on our blog, followed by a short rejoinder by Payne.

The Show-Me Institute ran a trio of pieces in October 2008 about transit funding in St. Louis, considering the problem from different angles. We’ve also been fortunate enough to publish a few pieces analyzing Kansas City light rail plans, by transit scholar Randal O’Toole and policy analyst David Stokes. Although these latter pieces considered the issue specifically as it relates to the Kansas City area, many of the broad observations about light rail costs and efficiency apply just as well to St. Louis.

I wanted to note that Alderman April Ford-Griffin called me today to discuss the proposed open space map that NorthSide Regeneration Regeneration LLC submitted as part of its plan for a $8.1 billion development of the city of Saint Louis.

I have written about how owner-occupied homes appear to be slated for open space, as are some area businesses.

When I asked Ford-Griffin about the fate of Fehlig Brothers Box & Lumber, a 137-year-old area business that, according to NorthSide’s plans, will become open space, she said that much detail can’t be read into the company’s plans.

“That is a concept,” she said. “That is not a document where you take it and say this is what’s going on this block and this is what’s going on that block,” she said.

You can read the updated report, with Ford-Griffin’s comments, here.

On Feb. 23, I wrote about the proposed “open space” that NorthSide Regeneration LLC, has planned for the company’s $8.1 billion development of the city of Saint Louis. According to NorthSide’s plans and other publicly available documents, at least four owner-occupied homes are slated for open space.

When discussing the possibility of eminent domain, NorthSide representatives, including developer Paul McKee and attorney Paul Puricelli, have stated that eminent domain won’t be used to take owner-occupied residences. The specificity of the qualification “owner-occupied residences” should make anyone looking into the project take pause. After all, there are many types of properties that are important to lives and livelihoods that aren’t owner-occupied residences — for example, businesses. In the latest Show-Me Report, I profile Fehlig Brothers Box & Lumber, a business slated for open space.

First, I’d like to thank Hugh Scott for his response to my op-ed arguing against expansion of the MetroLink system. I doubt we will ever see completely eye to eye on the subject, but an informed dialogue can still be illuminating for everyone involved.

Before I respond directly to any of Scott’s points, let me just clarify something that may have been unclear from the op-ed (a 700-word format does not allow for full explanation of every point): I was not arguing against the proposed half-cent sales tax. My point was that we should not expand the MetroLink system into areas with relatively low population densities because the lines would have low ridership and be even more heavily reliant on tax dollars than current lines.

Scott observes that the flexibility of buses is a disadvantage as well as an advantage, a point well-taken. Light rail is undoubtedly better than buses when it comes to understanding routes. However, the question is whether that disadvantage outweighs the advantages of flexibility and lower costs that buses provide, and my answer is that it depends on population density. The denser an area, the more rail should be preferred to buses, and vice versa.

With regard to the possible lines of MetroLink expansion, Scott is perfectly right that Metro does not plan on expanding the system without federal funds to diffuse the costs of constructing the line(s). However, even if a new line would not cost area taxpayers a cent to build, it could still be a bad deal for them if very few people rode it and they were then on the hook for operating costs. Again, my argument is that the best method of forecasting ridership is through population density. Aside from the north-south corridor, none of the proposed lines come close to matching the densities found along the current lines.

Finally, I agree that MetroLink performs well against the light-rail systems of other cities, but that is a relative metric when the question should be an absolute one: Do the benefits justify the costs? Even existing lines do not meet the profit-loss test used in the private sector, so light-rail systems are not efficient by our most common metric for success. Perhaps we need another absolute standard we could use to determine which light-rail lines are successes and which are failures, but for now the best that can be said is that it is unclear whether the benefits of MetroLink expansion would outweigh the costs.

The Show-Me Institute recently released an op-ed by research assistant John Payne titled, “Adding New MetroLink Lines Too Costly, Inefficient.” The piece appeared on the Riverfront Times blog on Feb. 15, along with comment from the paper, and ran in the St. Louis Business Journal on Feb. 19.

We recently received a thoughtful response from Hugh Scott, III, who has been a member of Metro’s Board of Commissioners for nearly five years, commenting on Payne’s op-ed. In the interest of furthering dialogue about important issues like public transit funding, his entire letter appears unedited below:

As even noted anti-tax advocate Glenn Beck acknowledged on his show yesterday, (2/22/10) some taxes are necessary. In the case of public transit, I would maintain that taxes supporting these systems inure to the economic benefit of metropolitan areas. Public transit enables people to commute to jobs and transit centers provide a critical mass of customers for businesses located near them. Not only does Metro employ 2000 St. Louisans but it assists countless thousands of workers to get to jobs in healthcare, retail, manufacturing and distribution. For many of these commuters, no public transit would mean no job.

Show-Me Research Assistant John Payne misses the mark in his article, “Adding New MetroLink Lines Too Costly, Inefficient.” While he tacitly agrees that public transit is important for our community, he advocates opposition to the proposed referendum for a ½ cent sales tax on the April ballot. The focus of his criticism is on the part of the proposal which suggests some the addition of light rail corridors. Extending light rail is however, not the major thrust of the proposal.

Throughout its history, BiState (Metro) has not had sufficient dedicated taxes to support its operations. It has relied on the beneficence of the City of St. Louis and the adjoining Missouri and Illinois counties, the States of Missouri and Illinois, and the Federal government to provide operating subsidies. Some of these entities have been generous over the years. Others have been quite parsimonious. In all cases, awarding of funds is arbitrary and Metro must beg for money from its stakeholders on an annual basis. If Metro is expected to operate in a business-like manner, it must have a stable reliable source of revenue. This, in fact, is what the April 6 ballot proposal is really all about.

When the last tax measure failed in a very close vote in November of 2008, Metro was forced to cut 40% of its bus and train service and 400 staff members. This resulted in the loss of at least 5000 jobs in our community. While half of these cuts were quickly restored due to the receipt of emergency funds from St. Clair County and the State of Missouri, deeper cuts will be necessary if the proposed tax is not approved by the voters. With the approval of the new tax, pre-2009 service will be restored and the current system will be able to operate on a stable financial footing for the first time in memory.

Other short term (1-5 year) priorities include implementation of a bus rapid transit system similar to the “higher speed bus routes” advocated by Payne, adding amenities such as a “smart card” fare system, and beginning planning for more light rail. These programs will be implemented only after the pre 2009 service is in place and only when funds are available. The five year plan does not call for construction of new light rail corridors.

Putting a light rail extension in service will take a minimum of ten years. It will also require large amounts of federal funds in order to build. Metro does not believe that the community should “foot the bill” for any Metrolink expansions without the majority of the funds being provided by the federal government. Instead Metro is asking for funds to begin the planning process so that when federal funds become available for light rail expansion, St. Louis will be in line. It only makes good sense to spend some money on planning. Otherwise, federal money for light rail will go to other cities and St. Louis will be left out.

Payne tries to make a case for increased bus service as opposed to more light rail. He asserts that buses are a better form of transit because they are cheaper and provide more flexible route opportunities. This was precisely the argument made by former BiState CEO, Col. Rudolph Smyser in the 1960’s when he ordered the shutdown of the last of the street car lines in St. Louis.

While it may be argued that buses are superior to light rail from an economic standpoint, flexibility of routes is precisely the problem with buses. Businesses which might prosper by being near a transit stop do not locate near bus stops because a bus stop might easily move to another street or corner. Many non-transit dependent customers will not ride buses because it is often difficult to know where the bus is going. With streetcars, subways and light rail, one need only look at a map showing landmarks or look down the track to know where the car is headed.

In some ways, Metro has successfully mitigated the confusion caused by changing bus routes by creating a hub and spoke system integrating buses and light rail. Thus a person who boards a bus that says “Clayton Station” can expect to travel to the Clayton Metrolink station. Similarly, a passenger who boards our most heavily traveled bus route, Grand Avenue, can be confident the bus will travel north or south on Grand without deviating. In a sense, our increased market share in buses may be in part attributed to our lack of flexibility with routes not the reverse.

In conclusion, Metro has built a world class transit system which integrates bus and rail service quite successfully. While our population density might be low for light rail travel our market share compared to peer group cities is very high. Light rail continues to gain popularity from non-transit dependent riders and nationally, our market share is in the top three cities in our ten city peer group. The April ballot proposal is about preserving this fine system. Our first priority must be to stabilize the existing system. Future planning is always important but it comes further down the list of priorities.

The purpose of this post is to walk through the math that Dr. Joseph Haslag and Abhi Sivasailam used in their case study, “Previous Estimates Overstate ‘Fair Tax’ Rates, Harms,” in an effort to be completely transparent.

First, they estimated the average family size in Missouri:

average family size = (size of Missouri population) ÷ (number of resident filers)

= 5,778,901.81 ÷ 2,626,773.55 = 2.2

Next, they estimated the size of the average rebate value, using the federal poverty threshold approximation associated with a family of 2.2, which is $15,393:

average rebate value = federal poverty threshold approximation × sales tax rate proposed in HJR 36

= $15,393 × 0.0511 = $786.58

Then, they estimate the cost of the rebate system, which is equal to the amount of rebates awarded:

(average rebate value) × (number of families qualified for the rebate) = (cost of rebate system)

$786.58 × 2,626,773.55 = $2,066,167,540

Lastly, they compute τ, the revenue-neutral tax rate:

τ = (government revenue + cost of rebate program) ÷ (aggregate personal consumption)

τ = ($7,117,761,408 + $2,066,167,540) ÷ $158,531,333,333 = 0.0579313171 = 5.793 %

where government revenue equals the sum of individual income, corporate income, and sales taxes.

We see that the size of the tax base, β, decreases if the amount of exemptions increase. This indicates that the sales tax needs to be assessed on a broad base in order to for the rate to remain low. By decreasing the number of exemptions that exist in the status quo, Missouri can establish a sales tax rate that’s lower than other estimates have suggested.

In their case study, Haslag and Sivasailam explain that expanding the list of services that are taxed would not result in a dramatic increase in the cost of living. In a previous post to this blog, Sivasailam elaborated on this concept:

[I]t’s important to understand that a change in the tax code implies a change in incentives. People and firms alike respond to these changing incentives in many ways, including altering their supply and demand of goods and services. With that in mind, the claim that the prices on all goods and services would increase by the tax rate is misleading.

Using the “Show Me: The Spending” web tool, I isolated the amount of money that government agencies in Missouri have spent on agency-provided food during the last decade:

Trend of Agency-Provided Food In Missouri (2009 dollars)

When I was an undergrad at the University of Wisconsin–Madison, I sat on the Student Services Finance Committee, which allocated $28 million to student organizations providing educational and diversity services. During our budget hearings, the issue of organization-provided food was one of the more controversial.

I’ve always thought that food is an example of wasteful spending, whether it be funded by student-segregated fees or taxpayer dollars, because it isn’t available to and doesn’t directly benefit all students on campus, or all taxpayers within a state. Once it is consumed, it cannot be used again. Plus, $4 million per year is a big tab — and this sum doesn’t include money spent on food while traveling. If government agencies in Missouri stopped providing food, they could make up 2/3 of the revenue that is lost through the sales tax exemption on yachts, for example.

That stated, I realize that it is unrealistic for this number to be zero; there are certain situations in which agency-provided food can be appropriate. On the SSFC, we adhered to a food policy in order to be consistent and viewpoint neutral.

On the bright side, at least government agencies in Missouri haven’t increased their expenditure on food over the last decade.

The home of Shirley Hamilton, in the 2200 block of Madison Street, in Saint Louis’ north side.

Although NorthSide redevelopment plans for her area indicate that Hamilton’s neighborhood is slated to be replaced, Hamilton said she’s not concerned. As a resident of a city block with only three houses, she said, she’s been expecting this. “It’s been going on as long as I’ve been here,” she said.

Another home on the 2200 block of Madison. Photos by Caitlin Hartsell.

Shirley Hamilton has been living at 2209 Madison since 1978. Her home is one of three houses on the 2220 block of Madison, all of which are small, but tidy. Between each house is a good amount of open space.

These three houses fall squarely within the boundaries of the recently approved $8.1 billion development of the city of Saint Louis’ north side. Of course, about 4,600 other properties also fall within those boundaries, but in the case of the 2200 block of Madison, NorthSide Regeneration LLC, the company behind the development, may be endangering one of its most frequently invoked promises.

That promise concerns the use of eminent domain. Although eminent domain is constitutional, it can be very unpopular, especially if it appears that a government agency is using that power merely to help a private business.

Proponents of the development, including developer Paul McKee, NorthSide lawyer Paul Puricelli, Alderman April Ford-Griffin, and Alderman Marlene Davis, have said repeatedly that the city won’t use eminent domain to take owner-occupied homes, and that fears to the contrary are unfounded. In fact, the company went even further. When NorthSide applied for millions of dollars in tax credits from the state, the company submitted an affidavit stating, among other things, that “The Applicant has not identified any owner-occupied residences for acquisition under the Redevelopment Plan.” McKee, the chief manager of NorthSide, signed it.

Along with that affidavit, NorthSide submitted a list of about 260 owner-occupied residences to the state. Hamilton’s home and the house sitting the farthest west on her block were on that list.

NorthSide has also disclosed some of its preliminary plans for the area in its redevelopment plan, which was submitted to the city when the company applied for nearly $400 million in tax increment financing (it has been approved for up to $380 million). One of the more interesting pages of that plan is page 24, which is a map of “proposed open space” for the area.

According to that map, NorthSide plans to remake four city blocks into open space: the area lying between Madison Street and Maiden Lane, west of 22nd Street and extending a little past Jefferson Avenue. In other words, despite all the assurances about the limits on eminent domain for the NorthSide project — including the affidavit of its chief manager — Hamilton and her neighbor are two owners who may not have long to occupy their homes.

That’s not to say that the company didn’t try to purchase Hamilton’s home. About a year ago, she said, she got a letter from a lawyer, representing an anonymous buyer, looking to purchase her home. When Hamilton called the number listed, she said, she was quickly offered $60,000 for the property. But Hamilton, who is retired, wasn’t interested in searching for a new home, and asked instead if the buyer could offer her a deed to a different property, elsewhere in the city. The lawyer promised to check, Hamilton said, but never called back. A few months later, Hamilton said, she was sent the same form letter.

Hamilton said that her next door neighbor did sell. According to city property data, the second house on the block is owned by MLK 3000, one of the companies that NorthSide used to acquire properties under the radar. Hamilton said she isn’t interested in moving, but if the developer could offer a trade instead of money, she would consider it. She’d like to stay in the city.

An email inquiring about how concrete the plans for open space are, and whether NorthSide would adjust its plans if property owners were unwilling to move, did not receive a response from Bill Laskowsky, NorthSide’s chief development officer, and a company representative.

Ultimately, Hamilton said, she’s not concerned. As a resident of a city block with only three houses, she said, she’s been expecting this.

“It’s been going on as long as I’ve been here,” she said. Laughing, she noted that when Mayor Freeman Bosley Jr. was in office, her home was slated to become a golf course.

“I’ll deal with it when it comes,” she said.

According to NorthSide’s plans and its submitted list of owner occupied residences, two other homes appear to be slated for open space: one on the 2500 block of Madison, and one on the 2700 block of Glasgow Street.

Within other documents submitted by NorthSide, the company has designated the area surrounding Hamilton’s home as “mixed use,” which could indicate a different set of plans for the area.

Missouri exempts yachts from sales taxes. And, like most selective sales tax exemptions, this policy has several negative consequences. Mike McGraw wrote about this in the Kansas City Star over the weekend (link via Combest).

First, there is a fiscal problem: Missouri is losing $6 million a year as a result of the exemption. The fact that Missouri is cutting other areas of its budget (e.g., education and battered women’s shelters) to address its deficit exacerbates this problem.

Second, there is a fundamental problem: The policy encourages rent-seeking. Boat producers benefit because the sales tax exemption provides an incentive for a person to buy a bigger boat than she would otherwise. From the article:

The additional revenue that taxing large boats would generate would be more than offset by sinking boat sales and lost jobs, said Mike Atkinson of the Lake of the Ozarks Marine Dealers Association. [...]

Exemption-eligible boats appear to be especially popular with Jefferson City lobbyists, whose colleagues have fought for years to keep the tax break on the books.

I tried to brainstorm a list of consequences of the sales tax exemption on yachts that are positive, albeit admittedly insignificant, for the purpose of this post. For one, Missouri residents benefit from some ironic boat names, such as “Tax Haven,” “Tax Seaduction,” and “Special Interest.” (These are just as witty as Tiger Woods’ yacht, “Privacy.”) Additionally, this exemption removes any incentive for members of film production companies to misuse the film tax credit program in Missouri to purchase a yacht for their personal use. They’d have to go to a different state.

According to a story from WSIL:

A plan pushed by Rep. Mike Bost, R-Murphysboro, could bolster a core of his district’s economy. Bost wants to create a fund that would go toward improving the region’s wine industry.

He’s proposing to divert a portion of the revenue from the excise tax on wine, and reinvest it in the industry. It’s classic rent-seeking behavior. He also uses the copycat argument (i.e, “other states are doing it, so mine should, too”) that many legislators use to justify production incentive programs for their favored industries.

“This is not anything that hasn’t been done in other states,” Bost said. “That is why the state of Missouri has grown its wine industry so well, and it’s because they are able to do this.”

Although it is true that Missouri provides assistance to wine producers, it does this in a manner that’s different than the one proposed in Illinois. Rather than diverting excise tax revenue, Missouri provides a generous tax credit to wine producers.

Using the “Show Me: Tax Credits” web tool, I discovered that Missouri has awarded $5,736,848.39 under the Wine and Grape Tax Credit during the past decade. The largest recipient, Stone Hill Wine Company, received a combined sum of $2,005,629.22 from 2002 through 2004:

Trend Wine and Grape Tax Credits Awarded in Missouri by Vendor

First and foremost, I disagree that a state should rely on tax credits to attract businesses. A state is better off if it has businesses that are self-sustaining, not reliant on government assistance.

That said, however, I prefer Illinois’ proposal to Missouri’s Wine and Grape tax credit program because it places the burden of the subsidy on users rather than on non-users. In Missouri’s program, all taxpayers in the state pay for the subsidy. In the Illinois proposal, only those who consume the product are assessed. It’s a user-fee system that’s analogous to the way in which gasoline taxes and tolls fund highway maintenance.

Additionally, it’s fallacious to expect that the production and consumption should be equal within the state. States like Missouri and Illinois should focus on the activities that they do best, and then realize the benefits of free interstate trade. If Illinois were serious about maximizing its wine consumption, it would specialize in some other type of production that it can do more efficiently, and then trade with another state that has a comparative advantage in producing wine.

Critics of the Illinois proposal are correct to state that the money being spent on wine production cannot be spent on other programs, such as education. However, the same can be said of the money that Missouri taxpayers spend via the wine and tax credit. No matter how it is routed, taxpayers are going to be poorer by the amount of the subsidy.

This weekend, KC Star columnist E. Thomas McClanahan had a terrific article about the benefits of replacing earnings taxes with a land tax, as proposed for St. Louis and Kansas City by Show-Me Institute executive vice president and University of Missouri–Columbia economics professor Dr. Joseph Haslag. This is the second major KC-area piece that really demonstrates an understanding of how a land tax creates a better incentive structure relative to other types of taxation. The Pitch had an excellent story on the issue in 2008.

As if the article was not great enough, I also want to share the remarks of commentor number 3, “jayhawk6″, who said:

Good explanation for just how the land tax works. The spiteful aspect of property taxes [...] is that a homeowner can be discouraged from improving his/her home because it will raise its value and thus the tax burden.

We thank both McClanahan and “jayhawk6″ for the attention and focus on this important issue. McClanahan is absolutely right when he says that a land tax should be adopted as an eventual replacement for the current property tax system even if the earnings tax is maintained. (But it should NOT be maintained.) Although, as the article explains, this would entail amending the state constitution, counties in Missouri could move in that direction simply by applying more of the current value of property to the land, and less to the improvement. Then, as the property might be improved, the taxes would rise less because the portion determined by land value would hold steady.

[NOTE: Since the original publication of this blog entry, additional information has been released about the filmmakers accused of purchasing personal vehicles using Iowa's film tax credit program. From the Iowa Republican:

We would like to emphasize that these are separate filmmakers from those involved in production of the film The Scientist, also referenced in the blog entry below.]

Three companies and three individuals that were involved in the production for the film The Scientist have been charged with inflating and falsifying expenses in order to obtain more than $1.85 million in tax credits through Iowa’s film tax credit program.

According an article in the Des Moines Register:

Weiner Runge, a 44-year-old film-maker and resident of St. Louis Park, Minn., is accused of a felony for reportedly inflating values of expenses on applications to the state for tax credits. Over the course of the project, Weiner Runge inflated the cost of making the film from $767,250 to almost $1.8 million, according to the Attorney General’s office. [...]

Saunders, 37, [...] provided free services that were used to claim $2.5 million in credits. Saunders also faces felony theft charges.

The following are specific examples of how they are accused of inflating the cost of the services and products that they consumed under the guise of the film tax credits.

Court records indicated Maximus Production Services filed claims for rental equipment that were significantly inflated, such as $225 each for a push broom, a hand broom, a metal rake, a pick axe and a sledge hammer, and two shovels for $450.

The invoices also included various sizes of step ladders that ranged from $900 each up to $1,125, and a 24-foot extension ladder reported to have been rented for $1,350.

As for the most egregious misuse of Iowa’s film tax credits, filmmakers involved in two other productions bought a Mercedes and a Land Rover for themselves. From the Des Moines Register again:

[S]tate officials found [movie]-makers had used the tax credit program to purchase two luxury vehicles worth more than $60,000 and other items later put to personal use.

If these filmmakers purchased their vehicles in Minneapolis, the combined state and county sales tax rate would have been 7.375 percent if not for the tax credit exemption. That means that the filmmakers avoided paying more than $8,850 in sales taxes on their combined vehicle purchases. This is the amount of money that the film producers saved buying the vehicles in Iowa under the guise of a film production, and it represents lost sales tax revenue for Minnesota. Filmmakers who live in Hollywood, Calif., would have an even greater incentive to buy luxury cars using film tax credits in other states because the combined state and county sales tax rate there is 9.75 percent. For a purchase of $120,000, then, a person would have to pay an additional $11,700 in sales tax.

Supporters of film tax credit programs say that the films have economic and fiscal impacts beyond the amount that the filmmakers spend in the state. We’ve discussed this concept in a previous post on this blog, in fact. I’d like to pose the following questions to these supporters: How much economic activity does the purchase of a luxury car generate in the state economy? How much extra output does it yield for the state? Will this motivate more people to move to the state? My answers are, in order, “not much,” “none,” and “no,” but I am eager to read their comments.

I worry that Missouri’s film tax credit program could be at risk of the same kind of fraudulent activity, because it has a structure similar to Iowa’s program. Under both programs, the tax credits are transferable. Iowa has since pulled the plug on its program to scrutinize its accounting, and Missouri would be better off doing the same.

Using the “Show Me: The Spending” web tool, I mapped the historical line graph of the film tax credits allocated in Missouri during the past decade. The only spike in the graph occurred in 2009, and that was for Up in the Air:

Trend of Film Tax Credits Awarded in Missouri

The total number of tax credits that have been issued since 2000 is 35, for a total amount of $12,927,154. The average amount of a tax credit was only $369,347, which is much less than I anticipated. The smallest amount of credit that was awarded was $19,048, and the largest was $4,131,011. The latter award occurred in 2009, for Up in the Air, and it is represented by the spike in the graph for that year.

Although I disagree that Missouri should offer film production incentives, I am relieved to learn that few productions are taking advantage of it. Only one film has come close to the tax credit cap during the last 10 years. I have heard many of our commentators and politicians call for increasing this cap, but this graph leads me to believe that it would not encourage a marginally higher number of large-scale productions. It would be as efficacious as putting a price floor below the equilibrium price.

The Missouri Catholic Conference (MCC) has come out in opposition to the proposal to implement a statewide sales tax that would replace all corporate and individual income taxes. One of their major concerns is the effect that such a change would have on Catholic schools. By taxing Catholic school tuition, they argue, fewer families would be able to afford it, thus decreasing enrollment and forcing those children into public schools. This is a legitimate concern, but the MCC fails to take into account that with the repeal of the income tax, families would have more money to spend on discretionary expenses in the first place. This money could be devoted to educational expenses, thereby increasing the demand for Catholic school education.

In the chart to the right, the y axis represents the price of parochial education, and the x axis represents its quantity (P and Q represent the status quo price and quantity). The line labeled S1 shows one likely effect if the state income tax were replaced with a sales tax: An increased cost for parochial education would lead to a shift in the supply curve, wherein quantity demanded and supply provided would settle at a lower equilibrium. But the line labeled D1 shows another effect of the replacement of the income tax with a sales tax: Because families would have more money to spend that would have previously gone toward paying taxes, the demand curve for parochial education would shift, as well, leading to a higher equilibrium point for both supply and demand. We can’t predict which one of these effects will dominate, but the point is that replacing the income tax with a sales tax would not necessarily lead to a reduction in the amount of parochial school enrollment demanded by education consumers.

Another concern raised by the MCC is that because poor families already do not pay income tax, they would only be harmed by the implementation of a sales tax and would not benefit from greater income levels. However, as this blog post by Abhi Sivasailam notes, lower corporate and personal income taxes help fuel growth by attracting people and investment funds to the state. This results in higher employment levels and higher incomes, which benefit everyone. Furthermore, the bill as proposed in the Missouri Senate also includes a sales tax rebate for low-income families that may otherwise struggle to pay the sales tax.

The concerns brought forth by the Missouri Catholic Conference are not unfounded, but as my colleague Abhi Sivasailam reminds us, tax changes do not happen in a vacuum. The switch to a sales tax has the potential to greatly benefit Catholic schools in Missouri.

Show-Me Institute research assistant John Payne recently had an op-ed published in the Riverfront Times about the proposed tax hike to fund a MetroLink expansion. Payne’s piece elegantly summarizes the following points about why Proposition A is a bad idea:

1. Although the campaign message focuses on strengthening current lines that have had service cuts, the proposition would focus appropriated funds on expansion to less populated areas. MetroLink already has trouble paying for its current infrastructure; expansion would only create the need to use even more tax dollars in the future, or cut existing lines still further.
2. MetroLink has a poor track record of correctly forecasting its costs. (Payne cites as an example the Cross-Country MetroLink Extension, which cost upwards of $676.8 million after an initial projection of $550 million.) If it had been constructed through a public-private partnership (like in Denver), the contractor would have been accountable to spend more responsibly, without repeatedly asking for tax increases. In contrast, MetroLink’s need for a tax increase is written into its 2009 fiscal budget.
3. Expansion of bus routes is much more cost-effective than expanding light rail. From the op-ed:
   

   We would obtain a much greater benefit at a significantly lower cost if we instead focused our public transportation dollars on new, higher-speed bus lines, which are cheaper and far more adaptable than light rail. Although the expansion of light rail into every reach of suburbia may promise an end to traffic congestion and the revitalization of the city, it will ultimately entail spending huge amounts of money in order to transport far fewer additional passengers than are served by the lines already in existence.

4. Some, like the members of this Facebook group supporting the measure, argue that additional public transit services are necessary in order to help the city’s low-income residents. Many advocates of Proposition A don’t realize that the tax increase it would bring is regressive, because it offers no rebates or exemptions based on income level, so it would disproportionately hurt the poor. It would be used to expand services past the city and county, so the people paying the taxes won’t benefit directly from the expansion.

I’m currently reading Gridlock: Why We’re Stuck in Traffic and What to Do About It by Randal O’Toole, the Antiplanner. Although the book discusses the problems in America’s transportation system in general, certain parts of it are specific to light rail in Saint Louis and the debate surrounding the proposed MetroLink expansion. I’d like to share some passages from Gridlock that communicate why expanding MetroLink is unnecessary and cost-inefficient.

First, O’Toole provides evidence that expanding MetroLink hasn’t historically increased ridership in Saint Louis:

When St. Louis opened its first light-rail line in 1993, it was hailed as a great success because system ridership, which had shrunk by nearly 40 percent in the previous decade, started growing again. But when St. Louis opened a second line in 2001, doubling the length of the rail system, rail ridership remained flat and bus ridership declined. By 2007, total system ridership was no greater than it had been in 1998.

Second, O’Toole describes how Saint Louis experienced a reduction in energy efficiency after launching a light-rail line. He explains that this is because the city ultimately uses more fuel on buses that carry smaller average loads than it did before building the line.

For example, in 1991, before Saint Louis built its first light-rail line, St. Louis buses averaged for than 10 riders and consumed 4,600 BTUs per passenger mile. In 1995, after opening the light-rail line, average bus loads declined to less than 7 and energy consumption by bus and light rail together increased to 5,300 BTUs per passenger mile. CO₂ emissions also climbed, from 0.75 pounds to 0.88 pounds per passenger mile.

Third, MetroLink’s revenues add up to less than its expenses, and an expansion would exacerbate this deficit:

The transportation plan for St. Louis [...] notes that the transit agency’s projected revenues could not even cover its operating costs, much less the cost of light-rail expansion. The plan adds that county voters rejected a tax increase needed to support transit operations and that, even with that tax, the agency’s revenues would be insufficient to support the proposed expansions.

O’Toole has written several pieces on the subject of high-speed rail for the Show-Me Institute. His most recent study for the Show-Me Institute, “Why Missouri Taxpayers Should Not Build High-Speed Rail,” was published in September.

Today, I’m going to Jefferson City to testify on bills related to the initiative and referendum powers that the Missouri Constitution secures to this state’s citizens.  One of the points that I hope to make plain is related to an article that ran last week on the Kansas City Star’s Prime Buzz blog, which quoted the president of the Greater Kansas City AFL-CIO as saying that the organization would work to prevent citizens from being able to vote on whether Kansas City or St. Louis should replace their earnings taxes, claiming, “This is not the will of the citizens.”

The irony, of course, is that nothing demonstrates “the will of the citizens” more than, say, letting them vote for themselves!

This is yet another example of a problem I have noted several times before: Powerful interests can (and do) game the system to prevent Missouri citizens from voting on issues of great importance. The most prominent example is the way that the Missouri Municipal League has for years been engaging in litigation strategically calculated to keep eminent domain reform off of the ballot. The most damning element, in my mind, is that at least in the case of the Missouri Municipal League, the opponents acknowledge the virtual certainty that eminent domain reform would be approved if the citizens were allowed to vote on it.

If an organization or some other group of citizens is concerned about the wisdom of any given ballot initiative, they are well within their rights to communicate their concerns to voters and to try to persuade Missourians not to approve the proposition. But to manipulate the system in such a way that citizens are denied the opportunity to adopt what they believe to be valuable changes to their laws is reprehensible.

Today, the Missouri Budget Project published a piece that attempts to address the Show-Me Institute study about the “Fair Tax” by Dr. Joseph Haslag and Abhi Sivasailam. There are a number of points of contention that I will identify here.

• The Missouri Budget Project misattributes numbers to the Show-Me Institute.

  The Missouri Budget Project claims that the Show-Me Institute revised its number to from 5.11 to 6.25 percent. This second estimated percentage belongs to former state Rep. Ed Robb, not to a Show-Me Institute publication. Furthermore, Robb’s calculations were his independent evaluation of a specific piece of legislation, not a reference to the Show-Me Institute study written by Dr. Haslag and Abhi Sivasailam.

• The Missouri Budget Project takes the exemptions out of the tax base, but they do not take them out of the rebate amount. Also, they don’t communicate why these products and services are inappropriate to tax and should therefore be exempted.
• The Missouri Budget Project ignores the issue of growth rate in its calculations.

  Assuming a rate of growth is standard procedure, and the Show-Me Institute study includes one, but Missouri Budget Project does not. Are they assuming a zero percent growth rate?

  Dr. Haslag elaborated on this point of contention in his comment responding to “Matt” on a recent blog post by David Stokes:

  The strongest case for PCE, in my view, is that reducing the tax rate on income results in faster growth. Neither MBP nor you have offered an alternative that increases the economy’s growth rate. No doubt, the tax on PCE is distortionary. To do the right experiment, we need a model of economic growth that accounts for facts observed in the world. The Ak model does so. Moreover, the economy’s equilibrium growth rate is a function of the income tax rate. By my calculations, reducing the income tax rate adds more than one-half percentage point to the state’s annual growth rate. This growth more than offsets the excess burden associated with the tax on consumer spending.

• After taking exemptions out of the tax base, the Missouri Budget Project applies the the amount of the rebate to a broad base. This is a very big difference.

  Dr. Haslag responds to this in the same blog comment:

  Along those lines, every time something is exempted, the rebate must shrink since the rebate is based on the concept of a refund on things that people buy that are subject to the tax. If you want to talk about accuracy, you should be aware that MBP and others have fixed the rebate while shrinking the tax base. In other words, they change the definition of the tax base and apply that definition while keeping the old definition of the tax base when they compute the rebate. There are two equations in two unknowns and the definitions must be the same across the two equations. MBP, citing ITEP, violate this definition across the two equations.

• The debate between the Missouri Budget Project and the Show-Me Institute concerns the size of the tax base and the size of the rebate, not the arithmetic.

  Dr. Haslag again:

  Since my calculations are made as transparent as possible, you can check my math. No one is questioning the accuracy of my arithmetic. Indeed, you are asserting my assumptions are wrong. Under your premises, my assumptions are wrong. I do not accept your premises. I digress, but I want things to be as transparent as possible.

It’s laudable that Missouri Budget Project is increasing its effort at making its analysis more transparent. At least its newest piece provides more detail about how the organization arrived at its estimate.

As Ben Wieder reported yesterday in the Columbia Missourian:

Senators who would be responsible for reviewing tax credit applications under a proposed bill are mixed on whether they should have the authority to do so.

I hope that the Missouri legislature ultimately decides that it shouldn’t have the authority, because this policy would have several negative consequences.

First, the legislature would be committed to a time-consuming review process. If the legislature spends this much time determining whether it should even have the authority to review tax credit applications, it would spend at least as much time arriving at a conclusion when actually reviewing the applications.

Second, subjecting tax credits to the appropriations process would discourage businesses from relocating to Missouri. Wieder introduces this idea in the article. Businesses would locate themselves in other states out of fear that the Missouri legislature would ultimately deny their application, or because they are not recipients of targeted tax credits in Missouri.

“What businesses need is certainty,” [State Economic Development Director David] Kerr said. “If it’s not certain, they will go to a state where they know what they’re getting.”

Third, if the legislature has the authority to decide which specific applications receive tax credits and which don’t, then there is an increased incentive for applicants to seek the favor of elected officials. This would aggravate the already-uneven playing field and encourage special interests.

Instead of providing tax credits that are targeted to specific businesses or industries, it should work to create an environment that affects all parties equally, such as reducing corporate income taxes or eliminating the earnings tax.

When you keep repeating an error that others have corrected for you and explained to you multiple times why it is incorrect, it ceases to be merely an error — you border on becoming willfully obtuse. Such is the case with the Missouri Budget Project’s continuing claim in its talks and writings about the Missouri “Fair Tax” bill that the legislation would require an 11-percent state sales tax in order for the state to maintain its revenue stream after eliminating the state income tax. As Show-Me Institute executive vice president and University of Missouri–Columbia economics professor Joseph Haslag demonstrated in a recent case study that he wrote with Show-Me Institute intern Abhi Sivasailam, that revenue-neutral rate would be about 5.8 percent.

There are certainly legitimate arguments one might make against the Fair Tax proposal — simply stating, perhaps, a belief in in the fairness of progressive income taxation, wherein one’s tax burden automatically increases with income. I would disagree with that argument, but it is a perfectly legitimate argument to make because it doesn’t employ a demonstrably false set of facts. Repeating a figure based on a faulty set of assumptions about a proposal in order to score political points through fear, however, is not a legitimate form of argument.

The Missouri Budget Project again used its 11-percent sales tax figure in a Saint Louis Beacon op-ed today. Only a few days ago, I witnessed two economists tell the author of the MBP piece that her number was incorrect. They corrected her politely and professionally, and explained why it is wrong. Months ago, the MPB also received a copy of the Show-Me Institute’s case study, which went into great detail on the question and explained again why their 11-percent estimate is far too high. Unfortunately, they’ve continued to repeat their unreliable figure at every opportunity.

If you want to argue against Fair Tax legislation, that is fine with me. And, yes, it is likely that different people will come up with somewhat different estimates for how high the revenue-neutral replacement level of the sales tax would need to be. But if your estimate differs so dramatically from everybody else who has studied the issue that it appears to be just plain wrong, you should cease using it once that has been brought to your attention — or attempt to demonstrate where your opponents’ reasoning is faulty, in a detailed, systematic way. And if you don’t, people should stop taking you seriously.

I attended the Show-Me Institute’s forum on Missouri’s tax system in Columbia yesterday, which featured a spirited debate about the most efficient and equitable method of taxing Missourians. Show-Me Institute scholar Ed Robb defended a “Fair Tax,” and argued that by replacing the state income and corporate taxes with a somewhat higher and broader sales tax (with an exemption for the poor), Missouri could significantly boost its economic growth, making us all better off. However, Amy Blouin of the Missouri Budget Project countered that the sales tax would have to be much higher than Robb estimates in order to offset all the revenue the state would lose by eliminating other taxes. Finally, Mizzou economics professor Jeff Milyo made the case that the type of taxation is not nearly as important for economic growth as the level of taxation (lower taxes result in higher growth), but a sales tax might be marginally preferable over an income tax because it is lower and broader.

I am by no means an expert on this issue, but one of Blouin’s arguments against the sales tax struck me as odd. Blouin contended that if we replaced all other taxes with one simple sales tax right now, it could tie Missouri’s government to recession levels of revenue, which are much lower than normal. The first problem with that is a tax on consumption should not be any more sensitive to economic fluctuations than a tax on income — both rise and fall with the business cycle. In fact, the Show-Me Institute’s executive vice president Joseph Haslag, who is also an economics professor at the University of Missouri–Columbia, has argued that sales taxes tend to be less volatile than income taxes.

More importantly, however, even if the Fair Tax were to lock Missouri’s government into a relatively low level of taxation, what’s wrong with that? According to this chart I generated using our new “Show-Me: The Spending” tool, government spending in constant 2009 dollars has grown from $14 billion in 2000 to $19.1 billion last year — an increase of more than 35 percent.

Even as revenues fell in 2009, spending still increased at a rate of 9 percent during 2008. Maybe if revenues were to remain low, politicians and bureaucrats would learn more quickly that they cannot spend tax dollars with no thought for the long-term consequences.

I am delighted to discover that my favorite source for celebrity news, Perez Hilton, is also a source for state public policy. Yesterday on his blog, he reported that Michael Moore had been approved to receive a taxpayer subsidy for his 2009 film about the financial crises, Capitalism: A Love Story, through Michigan’s production incentives program.

Hilton asks, “Greedy Or A Coincidence?”

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

(1) Moore is doing the 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?”