Tuesday, June 10, 2014

No. 000012 We need a better, a much better Press Corps!!! A Primer on Missouri State Taxes

It is time to write about some unpleasant truths about taxing and spending.

In the last few days—via the power of Twitter—I have been able to ask two of our Missouri journalists a simple direct question about HJR68, the 3/4 of 1 percent sales temporary sales tax to improve the state highway system, city streets, county roads, and the state transportation system.

The question I have asked (and which I will keep asking) is this: 

How much tax is estimated to be raised in Saint Louis City and County and Kansas City (Jackson County) during the life of the tax?

Now both can tell me of the estimates of spending by MODOT in each city or county. And, both can tell me the estimated new sales tax rate. One even informs us the new rate will be higher than New York and Los Angeles, if the tax increase of 17% passes.

Neither, however, had any idea what total taxes would be raised so that one can determine whether St. Louis and Kansas City are net gainers or, as Representative Chris Kelly has told me, new losers (and if so how much).

Impressive investigative work there---six months without asking the most relevant question.

Well that question is the rub.

There is a nasty fact about the economics of cities. If you pay tribute (more taxes than returned by spending) to the government, state or federal, such causes a lot of damage to a city. Professor David Albouy of the Department of Economics of the University of Michigan has studied what happens and writes, tribute "taxes lower relative employment levels and property values in high-wage cities."

Saint Louis and Kansas City are high income areas in Missouri. Here is a link to an excellent interactive map with the relevant data by county for Missouri.

Workers in Saint Louis are more than $20,000 per annum more productive than workers in Springfield.

Consequently, conditions are ripe in Missouri for tribute paying to cause maximum damage, all worked by sending sales taxes off to the State for paving roads in Greene County.

Long story short. Saint Louis and Kansas City are the geese laying the gold eggs for Missouri but the sales tax will assure fewer eggs in the future, for all.

While the sales tax should be rejected because of its regressive structure, alone, a better reason may be that it will only cut employment, wages, and land values in St. Louis (and Kansas City) unless all our sales taxes are spent here.

In fact, due to the geometric multiplier of agglomeration economics, the entire state would actually be better off if all the proposed taxes were spent in St. Louis and Kansas City.

This is trickle out economics that works. It is also common sense investing, where one will get the greatest return on an investment. Workers in Saint Louis and Kansas City are substantially more productive than workers elsewhere. The State should be investing in their transportation needs, making them even more productive.

If as worker in Saint Louis is twice as productive as a worker in Dent County, spending on transportation in Saint Louis will yield double the return, all other conditions being equal.