CAUTION TAXES MATTER ANNUAL REPORT Should this man be taxed more for his hard work and 2013 ambition? TABLE OF CONTENTS Letter from Chairman and President ................................. 4-7 Myth of Missouri as a Low-Tax State ................................. 8-9 The Right Kind of Health Care Reform .............................. 10-11 Giving Parents and Students a Choice ............................... 12-13 An Anti-Snake Oil Kit for Local Government .................... 14-15 A Day in the Life of the Show-Me Institute ....................... 16-17 Meet the Interns ................................................................ 18-19 Publications ....................................................................... 20 Financial Statement .......................................................... 21 Board of Directors & Staff ................................................. 22-23 Brenda Talent, CEO Show-Me Institute No one in his right mind would espouse a tax policy deliberately aimed at discouraging hard work and ambition. But that often is the unintended consequence of a misguided mix of fiscal and economic development policies. Unfortunately, Missouri’s poor economic performance is living proof of the adverse, if unintended, consequence of too much government meddling in our state’s economy. Taxes in Missouri are significantly higher than they would otherwise have to be in order to support lavish tax breaks and subsidies granted to politically favored developers and businesses. In doing so, our tax system takes money from those who have earned it (like the man on the cover) and gives it to those who are most likely to waste it (crony capitalists freed of most or all of the obligation of putting their own money at risk). That is one problem that overweening government creates. A still more serious problem – where politically powerful unions control the provision of public goods and services such as education – is blind allegiance to the belief that if what you are doing is not working, it can only be because you are not spending enough money. It is time for a change in our thinking – from what is best for the public sector establishment to what is best for the people as a whole. A LETTER FROM THE CHAIRMAN AND THE PRESIDENT Dear Friends: Socialism workable.” As co-founders of the Show-Me Of course, Mises was right. The Institute – Missouri’s only free- Soviet experiment produced human market think tank – we begin this misery on a prodigious scale – letter with a reminder of what some resulting in the starvation and murder have called “the worst idea ever.” of tens of millions of people. Ninety-seven years ago, a small And he was no less right in his other but ruthlessly determined band of revolutionaries set out to prove that it would be possible to achieve material happiness – and social justice – by replacing free markets R. Crosby Kemper III with economic planning. Chairman In his classic work Socialism, produced in 1922, just five years after the Bolshevik revolution of 1917, Ludwig von Mises predicted the failure of Soviet communism. He pointed out that the planners would be flying blind – lacking the vital information that comes from free-market pricing. In his words, the marketplace acts as “a daily referendum of what is to be produced and who is to produce it.” “The problem of economic prediction: saying that socialist writers would “continue to impress Rex Sinquefield calculation is the fundamental problem of Socialism,” Mises wrote. the thoughtless” with their belief in President “Socialist writers may continue to exalted government – despite all of publish books about the decay of the horrors and failures. Capitalism and the coming of the socialist millennium; they may paint The whole debate about job creation the evils of Capitalism in lurid colors in the state of Missouri over the and contrast them with an enticing course of 2013 illustrates our picture of the blessing of a socialist continued susceptibility to what society; their writings may continue Mises called “the fundamental to impress the thoughtless – but this problem of Socialism” – the false cannot alter the fate of the Socialist idea that politicians and planners can idea. (They) cannot make pick economic winners and losers. Trolling For Jobs In 2013, the shiny object that about twice that number of local (With Taxpayer Money) Missouri Gov. Jay Nixon and jurisdictions. It was nothing if not political leaders of both parties shamelessly frank in describing In the continuing evolution of sought was a brand-new plant for everything it wanted in the way of this “unworkable” idea, we have building large commercial airplanes. financial incentives and freebies. It passed from one form of statism wanted: to another: from communism to In September, Nixon vetoed a bill third-world economics (featuring that would have given some tax relief • Site at no cost, or very low to all Missourians – both individuals cost. and businesses. He said that tax relief was not needed because Missouri • Facilities at no cost, or already is “a low-tax state.” significantly reduced cost. Then in December, the governor • Infrastructure improvements turned around and urged Missouri provided on location. legislators to approve a massive tax • Full support in worker cut – an even bigger tax cut than the training. one he vetoed – for the exclusive use of one company. • Entire applicable tax structure including corporate How strange – and yet how typical! income tax, franchise tax, The proponents of big government sales/use tax, business like to pooh-pooh the importance license/gross receipts tax of taxes (thinking you can never tax and excise taxes to be and spend enough) . until there is significantly reduced. something they want – like a new It is hard to think of a better wish plant. Then suddenly taxes matter; list for corporate welfare, or crony they matter a whole lot. capitalism. mammoth projects such as Egypt’s What happened between September Aswan Dam), and from third-world At Nixon’s urging, the Missouri economics to what we will call third- and December was the Great Legislature and the Saint Louis grade economics – where everyone Boeing Job Auction. When the County Council quickly put together wants a shiny new object, at taxpayer 31,000-member International a joint package that offered Boeing expense. Association of Machinists (IAM) $3.5 billion in tax cuts and tax in the state of Washington voted credits, mostly over a 10-year period. Three years ago, the shiny new 2-to-1 to reject Boeing’s offer of an That comes to almost $600 for every object of our lawmakers’ affection eight-year contract, the company man, woman, and child in Missouri. in Jefferson City was the proposed decided to put production of a new A substantial portion of the state tax creation of an “Aerotropolis,” or airliner, the 777X, in play – inviting credits on offer were transferable – “China Hub,” at Lambert-St. Louis proposals from other states. meaning that Boeing could sell them International Airport, backed by for cash to other companies wanting hundreds of millions of dollars of Boeing initiated a bidding war that to shelter income in Missouri. state tax credits. attracted governors of 22 states and But it was not enough. business, not big business? development. That is money that supposedly goes to promising The Washington Legislature upped Show-Me Institute Policy Analyst business ventures and commercial the ante – approving tax breaks and Patrick Ishmael zeroed in on this developments. But the return on this other benefits valued at close to $9 point in an op-ed in the St. Louis investment of taxpayer money is not billion over 16 years (the Seattle Business Journal on Jan. 24, 2014. just bad, it is appalling. Again and Times called it “the largest state- He wrote: again, the would-be great success tax subsidy granted to a private stories (think Mamtek in Moberly company in American history”). In If, as we often are told, Missouri is a “low-tax state,” and the Citadel in Kansas City) have a second vote in early January of turned into disappointments. 2014, the Seattle chapter of the IAM why was it necessary to approved Boeing’s offer of a long- make Boeing’s taxes even The same sorry record of economic term contract. With that, Boeing lower? And why should planning – and mismanagement – announced it would keep 777X the state support corporate has become increasingly prevalent production at its massive plant in handouts to one company, in municipal government within Everett, Wash. but actively deny them to our state.Why are cities and towns family businesses in our across Missouri giving tax breaks Taxes Matter – For Everyone community? to companies for doing something At the end of this saga, Nixon and Channeled in a different direction, (opening stores) they are going to be other enthusiastic advocates of the the incentives that the state of doing anyway? How is one to justify Boeing aid package (including the Missouri offered to Boeing would You can expect the highest Saint Louis Regional Chamber) did make it possible to cut Missouri’s quality research and not complain that they had been used 6.25 percent tax on business income analysis from our policy as a stalking horse in an elaborate in half. analysts and scholars at game of rent-seeking (i.e., looking the Show-Me Institute. for public assistance for private gain) Think of what that would mean to and corporate politics. Instead, they thousands of Missouri businesses. heaped praise upon themselves. the frequent use of eminent domain Who is to say that substantial tax to pave the way for taxpayer-assisted It was, they said, a worthy effort relief for all businesses would not proving that our state can play developments (which typically grant create many more jobs than the the developer and his clients what in the big leagues of economic addition of a single Boeing plant? development – winning the attention amounts to a tax holiday from a large and respect of one of America’s portion of the property and sales Missouri has been among the most taxes applied to other businesses)? biggest and most respected generous of states (or, to be more corporations.