DO TAXES MAKE JOBS? MISSOURI DISPUTES POINT

The Missouri legislature recently increased state taxes on gasoline by six cents per gallon. In the midst of a short-lived legislative debate over the merits of the tax increase, several public officials declared that the measure would create 40,000 jobs in the state. The only publicly voiced opposition to this claim came from a research firm that pegged the true figure at closer to 28,000. That this exchange could go unremarked on is eloquent testimony to the low level of public economic literacy. There is no reason to expect any net job creation at all to result from this tax increase.

Proponents of the "gas taxes create jobs" thesis say the tax revenues spent on road building and repair m~ean more constr~uction workers will be hired. The newly hired~ workers will spend most of what they are paid, and this spending will ripple its way through the state's economy, creating jobs as it goes.

It is not surprising that disagreement over the number of jobs created would arise, since nobody really knows, before the fact, how many additional construction workers will be hired or how much of their earnings they will spend. In fact, nobody knows whether increased spending on highways will occur before the recession ends. If construction workers are already back at work by the time the new spending kicks in, no construction jobs will be created -- the gas tax will change only the job sites of construction workers, not their employment status.

If the only question were whether the legislation would add 28,000 or 40,000 new jobs, there would be little point in debating the matter. However, both the public officials and the research group overlooked the fact that in order to spend money on highway projects, government agencies must first collect the money from taxpayers. Every additional dollar extracted from Missouri taxpayers reduces the amount remaining to be spent on other goods. Jobs will be lost and incomes reduced in other sectors of Missouri's economy.

The great French economist Frederic Bastiat knew that economic effects consist of "what is seen and what is unseen." In this case, it is visibly obvious that construction workers hired by the state owe their employment to the gas tax. It is much less obvious (but no less true) that thousands of applicants for unemployment benefits in Missouri will owe their status to the gas tax. From the viewpoint of politicians seeking reelection, the gas tax is an ideal piece of legislation. Its beneficiaries are likely to display their gratitude by returning incumbents to office, while its victims will not even recognize the source of their misfortune.

Is it possible that Missourians want better roads more than they want the other things that gas tax revenues could buy? Certainly. In fact, this is precisely the question any economist would ask when confronted by legislation such as the gas tax. All of us answer similar questions every day when we transact in markets. We buy those things we want the most, given that our incomes limit the amount of spending we can do.

Unfortunately, there is no market mechanism to enable Missourians to "buy" exactly their desired quantity and quality of roads. In this respect, the political process is a clumsy and vastly inferior substitute for the market process as a vehicle for making spending choices.

In one respect, Missourians are lucky to be living here. The Hancock Amendment, which limits the amount of taxes the state can collect without obtaining voter approval, allows Missouri residents more control over the taxes they pay than is exerted by residents of other states. The unwillingness of state legislators to put the gas tax to a vote reflects the usual legislative eagerness to confer visible benefits on some voters while imposing much less visible costs on others.

Bradley J. Furnish is Kansas City Executive Director for The Heartland Institute, a nonprofit, nonpartisan public policy research group with offices in six Midwest cities.