- February 29, 2012
It’s almost comical because it’s so predictable.
Think back to 2005 and 2006. That’s when city commissioners, county commissioners and state legislators were rushing furiously to solve the affordable housing crisis. And what did they do?
They did what all politicians do. They threw taxpayer money at it, creating trust funds, offering
downpayment subsidies and concocting all kinds of legislative schemes to address the crisis.
We all know what happened. Market forces — with a lot of previous government intervention — solved the affordable housing problem.
The crisis just moved to the next level — foreclosures and figuring out how to bail out all those people who bought homes they couldn’t afford or who fell into foreclosure because of the crash in the construction and housing markets.
The answer to this crisis? Just like the previous one. Create more government-intervention programs and throw more taxpayer money and subsidies at it.
This one is still playing out, with results as unimpressive as the affordable-housing interventions. Basically more flops.
But while that crisis is largely in the hands of the federal government, local and state officials have now moved on to next crisis — unemployment.
With Florida’s unemployment rate at 12.2% and Sarasota County’s at 13%, this is a crisis that begs for government involvement and solutions.
The answer? Economic development. And in the parlance of traditional government efforts at economic development that means what it always means — more subsidies and tax breaks for special people and maybe more taxes for more special people.
Sarasota County commissioners and government administrators want voters to decide in the August primary elections whether the county should extend up to 100% property-tax exemptions to businesses that move to or expand in Sarasota County.
Like all government programs, this one would be tailored to pick winners and losers. Not everyone would or could get the break.
If, say, you operate a wholesale or retail business in Sarasota County, for instance, to qualify for tax exemptions, you’d have to employ 25 or more people; generate 50% or more of your sales outside of Sarasota County; and then go through a scoring process that would rate your business on the number of jobs you’re creating, your average wage level, the capital investment you’ve made in the county, how you’ve innovated to become a “green” business and how much you buy in goods and services from locally based companies.
Your score would dictate how much of a property-tax exemption you could receive.
If you operate a manufacturing or industrial company or domicile your corporate headquarters here, you won’t have to meet the 50% out-of-county sales criterion. Your first threshold for qualifying would be whether your company has the requisite minimum number of employees (10 for manufacturers and 50 for corporate offices).
But let’s stop here. Give credit to those who are trying to think of ideas to stimulate the local economy. But this one should never make the August ballots.
We never learn.
Some of us have not forgotten the Arthur Andersen subsidy a decade ago. It received about $1 million in subsidies from the state and Sarasota County taxpayers to keep and expand one of its operations out on Fruitville Road. But then, no fault of the Sarasota operation, the company became sucked into the vortex of Enron and went out of business. Poof! — the $1 million in taxpayer money gone.
That’s always one of the risks of subsidies. And don’t kid yourself. The Andersen outcome happens often.
Here’s another local example: The Sarasota Herald-Tribune. It received a tax subsidy from the city of Sarasota when it built its Main Street headquarters in part because of the jobs it was bringing downtown. Lo and behold, the newspaper’s business declined, it laid off more than 100 employees and then decided to lease out its excess space. The latter move did not sit well with other downtown office-space owners who did not receive a similar tax break. The subsidy reduced the Herald-Tribune’s cost — at the expense of others.
Inequities always abound from corporate welfare.
Nonetheless, economic development professionals continue to argue that subsidies are a necessary evil — because all cities and states offer them. If we want to be competitive, we must do likewise.
But that reminds us of the late Milton Friedman’s rejoinder to such logic: If all of your friends jump off a bridge, would you do it, too?
Friedman also objected to tax subsidies for economic development. As he put it, what you give to one, you must take away from another. If you give a manufacturer a break on his taxes, you have to tax someone else more.
Forget the multiplier effects, too, Friedman said. Economic development pros always say subsidies pay for themselves because of the increased economic activity that comes from a company moving in or expanding. The community did not have this activity before, so a subsidy helps create a net-gain for the local economy.
Friedman argued, however, that assumes other companies would not have located here or that taxpayers would not have spent or invested the subsidy money on other economic stimulants that eventually would create as many or more jobs.
We’ve cited this effect many times. It’s Frederic Bastiat’s seen and unseen. Friedman called it “the other side of the coin.”
If city and county commissioners and state legislators are serious about economic development, they should forget about throwing money around, subsidies, tax breaks and corporate welfare. That’s a losing proposition.
The best strategy they can adopt is to focus on this region’s economic and business climate, our economic framework.
For starters, they must understand that jobs, for a business, are not a benefit. They’re a cost. Every business worth a hoot always wants to increase its productivity — i.e. do more with fewer inputs — more than it wants to increase its employment rolls.
What businesses really want and what will attract other businesses is laissez faire — leave them alone. It’s the proverbial broken record on this page, but city, county and state officials should be removing barriers to doing business. Another cliche: cut and eliminate regulations.
Get maniacal about thinning out all of the obstacles that slow down or prevent businesses from moving forward quickly. Institutionalize a Regulatory Reduction Department whose single job is to keep government lean.
Keep tax rates low, better yet, cut them or eliminate them. Put limits on the growth of government.
We have the weather. We don’t have the business climate. Change that climate, and businesses will come and flourish. The jobs will follow.
Tax Freedom Day: April 5 & 9
The Washington, D.C.-based Tax Foundation announced Tuesday this year’s Tax Freedom Day for Americans will be April 9, the 99th day of 2010. That means Americans will work from Jan. 1 to April 9 before they have earned enough money to pay this year’s tax obligations at the federal, state and local levels.
The table below ranks the states from worst to best, with Connecticut having the highest tax burden of any state and Alaska having the lowest. Florida ranks as the 20th best state in terms of lowest tax burden. Florida’s tax-freedom day will be Monday, April 5.
Click here to download a PDF of the table.