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Tax Favors ≠ Economic Development April 24, 2008 In Haddam, a banquet hall got one. In Windham, it was an apartment building. In Rocky Hill, a frozen-food warehouse. Two precision-parts manufacturers each got one in Manchester. And Monroe’s town councilors want to give them to six businesses. Connecticut’s municipalities are handing out property-tax abatements at a rapid pace, hoping that the perks will promote job growth -- or at least keep businesses and their employees from bolting to friendlier locales in other states or abroad. But as countless studies have shown, in the game of corporate welfare, taxpayers always lose. Look no farther than Connecticut for evidence that tax breaks, low-interest loans, job-training grants, and direct giveaways don’t produce a stronger economy. For decades, the Nutmeg State has poured billions of taxpayer dollars into what politicians call “economic development.” What do they have to show for their central-planning habit? According to the state’s labor bureaucrats, in 2007 Connecticut had fewer private-sector jobs than it did in 1989. (Government employment was up, of course.) In the last four months, 6,700 jobs have vanished. And the future looks bleak. In an era of runaway property taxes, municipal giveaways to businesses are particularly stupid. Let’s start with a fundamental question: Are local-government politicians capable of making sound “investments”? “Because policy makers have no clear foresight of where entrepreneurial energies will be directed in the future,” warns Jerry L. Jordan, former president of the Federal Reserve Bank of Cleveland, “it is impossible for them to predict where jobs creation ‘should’ occur. It is not surprising, then, that government policies that seek to direct the flow of entrepreneurial talents in an effort to promote ‘good’ jobs, and presumably to discourage ‘bad’ jobs, will have uncertain and potentially negative effects on economic prosperity.” When a tax break is given, it can never be proven that the perk was the catalyst for the recipient to relocate a facility, stay in a community, or hire more workers. If the decision was due more to closeness to a customer base, a local workforce with the right skills, or proximity to transportation systems, it is unlikely government “support” made much of a difference. And what if the abatement was the deciding factor? That doesn’t say much about the viability of the enterprise. “Your favorable action on this request for an assessment fixing agreement will enable us to meet what we believe to be the final issue relating to financing,” the Windham apartment company explained to town officials earlier this month. “We’re here with hat in hand because we really need assistance,” a partner in the Haddam banquet hall pleaded in January. Do these sound like businesses taxpayers should be subsidizing? It’s easy to see why companies, always angling for every advantage in a highly competitive and increasingly globalized economy, seek tax breaks. But they should consider the karma factor. What’s to keep the politicians who granted them a tax abatement today from bestowing an even more valuable perk on a competitor in a year or two? By now it should be obvious -- even to Connecticut’s politicians -- that central planning has been a dismal failure in promoting the state’s economic health. Fortunately, there’s a sizable supply of effective strategies that can be employed to promote more jobs and higher incomes. At the state level, the taxes on personal and corporate income should be eliminated, in favor of a shift back toward a consumption-based revenue system. Right to Work legislation is a must, as is a true deregulation of the state’s electricity market. Eliminating the heavy burden of micromanaging mandates would make healthcare coverage affordable again. But local government has a role to play as well. The property tax is often the most onerous levy small businesses -- the enterprises that create most new jobs -- face. A relentless assault on inefficient expenditures, particularly in the government schools that comprise the bulk of municipal spending, is long overdue. Accountability-based management for all departments, competitive contracting of services, and the end of outrageously generous compensation packages for employees are also reforms that would drive down mill rates. Selective tax breaks for favored businesses -- even abatements that are “free” due to state reimbursement -- have to go. Their fundamental unfairness is indefensible, as are the cronyism and dependency-breeding that inevitably result from cozy relationships between government and business. Press releases and ribbon-cutting ceremonies are useful tools for pols seeking reelection. But economic planning isn’t the path to job growth and a higher standard of living in Connecticut. Economic freedom is. D. Dowd Muska is a writer, commentator and public-policy researcher. He can be reached at muskacolumn@cox.net. # # # # # |
