Old Drum

Commentary on Warrensburg, Johnson County and Missouri issues from a Libertarian perspective. View my earlier commentary at www.olddrum.net.

Friday, November 04, 2005

Stop the Bribery - Johnson County Enhanced Enterprise Zone

The DSJ reported that "local officials are looking into whether the Enhanced Enterprise Zone Tax Benefit Program would be a helpful way to increase economic growth in Johnson County." To be eligible, a location has to fit some formula that includes population, unemployment rates and poverty rates. This EEZ is another method to transfer taxpayer dollars to private businesses by giving them tax credits - i.e., corporate welfare. I call it bribery.

What's wrong with tax credits? Well, to start with they distort economic decisions. Businesses, instead of looking at true economic factors (labor force, cost of construction & production, transportation, etc.), have to compare the bribes offered by competing locales.

Second, they're based on artificial statistics. The so-called "poverty line" implies that people are in dire need. While some are truly needy, many people living in "poverty" have the modern amenities of American life - color TVs, cell phones, cars, etc. Unemployment rates discount the mobility of the population and the existence of unemployables. Traditionally, 4-5% unemployment rates are considered "full employment" and Johnson County's rate has been far below that rate.

Third, tax-based incentives for business take money from agencies other than the one granting the credits. In Johnson County, we have many taxing bodies outside of the cities and County. These include the schools, emergency services such as the hospital, ambulance district and fire districts, and community services such as the library, community health and the sheltered workshop. Presiding Commissioner Brenner is correct in citing this concern.

Whenever taxes due to a taxing district are taken as part of some sort of development incentive, the other districts must either do with less (not always a bad idea) or try to increase their own tax rate. In either case, the taxpayers are paying for services they are not getting because the money is going to "economic development."

In a Libertarian world, governments wouldn't be allowed to bribe businesses to relocate. Tax incentives are just another facet of government "taking" compensation, which our Supreme Court approved of in the 5-4 Kelo decision. While I recognize that we live in a competitive world where foreswearing tax incentives is tantamount to unilateral disarmament, we can start somewhere. On the local level, we can be very judicious in their use; at the state level, our legislature should forbid the use of incentives to induce a company to relocate from another city in the state. Eventually, perhaps we can rid ourselves of this pernicious practice.

In Liberty

1 Comments:

  • At Friday, November 04, 2005 11:45:00 PM, Blogger Ben Pierce said…

    Congratulations on your new blog, Bill. I agree that the whole tax credit mess has got to go. Perhaps just lowering the tax rate for all business would attract new growth, while spurring economic growth among existing business at the same time.
    It somehow just seems wrong to punish existing business by enticing competitors with tax credits.
    Our politicians, however, just love the idea that they can somehow take the credit for economic growth if they get to hand out the tax credits.

     

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