Welcome back, Civitas Review readers. After a holiday hiatus, its time to get back to generating new blogs on a regular basis.
Just before Christmas, the N&O published this horrendous defense of corporate welfare penned by (surprise!) two lawyers who make their living defending recipients of corporate welfare.
For starters, their choice of quoting H.L. Mencken in the intro to an article defending government meddling and control over our economic affairs is offensive. Mencken’s disdain for government is one of his main calling cards, indeed he bluntly stated that he believes “all government is evil.”
Reading further in the article, we find some economically-ignorant claims being employed to defend the state’s continued use of “economic incentives.”
1. You can’t tax what’s not here . Most fundamentally, the anti-incentives crowd refuses to recognize this reality. If a company builds a new major Internet data center in North Carolina, it can get some tax exemptions…..
If that data center doesn’t get built, the property probably remains a fallow field generating minimal taxes and no jobs. A data center located in South Carolina – or India – won’t generate any tax revenue for North Carolina either. The issue, in other words, is not a fully-taxed facility versus one which receives some incentives. The issue is between a partially taxed facility and no facility at all.
Yet again we see otherwise intelligent people succumb to the age-old fallacy of merely observing the seen while ignoring the unseen effects of policy. In this case, even granting that the specific company in question would not have located or expanded in NC without an incentive package, the authors overlook other unseen effects.
How many other companies are put out of business because they can’t compete with the company that receives the tax break? What about the distortionary effects to the local market for labor, land and other resources because these inputs are bid up by the new company – how many jobs are lost or never created by other businesses in the area who can’t afford the higher prices (i.e. without the new data center’s demand for workers, labor costs may be lower; if that lot did sit empty land prices may be lower)? There are severe trade-offs involved in the incentives game, but these corporate welfare lawyers are completely ignorant of them.
Next, they completely miss the mark trying to attempt to claim that adding more incentives and exemptions somehow creates a more level playing field.
We count over 60 tax exemptions for various industries ranging from manufacturing to agriculture to forestry.
Incentives, at bottom, simply recognize the existence of new industries and put them on equal footing with older, more established industries.
No. Putting industries on “equal footing” with each other would involve scrapping those 60+ exemptions (along with countless other incentive programs) and actually treating all businesses equally.
They conclude by revealing their true colors – cheerleaders for the political elites.
In the arena of economic development, government can play only two roles: a positive role seeking to attract businesses and build up commerce or a negative role driving businesses and jobs away. The putative “neutral” role that some incentives opponents purport to advocate really just means passive negativity. It amounts to the government telling businesses (and their workers) that “we don’t care if you go to some other state.”
Equating a government that is neutral and equal in its treatment of businesses to a policy of “passive negativity” is absurd. The market economy consists of individuals cooperating with each other to fulfill the highest needs of consumers. Entrepreneurs adjust their actions to most efficiently transform inputs into finished goods and services that consumers value at a price they are willing to pay. When the decisions of entrepreneurs are distorted by the government ruling class’ granting of favors to specific politically-connected firms, the allocation of scarce resources are no longer dictated by consumer preferences, but by political cronyism.
Such a shift of influence on resource allocation amounts to a transfer of power from the many to a small group of the political elite.
Treating all businesses equally rather than engaging in the practice of dispensing favors to politically-favored companies is to respect the sovereignty of consumers. The truly “negative” policy is the one these lawyers advocate for, because it does indeed send a message to those entrepreneurs not able or willing to lobby politicians for preferential treatment that their business is not welcome here.