BCT Editorial – 3/5/06

This page was last updated on March 5, 2006.

Boom or bust?; Editorial; Beaver County Times; March 5, 2006.

Below is a detailed critique of the subject editorial.

“No matter how court rules, states should re-examine use of tax cuts to lure growth

“It you cut businesses tax breaks, they will come.”

[RWC] The first problem with this editorial is that it does not distinguish between so-called “targeted” tax breaks and tax cuts for all businesses. This editorial is all about tax breaks doled out by politicians who believe they can manage an economy, but I believe the author wants us to believe tax cuts for all business is bad. The politicians also know the ability to hand out tax breaks gives them power. The editorial never mentions this aspect.

“Maybe, maybe not.

“Throwing tax cuts and tax credits at companies has become ingrained in economic development plans for so long that few people question their worth. A group of Ohio taxpayers isn’t buying into that sales pitch, however, and its case has made it to the U.S. Supreme Court.”

[RWC] The first sentence is evidence the Times lives in its own little world of socialism and big government. True conservatives have long opposed what amounts to business welfare for at least three reasons.

First, targeted “economic development” tax breaks don’t work. For evidence, look at all the tax breaks given specific businesses in Pittsburgh and all the failures. Government directed economies don’t work and never have.

Second, selective tax breaks are inherently unfair. Most of the time, businesses end up subsidizing competitors who get the tax break.

Third, they serve to increase the power of politicians.

This statement also expects us to believe the Times editorial board doesn’t read its competitors. The Pittsburgh Tribune-Review regularly rails against this practice.

“The Associated Press reports the court is trying to decide whether taxpayers can challenge lucrative tax breaks their elected officials give to businesses as incentives to expand or move operations into certain cities or states.

“The case originated when taxpayers challenged the awarding of nearly $300 million in property and investment tax benefits to DaimlerChrysler Corp. to build a $1.2 billion Jeep assembly plant near Toledo.

“The Supreme Court has been asked by the automaker to overturn a ruling by the 6th U.S. Circuit Court of Appeals two years ago that struck down Ohio’s tax credit on new equipment, saying the practice hinders interstate commerce because the incentives are available only to businesses that invest in Ohio.”

[RWC] While the editorial appears to be about targeted tax breaks for specific businesses or geographic areas in a state, the DaimlerChrysler example doesn’t appear to fall into that category. From my research, the so-called “tax breaks” appear to be available to all businesses throughout the state. If that’s correct, this doesn’t meet the classic meaning of a targeted tax break.

“The case has huge national implications because states routinely offer tax cuts and tax credits as part of their economic development packages. Pennsylvania’s Keystone Opportunity Zones are an example.

“In addition to the constitutional question, Philadelphia Inquirer business columnist Andrew Cassel points out at ‘the very least, the discussion could help clarify some important issues involving business, politics and taxes.’

“That discussion needs to take place because this strategy might not be as effective as many believe it to be. Cassel cites Philadelphia’s new Cira Centre building and the site of the Science Center’s planned 1.8-million-square-foot expansion in University Center, which fell under the state’s KOZ designation.”

[RWC] Again the editorial ignores what conservatives have said and the facts have proven for years.

“The KOZ was supposed to attract new jobs to Philadelphia by letting tenants skip paying city and state taxes for up to 15 years. Instead, two big, wealthy Philadelphia law firms relocated from just a few blocks away.

“The Tax Foundation, a Washington-based think tank, also questions the value of tax cuts and tax credits, and it makes an argument that makes sense. Instead of handing out tax breaks, a state should improve its business climate for the long term to increase its competitiveness compared to other states.

“Right now, states don’t have to undertake that effort because they are still relying on the tax-cut-and-credit approach to economic development. However, if the Supreme Court rejects DaimlerChrysler’s appeal, the Tax Foundation’s argument is a viable alternative. States should take it into consideration and re-examine their tax policies no matter how the court rules.”

[RWC] As I noted at the beginning of the critique, the editorial doesn’t clearly draw a line between targeted tax breaks handed out by politicians to specific businesses in specific areas and tax cuts available to all businesses throughout the commonwealth. I believe this lack of distinction was done on purpose. Remember, in an editorial of only four days ago, the Times claimed Pennsylvania’s “business tax climate is competitive.”