Is less really more? 

Questioning Daniels' economic policies

Questioning Daniels’ economic policies

Our governor’s approach to economic development has prompted some folks to indulge in gallows humor.

Since the Democrats have kicked up a fuss about the “Guv-mobile” (the governor’s spiffy RV) being taken to fund-raising venues, a friend of mine sourly suggested he might avoid controversy by putting it to more appropriate uses:

• It might be used as a mobile office to replace those being closed by the Bureau of Motor Vehicles;

• It could be pressed into service as an extra classroom, to relieve overcrowding while school corporations engage in the lengthy new process of demonstrating to state bureaucrats that they really do need that new building;

• We could really use some emergency mobile clinics, so the folks who are being dumped from Medicaid don’t clutter up emergency rooms;

• Or it could become a mobile unemployment office, offering outplacement advice to laid-off state workers.

There were others, but you get the idea.

Fair or unfair, these gibes underscore an important difference of opinion on what effective economic development strategies look like. The Daniels Administration clearly believes that the best way to create jobs is by cutting taxes and services to the bone. Make Indiana a cheap place to do business, the theory goes, and we’ll be more competitive. As a theory goes, it is certainly defensible. The problem is, it doesn’t work.

Take a look at the states that are cleaning our clocks when it comes to new job creation. They have tax rates considerably higher than ours — even our Midwestern neighbors. But they have something else, something those higher taxes have bought them: a level of public services that makes their quality of life better. Their cities have well-maintained parks, landscaped streets and roads, museums and libraries that stay open long hours. Many of them — gasp — have reliable, convenient public transportation that employees can take to work.

Think it doesn’t matter? Recently, several Southern states were in hot competition for a new Toyota plant. They offered tax incentives reportedly worth hundreds of millions of dollars, and they offered low tax rates — the same strategies Indiana has been using. In June, Toyota announced that the new plant would be built in Ontario, Canada, despite the fact that Ontario hadn’t offered any incentives and had a considerably higher tax rate. Why? Two reasons were given: the quality of the workforce and the quality of life.

Think about it. If you were an employer looking to locate a new facility, would you choose a site where taxes were lower, but the quality of the schools virtually guaranteed that you would have to spend money on remedial education, in addition to providing health care and other social benefits for your workers? Or would you opt for a location with a higher tax rate, where the state relieved you of the obligation to provide health care, and where your employee pool was already educated?

As the saying goes, you do the math.

We Americans like to congratulate ourselves because we pay lower taxes than people in other industrialized countries. It doesn’t seem to occur to us that those lower taxes don’t save us money. We don’t pay the government for our health care, but we sure pay for it. In fact, we pay much more for it. American per capita health care costs are twice as high as the per capita costs of the next most expensive system. This year, the average cost of health insurance per family — for those who can afford it — is $11,000.

We “save” on taxes by starving our schools, and then we pay for remedial education. We also pay in uncounted ways for the costs of wasted human capital. And we pay again when we sell homes with market values that are lower because they reflect the “quality” of the local school system.

We “save” money by squeezing public transportation, leaving us with buses that run so infrequently that we have to own a car if we want to get to work. Then we pay again to pave more roads, and again to abate the air pollution.

We “save” state money by deferring maintenance on our public infrastructure. (Look how well that worked in New Orleans!)

We “save” state money by starving the cities, which “save” money by closing the swimming pools and neglecting parks maintenance. But that’s OK, because those who have money can spend it on private pools and clubs.

We “save” tax dollars by not landscaping along our crowded highways, by mowing less frequently, by sweeping our streets less often. If it looks like no one cares, well … who cares?

And then we wonder why no one wants to do business here. Maybe if we just cut taxes … Sheila Suess Kennedy is an associate professor of law and public policy at SPEA, IUPUI.

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