Tuesday, February 09, 2010

Lipstick on industrial policy 

While I was speaking on the St. Cloud economy at the Whitney Senior Center this morning, staff from Sen. Franken's office were in another wing of the center collecting evidence for his push for wage subsidies. MinnPost has been trying to call this a replay of Perpich economic policies. And closer to home it appears Rep. Ann Lenczewski has gotten religion on tax credits, pitching three new ones along with expanded use of tax-increment financing and some more money for Mall of America.

I say "get religion" because this is not the Ann Lenczewski I kind of admired last year, when she had this to say in an interview with Steve Perry:
PIM: You�re talking about loopholes and exemptions that principally benefit upper-bracket people. Could you give me a couple of examples?

Lenczewski: There are like 25 things that I�m repealing, and they do different things. Some of them aren�t just helping wealthy folks. Some of them aren�t working at all, no matter who they�re intended to help�for example, the long-term health care credit. That�s intended to get people to buy long-term health care, and what it�s really doing is costing the state a ton of money. It�s a net loser, it�s completely not working. I heard a Harvard study at the National Tax Association showing that states doing this are just nuts, because they�re net losers.

So I�m repealing some things that don�t work, and then I�m repealing some things that are discretionary ways of saying, we�ll give you tax credits for certain activities but not for others. It�s sort of government playing king. .And then there�s a whole bunch of things for people who are high income-earners. We�re not getting rid of them entirely; we�re still going to keep them for people of limited means, but we�re going to turn them into a credit.
Emphasis added. She is now willing to sponsor legislation that spurs "angel investment" ... but the angels only visit those "in high tech, manufacturing, or green businesses with fewer than 100 employees and less than $2 million in gross receipts." She's now putting "certified historic projects" for rehabilitation ... certified by whom? Who will "government playing king" take money from when she says she will "conform" REIT income to federal taxation? And what kinds of jobs are being created by using state monies for Mall of America? I'm saddened by this because I thought she had seen the light given the Perry interview. I am sure she prefers a higher tax rate than I do, but we both prefer (or preferred) a flatter tax base.

Gary Gross (whose link to Lenczewski's release inspired this post) properly chastises this effort:
David Strom was right when he told KSTP�s Tom Hauser that tax credits was a new way for government to pick winners and losers. I�ve said before that government�s record at identifying the next Microsoft, the next Fedex or the next Dell has been terrible. Still, the DFL insists that it knows best.
Link added. Don Boudreaux also points out the folly of this new wave of industrial policy at the national level, arguing that the government's choice of winners depends on how many jobs it creates or saves rather than how much output is made.

Perhaps that is because a widget doesn't vote, but a worker does.

And worse, when you have a government picking winners and able to solicit donations from the contestants, you have a powerful incentive for corruption. Or at least, a little humor.

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