On the heels of a popular deal to retain 1,000 jobs at an Indiana air-conditioning plant, there’s a lot that we still don’t know. Some conservatives, including Sarah Palin, decried the deal as “crony capitalism” that included special tax giveaways, while other reports indicated the major factor was future defense contracts. No matter the specifics, President-elect Donald Trump pledged to use the presidency to continue negotiating these types of deals. However, he encouraged continued interstate fights over jobs through competing tax breaks: “And they can leave from state to state and they can negotiate good deals with the different states and all of that. But leaving the country is going to be very, very difficult.”
While research shows that most new jobs are generated by start-ups or in-state expansions, many taxpayer dollars are spent trying to lure outside business. In response to the Carrier deal, Good Jobs First, a watchdog that tracks state subsidies, released a statement from its executive director, Greg Leroy, that outlined a better way forward on state tax incentives.
In 2012, we laid out a simple proposal for how the federal government could exercise its influence to cool off the economic war among the states. Our proposal is modeled on how Uncle Sam convinced the states to raise their legal drinking ages and thereby save countless thousands of lives by reducing traffic fatalities. We suggest using the leverage of federal Community Development Block Grants to persuade governors to agree to stop active recruitment and to fully disclose the costs and benefits of all their subsidy awards. In our 2013 study, we added the recommendation that what we call ‘interstate job fraud’ be ineligible for tax breaks; that is, no subsidies for pirated jobs that are fraudulently called ‘new’ by the state they arrive in.
Louisiana’s blue-ribbon task force on tax and budget issues recommended continued study of the state’s economic incentive programs in its November report, pointing out the importance of a balanced use of “multiplier effects.”
Tax incentives are one form of government spending, and generally any government spending generates multiplier effects. A dollar spent by state government on, say, school construction will generate additional economic activity through a multiplier effect, just like a dollar given by state government to businesses using a tax incentive will generate additional economic activity via a multiplier effect. Assessing the viability and benefit of an incentive program primarily based on its multiplier effects can overestimate the economic impact of the incentive program relative to other spending programs. A further implication of this guideline is that the studies should make symmetric use of multiplier effects in assessing the fiscal impact of any program.
ACA repeal would harm health market, Medicare
Congressional leaders are considering pushing through a plan to repeal the Affordable Care Act without having a replacement plan in place. Such a move would throw the health insurance system into disarray, leaving millions of newly insured Americans in the lurch. The Center on Budget and Policy Priorities’ Judith Solomon has more:
If the repeal bill that congressional GOP leaders passed last year (and President Obama then vetoed) is a guide — as GOP leaders have said it will be — the repeal bill that they bring up for a vote early in 2017 will immediately eliminate the ACA’s individual and employer mandates. This means some people who are now enrolled — particularly healthy people who would no longer have to pay a penalty for lacking coverage — would drop coverage. (Some employers as well could stop offering coverage to their workers.) As a result, it’s likely that some insurers would drop out of the insurance marketplaces in 2018, with those that remain raising their premiums significantly since the people they cover will now be less healthy than in previous years. The premiums could rise to levels that most people who don’t qualify for subsidies cannot afford.
Paul N. Van De Water, also writing for CBPP, explains how the ACA is shoring up Medicare’s fiscal outlook:
Contrary to (House Speaker Paul) Ryan’s widely discredited claim last month that the Affordable Care Act weakened Medicare’s finances, health reform (along with other factors) has significantly improved Medicare’s financial outlook, boosting revenues and making the program more efficient. The trustees now project that the HI (Medicare Hospital Insurance) trust fund will remain solvent 11 years longer than before health reform was enacted. And the HI program’s projected 75-year shortfall of 0.73 percent of taxable payroll is much less than the 3.88 percent of payroll that the trustees estimated before health reform.
On “social engineering”
Dr. Benjamin Carson, President-elect Trump’s pick to lead the Department of Housing and Urban Development (HUD), once called the portion of the 1968 Fair Housing Act that requires communities to actively pursue fair housing “social engineering.” As Richard Rothstein explains on the Economic Policy Institute’s blog, social engineering has taken place- through racist policies of exclusion and segregation that shape our cities today.
As one opposed to social engineering, a Secretary Carson could take several modest steps to reverse it. At a minimum, he should make sure that HUD enforces the new rule that jurisdictions receiving federal funds make plans to desegregate—taking actions like, for example, modifying zoning ordinances to permit construction of more modest single family homes and mixed income apartment complexes. Virtually every jurisdiction, even the most affluent, comes under this rule, because all receive federal funds for water and sewer projects, greenspace, and other programs that have nothing to do with poverty.
Gas tax recommendation is coming
It’s been an open secret for months now that Gov. John Bel Edwards will propose a long-overdue hike in Louisiana’s gasoline tax as a way to pay for the massive backlog of transportation upgrades and “mega projects” needed for future economic growth. Nola.com/The Times-Picayune correspondent J.R. Ball writes that a task force is due out with recommendations next week that could propose a hike of up to 23 cents per gallon.
The group, after months of public hearings, announced last week that transportation spending must increase by $700 million annually, and that the “most reliable” way to generate that kind of cash is by more than doubling state’s gasoline tax. “We are not going to be shy about making a case for what needs to be done in Louisiana,” Shawn Wilson, task force co-chair and the administration’s secretary of transportation and development, said during a November meeting with engineers. “You are going to get sticker shock because we have ignored the truth for too long.”
Number of the Day
3.1 – Percentage increase in U.S. productivity during the third quarter of 2016. (Source: Bureau of Labor Statistics)