Friday, July 25, 2008

Is Higher Taxes The Goal for The City of Detroit? by Akindele Akinyemi

The City of Detroit should focus on making our communities conducive to economic growth and business investment by keeping property taxes, sales taxes, and business regulations and fees low. Furthermore, the city should avoid implementing new taxes such as land transfer taxes.

Local leaders should also focus on essential government services, making sure that these services meet the needs of business. This would include providing reliable sources of water and regional transportation services that accommodate the desired lifestyles of the workforce and the needs of industry. This cannot be accomplished by targeting businesses for special subsidies while burdening local businesses and citizens with the cost of those subsidies.

The problem with business subsidies is that while they may benefit the targeted business and entice it to locate its operations within the county, they harm existing business and other taxpayers. Such policies do not generate net benefits for a city. Instead they simply hurt some and help others.

There's no such thing as a free subsidy. When a city decides to use tax dollars to entice a new company to set up shop in a community, that money has to come from somewhere. Local businesses and their employees must pay more in taxes and other costs to support the subsidized industry. This is why such programs are referred to as corporate welfare. Since higher taxes are an added cost of doing business, these subsidies depress economic growth for those businesses not receiving the subsidy. In reality the subsidies end up being a mechanism for transferring wealth from existing businesses to the subsidized businesses and the people who work for them.

Higher taxes for the city at-large are not the only way existing businesses must pay the cost of these subsidies. The subsidized entrants into the market add to the demand for workers, driving up labor costs for all businesses that are employing similarly skilled labor. This effect is particularly pronounced if the unemployment rate is already low. This means that the existing businesses not only have to pay for the subsidies through higher taxes, but, adding insult to injury, they may also face higher production costs.

There is an alternative. Detroit should pursue a policy of sustained economic growth that makes the possibility of investment attractive to all businesses, not just those favored by local politicians or planners. This policy would seek to keep property and sales taxes and business fees low. But beyond this, the policy should also focus on keeping land-use and other regulations to a minimum. Such regulations drive up housing and land costs, both of which make investment less attractive.

The primary role of local government is to provide for sound and reliable infrastructure services. This last includes effective police and fire departments, efficient trash collection, a road system that is kept in good repair, a safe and instructionally effective school system, and a dependable sewer system and water supply that can accommodate economic growth.

The goal should be to create an environment that is conducive to investment and business activity, not to favor some at the expense of others.

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