Governor's New Deal is a Raw Deal
Listen to Dr. Staley discuss his concerns with the governor's plan on Buckeye Voices.
Ohio's economy is languishing. We lagged behind the rest of the
nation's growth in every year over the last decade except one. Job
growth averages half the national rate since 1990, and our unemployment
has exceeded the national average every year since 2003.
Recently,
Gov. Ted Strickland offered up a $1.7 billion bond sale as an
antidote. This self-described "stimulus package" would supposedly
prime the state's economy by adding to our debt.
While the
governor offered his initiative as a forward looking economic solution,
many economists had backward visions of a 1930's style big government
endeavor.
The program would dump hundreds of millions of
dollars into, among other things, risky alternative energy investments, "bioproducts" that would potentially replace oil, an already thriving
biomedical industry, and an FDR-era public works commission to repair
roads.
This smorgasbord of economic development programs is a
recipe for economic disaster. It ignores important lessons about
Ohio's past attempts to promote growth through similarly targeted
business subsidies. It also pushes aside academic research on what, if
anything, state government can actively do to jump start sustained
economic growth.
And, the bond issuance carries an estimated
$1.4 billion in interest payments alone - bringing the true cost to
taxpayers to about $3.1 billion.
Gov. Strickland can't be
faulted for leadership. He envisions this program as "a major new
financial investment in our state" with the goal of creating 80,000 "high paying jobs" while "also investing in the infrastructure and
industries that will light our path to the future."
Unfortunately,
Gov. Strickland's words ring hollow, promising more than can be
delivered and confusing the role of the state in promoting economic
development.
For almost two decades, Ohio governors have
depended on targeted business subsidies to promote economic growth to
no avail. While these deals created ribbon-cutting opportunities, they
represented little more than a veneer of job creation. The state
continued to wallow in a deteriorating business climate and sunk even
further into an abyss of bad policy, high taxes, and onerous
regulations.
In 1990, Ohio's state and local tax burden was in
the middle of the pack compared to other states according to the
nonpartisan Tax Foundation in Washington, D.C. Seventeen years later,
our tax burden is the 5th most onerous in the nation. Moreover, our
state business tax climate was the 46th worst in the U.S. last year,
driven by punishing income taxes and high property taxes.
An
aggressive policy of subsidizing politically favored businesses will
not overcome the broad erosion of Ohio's business and investment
climate.
In 2002, economists Todd Gabe and David Kraybill
examined the effects of economic development incentives for 366 Ohio
businesses from 1993 and 1995. They found the tax incentives
significantly increased the amount of jobs firms said they would
create, but had no meaningful effect on the actual number of jobs
created. Many businesses using these programs simply became better at
playing the game. Firms receiving government subsidies were more likely
to overstate job creation than those that went on their own.
Restoring
Ohio's economic vitality will be difficult under the best of
circumstances. But the solution is not in having state government pick
winners and losers by rewarding favored, politically correct businesses
over others not on their political radar screen. On the contrary, the
key will be in creating a policy environment where broad-based
entrepreneurship and business investment is welcomed and nurtured.
Unfortunately,
policies that broadly benefit the economy face big political hurdles.
They require rolling back regulations that limit labor market
flexibility, streamlining and limiting tax increases, and re-writing
Ohio's income tax code to promote investment rather than punish it. In
short, Ohio will need to create more economic freedom, not burden
entrepreneurs and citizens with higher government spending and debt.
Ohioans
already spend nearly four months working off the cost of local, state,
and federal government services. With the new debt the governor wants
to heap on, taxpayers are destined to add another month working for the
government. This leaves fewer and fewer dollars to fuel economic growth
in the private economy. That's a recipe for driving away
entrepreneurship and private investment, not keeping or nurturing it.
Dr. Staley is a senior research fellow at The Buckeye Institute and director of urban and land use policy at the Reason Foundation.
