Michael Porter said at a recent national state governors conference that seducing businesses with state tax exemptions was not productive? Why? Because, for example, if Kansas offers X, then Missouri offers X+Y, then Kansas offers X+Y+Z and so on. Neither state wins and the business will no doubt move to another state when that state offers a new tax exemption that is financially attractive. (And of course the tax exemption must cover the cost of moving and then some.) According to my observations, the Governors were shocked that the tax exemption policy their states had been using for attracting business was not smart. “It was a zero sum game,” said Harvard professor Porter.
I live in Leawood, Kansas which borders Overland Park, Lenexa and Shawnee. These small Kansas cities compete tooth and nail to attract businesses from one city to another and back with lucrative tax exemptions. It is an economic development pricing policy that drives both cities to near bankruptcy.
At the conference, Porter pointed out the obvious. It would take a blind, deaf and dumb city/state economic development manager to believe tax exemptions are effective methods of attracting businesses to their respective areas. But that is not the point. The point is that Porter as a Harvard Professor is credited with this ubiquitous piece of common sense knowledge because of the power and credibility automatically associated with his Harvard position. If you and I would have said this at the Governors conference, it would have fell on deaf ears. Porter speaks and it is an erudite and adroit message, enlightening the Governors.
Now I happen to agree with Porter. Further, I have been evangelizing the killing of tax exemptions for attracting businesses for more than 15 years. I have traveled to Florida, California, Indiana, Kansas, Washington and Missouri with my evangelical message. However, I lack the platform of instant credibility that Porter has. And I am a bit jealous because I thought killing tax exemptions was my idea. But that it is still not the whole point. “Then, what is the whole point Mr. Webtalkwithbob?” I asked myself losing my patience a trifle.
The point is humans associate truth with positions of power. The higher the position the more probable the truth. For example, when the Secretary of Defense, a position of power, speaks, we typically believe he is correct. He is speaking the truth. He is knowledgeable, thoughtful, objective and therefore lacks the common characteristics of being a human being. And when the Secretary’s statements appear in print, we believe it is even more an example of indisputable truth. The newspapers check these things out don’t they? I am not just talking about the Secretary of Defense, I include any position of power from professors to government officials. The ad agencies have recognized this concept for years that is why they dress their characters in white coats, glasses and grey hair.
We humans need to be careful, particularly in the age of rapid information exchange and look beyond the form to the content. Lest we be seduced by inaccurate statements emanating from positions of power. That was the whole point. It just took a while to get there.
I don't really have a problem with states competing in terms of having lower taxes and associated lower services. Connecticut, where I went to high school, has high local taxes and (relatively) good schools. Other states, such as Texas, want to compete by having low taxes and crappy schools. Fair enough -- let the people choose! The more local the better in my opinion.
ReplyDeleteActually Boston is a great example of tax competition. Many people live in New Hampshire and commute to Boston because of lower taxes in New Hampshire. Virginia/DC is another example. Nonetheless I choose to live in DC because I like it there better than Virginia. I would rather be in a neighborhood where I can walk to local restaurants, take the subway to work rather than be stuck in rush hour on I-66, etc., but that is just my personal preference and many others feel differently.
Of course I believe that the corporate tax rate should be zero (or close to it). Dividends and cap gains should be taxed at the personal rate. That way there is no double-taxation and all income from all sources is treated equally.
He is of course absolutely correct about not trusting politicians and media outlets (includes Fox, you know!!!! As well at NYT and all the others). Doesn't mean that newspapers and politicians are useless, they provide some information, just treat it with a grain of salt.