The Best & Worst to Come: A Review of Economic Development Policy for 2009-2010
As we review the best and worst economic development legislation of 2009, it’s also time to begin to consider what ideas are likely to resurface in 2010.
Politicians in South Carolina continue to believe they can decide what the next-best industry will be and then use taxpayer dollars to grow and foster the economy. But this is a flawed plan.
In its most basic terms, government-driven economics consists of forcing some people — taxpayers — to give money to other people — select businesses eligible for tax credits, subsidies and grants given out by public officials and state agencies. The promise is that economic development will benefit everyone. The reality is that it only benefits the chosen few — and those politicians these businesses support come election time.
Best Ideas for 2010
Even when state-driven economic plans actually create new jobs they never do so as efficiently as the free market. In effect, every job created by the government is a job-plus one that could have been created by private industry. For this reason, the only good economic development plans ever devised are those that reduce government interference and lower taxes. Here in South Carolina, two of the best things the General Assembly could do to jumpstart the economy would be to:
1) Eliminate the Corporate Income Tax. This is an inefficient tax that does not generate much revenue and creates administrative hassles for businesses. According to the Tax Foundation, South Carolina ranks in the bottom half of states in terms of overall business climate. Eliminating the state’s 5 percent corporate income tax would improve our ranking to 11th.
2) Eliminate Preferential Tax Credits. Instead of trying to pick winners and losers, the state should lower the income tax rate for everyone. This is fairer and will also simplify the tax code — as well as generate more tax revenue in the long-run.
Worst Ideas for 2010
1) More Preferential Tax Breaks. Unable to come to a consensus on various tax credits, legislators lumped them all into one bill (H 3722). This legislation has already passed the House and Senate and is slated to go into conference committee. Some of the favored industries include hydrogen (of course) and land developers (of course).
2) More Stimulus Dollars. Given that the federal stimulus is not working, lawmakers may convince themselves we need a state stimulus. S 171 would empower the Budget & Control Board to administer this grant program.
3) More Bumbling Attempts to Create Jobs. If the unemployment rate spikes again, calls for an unemployment tax credit will likely resurface. S 690 would provide such credits to companies that hire unemployed individuals currently receiving unemployment benefits.
Want to learn more about what your lawmakers were up to in 2009? Check out The Best and Worst of 2009.
Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation.
Copyright 2009. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201.