But Does It Work?

As part of his address to the nation last week, President Bush, sleeves rolled up in an eerily lit Jackson Square in New Orleans, announced the creation of a Gulf Opportunity Zone as one of the centerpieces of post-Katrina reconstruction. “Within this zone,” he said, “we should provide immediate incentives for job-creating investment, tax relief for small businesses … and loans and loan guarantees for small businesses, including minority-owned enterprises, to get them up and running again.”

It was a predictable conservative response: stimulate economic growth and entrepreneurship by removing some of the tax burden.

Well it’s been over a week since this announcement was made, but there’s been almost no scrutiny of the GO Zone — as the kids are calling it — and no real in-depth look at how useful it will be for reviving the economy of the battered region.

What critical glare there has been has come mostly from editorials. The Washington Post today reminded readers that “the idea of spurring business activity in needy areas with tax incentives has been tried by both state and federal governments many times before, but economists who’ve looked at the record find no evidence that such schemes work. Urban areas that don’t get tax breaks appear to fare as well as those that do get them, perhaps because business decisions on where to locate are driven overwhelmingly by non-tax issues such as proximity to desirable workers and customers or the quality of local infrastructure. Enterprise zones therefore wind up subsidizing businesses that would have invested there anyway. They depress tax revenue without generating any compensating benefit.”

A Wednesday editorial in the Los Angeles Times threw in an additional criticism that “most new jobs emanate from new, small businesses, which don’t benefit much from tax breaks because they don’t have much taxable income. By contrast, the beneficiaries of enterprise zones often are established businesses that move their offices into the zone to lower their tax burden.”

The only news article we could find that explored the issue in any depth was in the Washington Post yesterday. The piece leads with word from White House officials that “they do not plan to exclude the gambling industry from huge tax write-offs for investment in equipment and structures in the president’s proposed Gulf Opportunity Zone.”

Casino owners can’t believe their luck. Alberto Lopez, director of strategic communication at Harrah’s Entertainment Inc., which lost two major casinos on the Mississippi coast, is quoted in the piece as saying: “We’re actually scratching our heads. We can’t ever remember an instance of being offered a tax credit — ever.”

According to the piece, “Existing legislation creating similar tax-favored zones has excluded gambling facilities as well as golf courses, country clubs, massage parlors, tanning salons, hot tub facilities and liquor stores — due to political reluctance to subsidize unpopular industries as well as the understanding that businesses like gambling simply do not need such support.”

The article doesn’t stop there. It also lets us know — as no one else has — that Western Mississippi already has “one of the oldest such zones in the country in the Mid-Delta Empowerment Zone, founded in 1994.” But, according to William F. Shughart II, an economist at the University of Mississippi, the region remains extremely poor. Empowerment zone designations, he said, “have had zero impact.”

Not helping to allay fears that conservatives want to use ruins of the Gulf as a petri dish for their pet economic theories, the Wall Street Journal added their two cents in an editorial (subscription required) on Wednesday saying that they “only wish the tax incentives went further than what Mr. Bush has proposed; why not allow the Gulf to operate as a laboratory for a flat tax, with an 18 percent rate and no taxes whatsoever on capital investment for business-small and large?; and if it works for New Orleans … make it the law of the land.”

We’re not economists. But we are interested citizens. And if the GO Zone is at the heart of Bush’s plans for the Gulf Coast, let’s get a more thorough airing of its plus and minuses. Ideally, more than just a few editorials and one news article.

Gal Beckerman

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Gal Beckerman is a former staff writer at CJR.