Pearlstein meticulously makes his case for why Maryland and D.C. are just wasting their time. Here’s how he shows how particularly foolish it is for D.C. to be chasing after Northrop Grumman with a fistful of taxpayer dollars:
For the District, which is looking at a $200 million budget shortfall next year, getting into this bidding war is particularly loony. Virginia and Maryland officials can argue at least that the winner of the headquarters sweepstakes would collect income taxes on all those highly compensated executives, even if they commute home elsewhere. That’s the way the tax system works in most places, but not in the District, which is prevented by Congress from imposing an income tax on employees who commute in from Virginia, Maryland or any other state. Without that, it would take decades for the District to recoup the $24.5 million that the mayor and D.C. Council have offered Northrop over the next 10 years.
And Pearlstein lands more than a glancing blow on a politician while also tweaking the company for its larger government dependency:
But it’s more than ironic that, having spent the past year lambasting Democrats for taxing and spending, Republican Bob McDonnell now can’t wait to lavish millions of taxpayer dollars on a Fortune 500 company that makes all its money selling stuff to — who else? — the government.
It’s not too late, however, for McDonnell to renounce this kind of socialism, call up Gov. O’Malley and Mayor Fenty and, in the name of fiscal sanity and regional unity, propose a financial disarmament treaty.
I’ve long thought the states ought to go in on a kind of mutual nonagression pact regarding corporate welfare. Until that happens (which it won’t, of course) they’ll keep bidding themselves into a corporate corner.
Which is how Tom Friedman likes it.
Columnist Carl Hiaasen just wrote a delicously funny column on this general topic for the Miami Herald.
#1 Posted by Alan Gregory, Lt. Col., USAF, Ret., CJR on Wed 3 Mar 2010 at 12:06 PM
Yes, because lowering taxes is definitely the best way to increase taxes. The Laffer Curve has been discredited, you know.
Woah, slow down there bub. When you say that the Laffer Curve has been discredited, do you sincerely believe that raising tax rates does not decrease economic activity, lowering tax rates does not increase economic activity and that somewhere between a tax rate of 0% and 100% there is not an optimal point where the government maximizes its revenue/tax rate?
Reasonable people can certainly argue about where that optimized point is, whether its 20% 30% or 40%. Reasonable people can also argue if that optimal tax rate brings in enough revenue to cover a liabilities on a balance sheet but your blanket dismissal of the “discredited” Laffer curve tells me that you either don’t understand it or are just looking for a way to score some cheap political points.
#2 Posted by Mike H, CJR on Wed 3 Mar 2010 at 02:34 PM
Reading the article, and at face value, Mike H is exactly right. I'm assuming that Mr. Chittum believed that the tax rate was already below that needed to generate maximum revenue.
...but that wasn't what was said in the article.
And while Friedman's article about Intel and Otellini comes across as sounding extreme, there are elements of truth there, too.
The trick is in finding the optimum tax code, then living within it. Sounds easy, no?
#3 Posted by JohnW, CJR on Wed 3 Mar 2010 at 06:59 PM
Mike, John--
The Laffer Curve in the world we live in has been discredited. I understand if you tax somebody at 90%, say, things probably change. But we're far from it.
#4 Posted by Ryan Chittum, CJR on Wed 3 Mar 2010 at 09:16 PM
Yes, isn't the principle of the Laffer Curve the idea that tax cuts raise government revenue, which was used to justify the huge Reagan tax cuts and the huge Bush tax cuts? How has that worked out?
Obviously there is no metrics and obviously there is no complete, objective, testable formulations of the theory (show me the math, not the pictures) and obviously there is no regard to income level such as how a tax cut for the wealthy merely adds to a hoard of liquidity, but not actually increase any economic activity to be taxed.
The Laffer curve, as a matter of economic science, is laffable.
But if we're going to take the Laffer curve seriously ask Bruce Bartlett about it:
http://www.capitalgainsandgames.com/blog/bruce-bartlett/1102/laffer-curve-revisited
http://www.forbes.com/2009/09/24/fiscal-spending-taxes-opinions-columnists-bruce-bartlett.html
#5 Posted by Thimbles, CJR on Wed 3 Mar 2010 at 11:27 PM
What the laffer curve is used for is the political purpose of being a Santa Claus.
Jude Wanniski used to talk about how conservatives had a hard time because the democrats were always the Santa Claus; devoting tax revenues to welfare, medicare, and social security while the republicans were always Grinches; cutting taxes which led to cutting programs which led to Mr Potter caricatures. What Wanniski put forward is that republicans could be two santa clauses:
http://en.wikipedia.org/wiki/Jude_Wanniski
They could cut taxes AND increase programs based on projected revenues from laffable economics (or was it voodoo economics. Oh, I can't remember).
But the real success was that it put their opponents in the position of bad guy unless they opted to be as irresponsible as they were. The responsible party would either have to be a raise taxes Grinch or a cut programs Grinch or both. If ever the two santa republicans lost power, the policy future for the successors was sabotaged by the deficit, spending fight they'd inherit. And the successors, not the Santa clauses would be held responsible.
It's not an economic theory, it's a strategy for political warfare.
#6 Posted by Thimbles, CJR on Wed 3 Mar 2010 at 11:41 PM