Enhanced Enterprise Zone in Webster County
According to an article in The Springfield News-Leader, Webster County in Missouri is seeking designation as an Enhanced Enterprise Zone so that it can attract industry and create jobs. The article communicates that Webster County is economically depressed and that the EEZ designation will benefit the area with new businesses and jobs, but it divulges few details about how the program is constructed. The following are the few that it includes:
The discretionary program offers state tax credits, accompanied by local real property tax abatement, for businesses that meet criteria such as adding jobs. […]
Ipock said state tax credits will only be allowed for qualified businesses and are geared toward industrial development.
Businesses that are ineligible to receive the tax credits include gambling establishments, adult businesses, retail trade, educational services, religious organizations, public administrators, food and drink establishments.
I disagree that the program’s benefits should be for “qualified” businesses. This is the same as the fundamental argument against targeted tax credits, like those to filmmakers. The government should not have the authority to pick and choose which businesses can operate in its borders. These programs create inequality because they force businesses that aren’t “qualified” to compete at a comparative disadvantage. This consequently encourages corruption, because it gives businesses an incentive to solicit the government for special treatment.
Instead, Webster County should focus on creating a favorable tax environment that would benefit all businesses equally, such as reducing commercial property tax surcharges and repealing mandates. If the city of Saint Louis were toying with such an idea, I would recommend that it repeal the earnings tax instead.
I also disagree that the focus of the program should be on job creation. Public works projects, such as Enhanced Enterprise Zones, encourage nonproductive work (e.g., “work for works’ sake”). I think that Milton and Rose Friedman would agree; in Free to Choose: A Personal Statement, they write:
If all we want are jobs, we can create any number—for example, have people dig holes and then fill them up again or perform other useless tasks.
Furthermore, although the program may be successful at attracting the targeted industries, any activity that it generates will be discounted by the amount of the economic incentives that it takes to attract it. As Henry Hazlitt explains in Economics in One Lesson, spending in the private sector destroys jobs in the private sector. This is because public spending is financed by money that is taken from taxpayers, who can’t spend this money on products and services in the private sector that would generate productive economic activity.
When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built.