The Palmetto Insider

The blog of the South Carolina Policy Council

If Politicians Create Jobs, Don’t They Destroy Some Too?

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Politicians love to take credit for creating jobs. Press releases, tweets, news conferences – the public drowns in politicians’ self-praise when a new “economic development” announcement comes along.

In spite of the fact that government tax breaks and incentive deals to special interests are enacted with no concrete long-term economic analysis, and frequently without adequate public scrutiny, sweetheart deals continue. And with each new “incentive” package, our elected officials act like they are the saviors of the economy, riding into town on a white horse.

These deals didn’t start with Boeing, although it was the biggest – both in terms of dollars and hoopla. It’s just one of a series of “economic development” boondoggles that superficially sound good, but ultimately fail to create the most prosperous environment for businesses.

The Boeing deal was hailed by politicians because it is supposed to create at least 542 jobs per year. Yet South Carolina has lost more than 80,000 jobs just since last August. Where are the tweets and press releases accepting blame? I don’t see any politicians apologizing for “losing jobs. They only come out of the woodwork when it is politically helpful.

Here are three ways our politicians have cost the state jobs:

1)       Accepting the stimulus: When the General Assembly opted to accept all of the stimulus money and use it for state spending, it continued a growing trend – that the legislature is increasingly dependent on Washington for survival.

More money from Washington means more dependence on the federal government. More taxes means less disposable income for citizens – and fewer jobs created by the private sector.

Only the private sector can create jobs that result in real economic growth and prosperity

As a prior Policy Council report by noted economist Art Laffer details, each time federal government spending in South Carolina increased, private sector development decreased in productivity. Take the following two examples from the study:

  • Between 1992 and 2000, the percentage of state GDP from government spending fell 9.2 points to 41.7%. Growth in the private sector economy accelerated to 4.5% per year.
  • Between 2000 and 2007, the government’s share of the state ecomony started growing again (by 4.5 percentage points to 46.1%) and the growth rate in the private sector cooled to 2.0%.

According to Laffer’s estimates, South Carolina will lose between 23,800 and 34,850 jobs because of the stimulus bill.

2)       Economic development: Every time the state spends $1 on economic development, it destroys 20 cents in the private sector. Members of the General Assembly are often engaged in activities they say will benefit the economy, but legislation that makes the state government bigger inevitably restricts private sector growth.

Subsidies, tax credits, favorable contracts, and other “incentives” targeted to special interests are all claimed by the General Assembly to improve our state’s economic outlook. But in fact, they simply remove tax dollars from state residents and slow economic growth.

Tax dollars used to provide some companies perks inevitably hurt other companies that, in essence, are subsidizing the state government’s funding of competitors. Job growth is stunted further because a growing corporate tax burden inhibits private sector expansion.

When the state offers economic incentives to lure businesses to South Carolina, it sends the message that anyone looking to expand into the state can get special treatment. But it also sends a message to businesses in South Carolina that they are less important. Rather than focusing on improving the business climate for all South Carolinians, the government looks for the big headlines.

3)       Failing to cut the corporate income tax: The current rate of 5 percent generates a small part of state revenues each year, but the cost to businesses is significant, and severely detrimental to the state’s economy.

Some legislators have introduced a bill to phase out the CIT – but the initiative never even made it out of committee.

By keeping the corporate income tax in place, legislators prevent companies from creating more jobs and wealth – and provide a disincentive for new businesses opening in South Carolina.

Coach Spurrier wouldn’t take credit for winning football games, and then blame his players for losing. If politicians want to take credit for success, they should take equal responsibility for failure. If you are responsible for the win – then you should be just as responsible for the loss. Politicians think they can take all the credit for creating jobs, and then blame the market when jobs are lost.

Effective reforms in state economic policy can be found in Unleashing Capitalism – the Policy Council’s new book that provides a healthier path to prosperity. One where politicians stay out of the economy and leave the job creation to those who understand it most – entrepreneurs and hard-working individuals.

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Written by Geoff Pallay

December 9, 2009 at 3:55 pm

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