Governor Markell has spent the past three days rolling out his plan to spend newly DEFAC-found revenues of $320M. Links to the Governor’s Press Releases on this are below, and worth looking at in their entirety:
Part I — Building Delaware’s Future Fund, Infrastructure:
Part II — Building Delaware’s Future, Tax Cuts
Part III — Building Delaware’s Future, Education
This is all being billed as a jobs plan, and some of it definitely supports the creation of employment — the Infrastructure proposals look like old school stimulus and takes into consideration that some newly built plant here will need expansion or adjustments to current infrastructure to operate.
The disappointing part of this is Part II, in which we find the Governor doing something I don’t think I thought I’d see — actually buying into the fairy tale that tax cuts create jobs. They don’t, of course, otherwise the 2000’s would have been way more robust than they were. And this plan actually extends the fairy tale — while it is certain that the financial industry is changing, there is no way to look at this industry and not see that the changes we see here in Delaware are structural ones. Jobs lost at Wilmington Trust and HSBC (and others, really) are due to serious restructurings that tax cuts won’t undo to any great extent.
Tax cuts targeted at the Financial Industry are particularly galling — this industry has had the benefit of rivers of taxpayer funds in the form of TARP and multiple cheap lending facilities and now Delaware taxpayers are supposed to help support banks that are in trouble because of their own bad risk management. Again, without paying attention to the fact that there are quite a few of these jobs that won’t be coming back, no matter how healthy the economy gets.
Tax cuts targeted at the top rate make no sense at all. (Full disclosure, I would benefit from this tax cut.) We are still in an economy that is finding its sea legs. It will take quite a long time to get to 7% unemployment rate, much less 5%. And while Delaware seems to have some control over its previous revenue problem, it is not in control of the *real* problem of government budgets everywhere — health care. Deliberately letting go of revenue streams in the midst of all of this uncertainty with no idea what kind of risks will be present next year or the following year can only make sense if you expect that you can just cover any future shortfalls by asking state workers to finance the gaps. Again. Besides, one of the *principles* of using this money is supposed to be:
Limiting our dependence on less reliable sources of revenue, specifically abandoned property. The plan suggests the best way to accomplish this is to cap the amount of this revenue being used to fund the state’s operating budget, and to use any additional collections for one-time investments.
Unless these tax cuts are just for one year, you’ve just financed this tax cut for years assuming you’ll have this revenue on a recurring basis. And tax cuts of this kind are NOT an investment.
Reducing business taxes provides balance sheet support — not real incentives to hire. Because the majority of businesses on the planet will hire people because they can keep a pair of hands busy, cover the costs of that pair of hands and still make some money. Nowhere that *I’ve* ever worked has justified hiring based on the tax cuts available. (And yes, I hire people.) Tax cuts cover some of the costs of that pair of hands and/or maybe some of the profits. This is why lots of businesses who get a great deal of support from local governments can get up and go after that support sunsets. See this book and this book for the gory details.
It is possible that we do not have all of the details here, but there has to be a smarter use of found money than these tax cuts. At least a smarter use that still acknowledges that we are economically no where near being out of the woods. And if someone from the Administration wants to tell you that these tax cuts will pay for themselves, demand to see their calculations. Because this will be the first time that this has ever been true.
The recent budget submitted by the Governor reduced some of the grant funds available to service providers in the state. Groups that are doing extraordinary work in their communities. Groups that may be laying people off or not help others to become employable due to the reduced funds. And yet this doesn’t count in the employment calculation.
What is truly unfortunate is to see this genuinely smart man reduced to pushing the horribly false narrative about taxes, and basically work at reinforcing the republican-pushed idea that you can have All of the Government You Can Eat for Free. And provide a revenue stream to businesses too! Don’t expect leadership on this to come from the Dem Caucus, either. Because if Governor Markell can succumb to this fairy tale, there’s no chance the Caucus will get a sudden attack of responsibility.