Voice For Liberty

Tag: Subsidy

  • Kansas and Wichita quick takes: Tuesday December 28, 2010

    Hawker Beechcraft deal breaks new ground. When asked by KAKE Television’s This Week in Kansas host Tim Brown if the Hawker Beechcraft deal was good for Kansas, Wichita State University professor H. Edward Flentje said that while the deal was “great news” in the short term, it raised policy questions in the long term. He said he didn’t think the state has invested in a company that is downsizing, with Hawker shrinking by one-third over the past few years. He added that he believed this is the first time the state has a provision of state law to retain jobs, rather than recruit new jobs. Flentje said that other aircraft companies and other businesses will be looking at this. He didn’t use the word “precedent,” but setting one is what has happened. Flentje has issued similar warnings before when he was interim city manager for Wichita. When Bill Warren, a theater owner, asked the city to make an interest-free loan to him, Flentje warned: “There are in this community much larger businesses with much larger employment who may see this opening as something that will open a door for those businesses to come and say, ‘You’ve done it before, you can do it for us.’”

    TSA as fine literature. He grasped me firmly but gently just above my elbow and guided me into a room, his room. Then he quietly shut the door and we were alone. He approached me soundlessly, from behind, and spoke in a low, reassuring voice close to my ear. “Just relax.” Without warning, he reached down and I felt his strong, callused hands start at my ankles, gently probing, and moving upward along my calves slowly but steadily. My breath caught in my throat. I knew I should be afraid, but somehow I didn’t care. His touch was so experienced, so sure. When his hands moved up onto my thighs, I gave a slight shudder, and partly closed my eyes. My pulse was pounding. I felt his knowing fingers caress my abdomen, my ribcage. And then, as he cupped my firm, full breasts in his hands, I inhaled sharply. Probing, searching, knowing what he wanted, he brought his hands to my shoulders, slid them down my tingling spine and into my private area. … Although I knew nothing about this man, I felt oddly trusting and expectant. This is a man, I thought. A man used to taking charge. A man not used to taking “no” for an answer. A man who would tell me what he wanted. A man who would look into my soul and say … “Okay, ma’am,” said a voice. “All done.” My eyes snapped open and he was standing in front of me, smiling, holding out my purse. “You can board your flight now.” (Source unknown, but obviously a brilliant person.)

    Love, not yet seated in House, moves to Senate. In what must be one of the most rapid political promotions in history, Garrett Love, who just won a position in the Kansas House of Representatives, is selected to fill a vacancy in the Kansas Senate. The Hutchinson News reports. Love defeated incumbent Melvin Neufeld in the August primary election. Neufeld campaigned for the Senate seat, but lost to Love by a vote of 101 to 38. It would have been — unseemly? — for Neufeld to have lost to Love in an election, but yet be promoted instead of Love to what most would consider to be a better position in the legislature. … This action leaves the House position that Love won but never filled vacant. Will Neufeld attempt to win this seat, the one he lost? The precinct committeemen and committeewomen of that district will decide. Kansas House District 115 includes Dodge City and counties to the south and west.

    Wichita historic preservation board. A governmental entity that few may know much about is the Wichita historic preservation board. The agenda for an upcoming meeting is here. On the agenda, there are many items like this: “HPC2010-00350 415 N Poplar Re-roof on commercial. ENV Johnson Drug Store.” In this case someone wants to put a new roof on their building. But, it is located within the “environs” of a property that is listed either on the National Register of Historic Places or the Register of Historic Kansas Places, so they need the permission of this board. For properties within a city, the “environs” is any property within a distance of 500 feet of the listed historic property. If you want to do much of anything to your property, you’ve got to get the permission of this board if it’s within a stone’s throw of a historic property.

    Bureaucrats will do what Congress doesn’t. Promises from Congress mean little when the bureaucratic state simply does what it wishes — or what the President wants it to do. Thomas Sowell explains: “The Constitution of the United States begins with the words ‘We the people.’ But neither the Constitution nor ‘we the people’ will mean anything if politicians and judges can continue to do end runs around both. Bills passed too fast for anyone to read them are blatant examples of these end runs. But last week, another of these end runs appeared in a different institution when the medical ‘end of life consultations’ rejected by Congress were quietly enacted through bureaucratic fiat by administrators of Medicare.” Portland Progressive Examiner has more: “Oregon Representative Earl Blumenauer, Democrat, is celebrating a quiet victory: Under new health regulations recently issued by the Obama administration, Medicare recipients will be offered voluntary end-of-life planning, and an opportunity to issue advance health care directives.” The New York Times is blunt, starting its story this way: “When a proposal to encourage end-of-life planning touched off a political storm over ‘death panels,’ Democrats dropped it from legislation to overhaul the health care system. But the Obama administration will achieve the same goal by regulation, starting Jan. 1.”

    Brownback to focus on core. Incoming Kansas Governor Sam Brownback says his budget priorities the “core functions of state government,” specifically “Medicaid, K-12 education, higher education and public safety at the top, in that order.” In an interview with Kansas Reporter’s Gene Meyer and Rachel Whitten, Brownback also said consolidation of agencies may be in order, and that repeal of the one cent sales tax that started this year is “not an option.” He also said he wants to defend the school finance lawsuit more aggressively than the last suit.

    Schools sue again, and again. Parents in Johnson County have sued the state asking that the local option budget cap be lifted. Essentially, the plaintiffs are asking for permission to raise their local property taxes so that more money can be raised for schools. But now Schools for Fair Funding, the coalition of school districts that are suing the state for more money, has intervened in that suit, saying it wouldn’t be fair to let the wealthy school districts raise this tax money. Kansas Reporter has coverage.

  • Wind power: a wise investment for Wichita and Kansas?

    Writing in The Wall Street Journal, Robert Bryce explains the terrible economics now facing the wind power energy, with emphasis on T. Boone Pickens, who has made a big splash with his plans to invest in wind power. A few takeaways:

    • Pickens’ $2 billion investment in buying wind turbines has left him with “a slew of turbines he can’t use.”
    • U.S. government subsidies amount to $6.44 per million BTUs generated by wind, but natural gas costs just $4 now. These low prices may be around for years, with gas market futures contracts below $6 through 2017.
    • Even with the subsidy, gas can’t compete with wind. Wind power installations are down 72 percent in 2010 as compared to 2009. That trend is expected to continue.
    • “Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job.”
    • Because Canada has renewable energy mandates, Pickens hopes to sell his turbines there.

    With the economics of wind power looking so grim and with $2 billion of turbines sitting around looking for a buyer, we have to question the wisdom of Wichita Mayor Carl Brewer recruiting wind power companies to come to Wichita.

    Incoming Kansas governor Sam Brownback is a supporter of renewable energy standards. These standards require utility companies to produce a certain level of power from renewable sources, which in Kansas is primarily wind. When Kansas electric generator Westar announced plans to increase its wind energy portfolio, Brownback said “Kansas wind is an important resource for our state that will provide clean energy for our residents and businesses and contribute to our economic growth. I applaud Westar Energy’s leadership in wind energy.”

    A Wind Power Boonedoggle

    T. Boone Pickens badly misjudged the supply and price of natural gas.
    By Robert Bryce

    After 30 months, countless TV appearances, and $80 million spent on an extravagant PR campaign, T. Boone Pickens has finally admitted the obvious: The wind energy business isn’t a very good one.

    The Dallas-based entrepreneur, who has relentlessly promoted his “Pickens Plan” since July 4, 2008, announced earlier this month that he’s abandoning the wind business to focus on natural gas.

    Continue reading at The Wall Street Journal (subscription required) or at Bryce’s site (free)

  • Hawker Beechcraft deal not proud moment for Kansas

    This week the State of Kansas, City of Wichita, and Sedgwick County struck a deal with Hawker Beechcraft that allows Hawker to stay in Wichita rather than moving to another state.

    While outgoing Governor Mark Parkinson and other leaders praise the deal, it was not a good day for Kansas.

    It’s difficult to blame Hawker. That company saw similar Wichita-based companies receive corporate welfare, most recently Bombardier Learjet. Who can blame Hawker for wanting the same? In fact, when the state and local governments are willing to readily hand out corporate welfare, you can make a case that Hawker has a fiduciary duty to its shareholders to seek the same.

    Therein lies the problem: Kansas’ approach to economic development is piecemeal. We respond to problems, as in the case of Hawker. But the state’s response gives more companies the incentive to come up with their own “problems” that require state intervention.

    When recruiting or retaining companies, the state and its local governments presume they have the ability to select which companies are deserving of public subsidy.

    What we have is a situation where a relatively small number of companies receive help from the state and its taxpayers, which only serves to increase the cost of business for everyone else.

    Nonetheless, politicians and bureaucrats call this making an investment in, say, Hawker Beechcraft or whatever company is asking for handouts or tax breaks. The problem is that we don’t know if investing in these companies is the right investment, if government should be making these investments at all. (In the case of Hawker Beechcraft, there is some evidence that this company may need to shrink substantially in order to survive, handouts notwithstanding. See Report: Hawker should divest all but King Air.)

    We need economic development policies that nurture all companies. Somewhere in Wichita or Kansas there is a small unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, engineering methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and few will, hopefully, succeed in a big way.

    But these small startup companies may not fit in to the economic development programs the city and state have. Any of these now-small companies could become the next Cessna, LearJet, Beechcraft, or Pizza Hut. We just don’t know — we can’t know — which small companies will succeed. But these companies, when in small startup stage, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. It’s not necessarily the case that a small startup aviation company is competing directly with Hawker Beechcraft and is handicapped by the larger company’s tax advantages and handouts. But these two companies could be competing for the same employees, for example, and that puts the smaller company at a disadvantage.

    How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened at the expense of others? Allocating resources — deciding what to do — in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.

    In order to succeed, Kansas needs to embrace dynamism in its approach to economic development. For more on this see Kansas economic growth policy should embrace dynamism and Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

    Unfortunately, the Hawker Beechcraft deal, along with most of the policies of the state and the City of Wichita move in the opposite direction: towards more state-controlled economic development.

  • Wichita Old Town TIF district illustrates cost and harm of subsidy

    At this week’s meeting of the Wichita City Council there was an item of good news: the closing of the Old Town tax increment financing, or TIF, district. But the expressed attitude of city council members towards TIF districts indicates that citizens must be concerned that the council will attempt to use this harmful form of developer and corporate welfare in the future.

    Citizens need to be made aware of the uninformed and misinformed views of council members, particularly Janet Miller, who was the primary speaker on this item Tuesday. Most of the other city council members, however, also share these views, even those who consider themselves conservative and opposed to intervention in the economy.

    While Miller expressed a correct view of the mechanics of TIF districts, she — and the other council members too — always miss the economic meaning of these districts.

    In her remarks, Miller disagreed with a citizen who said that the TIF district “helped out” the property owners in the district. Miller said: “In tax increment financing districts, it is the property owners’ taxes that they pay, that pay the cost of the public improvements in that area. … The taxes that they paid in on their increased valuations in property have paid for the improvements.”

    She also said that with careful planning the community benefits from TIF districts, and that we should look forward to “future great things that are going to come from this kind of initiative and creativity.”

    It’s quite easy to see the mistakes and fallacies in Miller’s remarks. Do TIF districts help out the favored developers? Of course they do. Why else would the city create them?

    A typical scenario is that a developer has an idea to build something, but claims a “gap” between the financial resources at their disposal and what the project costs. City staff checks the developer’s arithmetic and agrees. So the city creates a TIF district, and the project is able to proceed.

    So the TIF financing filled the gap. How can this be interpreted as doing anything but helping the developer?

    The city and council members like Jeff Longwell regularly claim that TIF districts don’t cost the city anything. We can easily see the errors in this thinking. Over the past 17 years, did Old Town require any attention from the police department? Of course it did. Old Town consumes vast police resources. In 2008 Wichita Police Chief Norman Williams was quoted in the pages of the Wichita Eagle: “Williams said that as Old Town changed from a warehouse district to an entertainment district, it has presented a ‘tremendous challenge’ to public safety.”

    As was brought forth in Tuesday’s city council meeting, Old Town does pay some property taxes that go into the city’s general fund and can be used to pay for the police protection that Old Town requires. The valuation before the TIF district was formed was said to be $1 million dollars. Now it’s $9 million. So the city’s general fund has received taxes on $1 million in property valuation to pay for all the services Old Town requires. The property taxes paid on the other $8 million in valuation are directed back to the district for the benefit of the property owners.

    So yes, TIF districts like Old Town do cost the city. Someone has to pay for the cost of police protection and other government services in Old Town. Its property taxes don’t even come close.

    That’s what the city council doesn’t understand (or maybe it does, see below): The entire purpose of TIF districts is to benefit the property in the district.

    How TIF districts benefit recipients

    Here’s how it works. When using tax increment financing, a geographic district is formed. The property taxes being paid by a property in the district at the time of formation is noted and called the base. Usually this property is not very valuable, so this base is a low value. In the case of Old Town, it was $1 million.

    Then a development plan is created. Based on that plan and the property taxes that the completed project will likely pay, the city will borrow money and give it to the developers. While cities like to say that TIF funds can be used only for things with a public purpose like infrastructure, this doesn’t make any difference. (If the expenditures had a truly public purpose, why wouldn’t the city pay for them without a TIF district?)

    After the project is completed, the tax appraiser notices that there’s something new and valuable where there wasn’t before, and he levies a higher tax bill on the property. The difference between the original taxes — the base — and the new taxes is called the increment.

    Under normal conditions when new property comes on the tax rolls, the tax revenue is used to provide public services such as police and fire protection. The school district is usually a recipient of a large portion of the new tax revenue, which might be used to pay for the schooling of residents of the new housing in the district, for example.

    But in a TIF district, what happens to this new tax revenue — the increment?

    Recall that the city borrowed money and gave it to the developers. The new property taxes — the increment — is used to pay off these bonds.

    So council member Miller is correct, in a way. Old Town property owners paid increased property taxes.

    But when these increased taxes are used to pay off bonds that exclusively benefit Old Town, how is this any different from not paying?

    Consider development not in a TIF district. Developers may borrow money to build something. Then they have to make loan payments and higher tax payments.

    But TIF developers pay only higher taxes. There are no loan payments, as their increased property tax payments are used to pay off the loan.

    Public choice in action

    I wrote earlier that the city council doesn’t understand this. It may be possible that council member Miller, the mayor, and others do understand this, but they decide to go ahead and create TIF districts and other forms of developer subsidy and welfare nonetheless.

    That’s entirely possible, as TIF districts and other corporate welfare illustrate the worst aspects of public choice theory in action. In this case, we have a situation where a small group of people — the subsidized developers — have a huge and powerful motive to obtain TIF financing and other forms of subsidy. Politicians and bureaucrats want to see these things happen too, as they feel a need to justify themselves and increase their spheres of influence and power.

    Average citizens may realize that these things cost them, but it’s a relatively small amount of money — certainly in contrast to the millions that subsidized developers received — so their motive to oppose them is small. This is a reason why many people don’t bother to vote.

    Don’t forget that politicians want to receive campaign contributions, too. Developers who seek subsidy from city hall generally contribute to all city council members. It’s difficult to see how someone who has a political ideology — say fiscal conservatism — could contribute to all city council members. But they do.

    Miller has received large amounts of campaign contributions from those who have benefited from TIF financing and other corporate welfare in the past, and who plan to benefit again in the future. She’s not alone in this regard.

  • Kansas and Wichita quick takes: Wednesday December 1, 2010

    Tax incentives questioned. In a commentary in Site Selection Magazine, Daniel Levine lays out the case that tax incentives that states use to lure or keep jobs are harmful, and the practice should end. In Incentives and the Interstate Competition for Jobs he writes: “Despite overwhelming evidence that state and local tax incentives are having little to no positive effect on promoting real economic growth anywhere in the country, states continue to up the ante with richer and richer incentive programs. … there are real questions as to whether the interstate competition for jobs is a wise use of anyone’s tax dollars and, if not, then what can be done to at least slow down this zero sum game?” As a solution, Levine proposes that the Internal Revenue Service classify some types of incentives as taxable income to the recipient, which would reduce the value and the attractiveness of the offer. Levine also correctly classifies tax credits — like the historical preservation tax credits in Kansas — as spending programs in disguise: “Similarly, when a ‘tax credit’ can be sold or transferred if unutilized it ceases to have a meaningful connection to state tax liability. Instead, in such circumstances the award of tax credit is merely a delivery mechanism for state subsidy.” In the end, the problem — when recognized as such — always lies with the other guy: “Most state policy makers welcome an opportunity to offer large cash incentives to out-of-state companies considering a move to their state but fume with indignation when a neighboring state uses the same techniques against them.”

    Yoder: No business as usual. Kansas Watchdog reports on a speech by newly-elected U.S. Congressman Kevin Yoder from the Kansas third district. Said Yoder: “Business as usual has to stop in Washington.” They always say this. Let’s hope Yoder and the other new representatives from Kansas mean it, and can resist the inevitable pressures. Remember the assessment of Trent Lott, a former Senate majority leader and now a powerful lobbyist, as reported in the Washington Examiner: “‘We don’t need a lot of Jim DeMint disciples,’ Lott told the Washington Post, referring to the conservative South Carolina senator who has been a gadfly for party leadership and a champion for upstart conservative candidates. ‘As soon as they get here, we need to co-opt them.’”

    Kansas revenue outlook was mixed in November . From Kansas Reporter: “Kansas’ economy and the state government’s cash flow continued to struggle in November, preliminary tax revenue numbers indicated Tuesday. A Kansas Department of Revenue calculation of state tax receipts during November showed the state collected $384 million in taxes during the month, a whisker-thin $783,000, or 0.2 percent, less than forecasters calculated just three weeks ago, but nearly $30 million, or 8.5 percent more than in November, 2009.” The 8.5 percent growth from a year ago is partly from the increase in the state’s sales tax. “This suggests that actual retail sales activity, on which state officials are counting to hit future revenue targets, may be trailing year-earlier levels by about 2.4 percent.”

    Teacher organization offers alternative to KNEA . “The Kansas Association of American Educators says it offers the benefits of a union membership, but doesn’t involve itself in partisan issues.” More at Kansas Reporter.

    Kansas education officials may overstate student performance. Kansas schools claim rapidly rising test scores while other measures of student performance remain largely unchanged, even falling in some years. Kansas Watchdog reports: “There are nagging questions about the validity of claims based on state assessments and the tests are only one measure of the education system’s performance. Several national education watchdogs and the U.S. Department of Education have questioned the rigor of state tests, proficiency standards, graduation rates and graduates preparation for college and the workforce.” The story is Kansas Education Officials May Overstate Student Performance.

  • Kansas and Wichita quick takes: Monday November 29, 2010

    Louisville success factor may be gone. The secret sauce behind redevelopment of downtown Louisville, Kentucky may no longer be available to cities attempting to replicate Louisville’s success, such as it is. The Washington Post reports in the article Sen. Mitch McConnell’s earmark power credited for revitalizing Louisville: “The once grand downtown of this city on the Ohio River is shabby, as the nation’s old downtowns tend to be. Magnificent tall cast-iron-fronted buildings sit empty. So do historic brick tobacco warehouses, surrounded in razor wire, tagged with graffiti. But the downtown of Kentucky’s largest city also has a spectacular redeveloped waterfront featuring bike paths and open vistas, the spanking-new KFC Yum Center sports arena, and a medical complex of several hospitals that employ nearly 20,000 people, treat tens of thousands and conduct cutting-edge research. This resurgence is a result of civic vision, pride, tenacity — and the impressive earmark performance of Louisville’s Slugger: Mitch McConnell (R), Kentucky’s longest-serving senator and the powerful Senate minority leader.” … Louisville is cited as a success story by Wichita’s planners. But the earmark money that helped Louisville is probably not available to Wichita in the near term, and may not ever be available again, at least as it has been in the past. Plus, Kansas doesn’t have a senator with the clout of McConnell, and not one that calls Wichita home. McConnell lives in Louisville.

    Loss of earmarks lamented. In the Wichita Eagle article Earmark ban could kill some Kansas projects, well, the title pretty much describes the problem according to some. In particular, the town of Augusta would have had a difficult time affording a levee if not for earmarks. It is mentioned that earmarks are about one percent of the total federal budget. One comment writer, defending the process, wrote “Earmarks return our money to us.” To which we must counter: Why send the money away to Washington in the first place, only to have to fight to get it back?

    “No” to citizen-powered democracy. The Newton Kansas argues that a “practical” state like Kansas shouldn’t let its citizens place propositions on the ballot through the petitions process. The editorial says that the California budget process has led to “serious economic turmoil in that state.” It doesn’t explain why, but the writer is probably referring to the fact that the California budget must be passed by a two-thirds majority of both houses of the legislature, rather than by a simple majority as in Kansas. The editorial also says that ballot measures induce spending by proponents and opponents, and some money may come from out of state. Special interests may get involved, too. And administrative costs of adding “pages” to the ballot must be paid for, too. … I must inform the Newton Kansas that the Kansas statehouse is already overrun by special interests, out-of-state interests already spend a lot on our elections and lobbying, and anyone who has observed our legislative process up close would not use the word “practical” to describe it. … The primary reason the ruling class don’t like the citizen initiative process is that one of the first things citizens may do is impose term limits on their elected officials.

    Wichita IMAX may not be exclusive. In another installment of his series of love letters to Wichita theater operator Bill Warren, Wichita Eagle reporter Bill Wilson reports on the construction of Warren’s new theater in west Wichita. On Warren’s plans for his theaters in Moore, Oklahoma (part of the Oklahoma City metropolitan area), Wilson’s article reports: “IMAX? ‘Possibly, and a few other surprises down there,’ Warren said.” … Earlier this year when Warren applied to the Wichita City Council for favored tax treatment for this theater, he implied that without the city’s largesse, he’d take his IMAX theater elsewhere. In his remarks at the council meeting where the tax favoritism was approved, Wichita Mayor Carl Brewer bought into the myth that there can be only one Warren IMAX theater when he said: “A lot of other cities want this IMAX … they’re on the internet watching this city council meeting to see what we’re going to do because they’re going to make a bid for this IMAX.” … City officials said the theater would be a tourist draw from as far away as Texas. … With another Warren IMAX possibly being built nearby, Wichitans and the mayor ought to agree that we were mislead, and Wilson ought to report this in the pages of the Wichita Eagle. This entire episode is more evidence that the Wichita City Council will believe almost anything told to them, as long as it involves the possibility of economic development and jobs.

    Sheriff to address Pachyderms, guide tour. This Friday (December 3) the Wichita Pachyderm Club features Sedgwick County Sheriff Robert Hinshaw as the presenter. His topic will be “An overview of the duties of the office of sheriff.” Then, from 2:00 pm to 3:00 pm Sheriff Hinshaw will guide Pachyderm Club members on a tour of the Sedgwick County jail. I’ve had the sheriff’s tour before, and it is very interesting. The public is welcome at Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Wichita City Council this week. As this Tuesday is the fifth Tuesday of a month, the Wichita City Council will not meet. Also, the Sedgwick County Commission will not meet this week.

    No free market for health care. A letter in today’s Wichita Eagle claims love for the free-market economy, but not for the provision of health care. The writer claims that free markets for medical services cannot work, because the transactions are one-sided, in that the patient does not have freedom of choice. The writer also cites government success in providing military and education that “improve our society’s overall well-being,” so government should provide health care, too. … I might suggest to the letter writer that we first attempt a free market in health care before we decide it doesn’t work. Most health care is paid for by someone else, and many people who have health insurance through their employers don’t have a choice in the matter. It is this regulation that causes many of the problems in the market, such as it is, and it is nothing resembling “free.” … Citing success of government education and military may not be persuasive to those who see performance of American schools on a long downward slide compared to other countries.

  • Business can oppose incentives and use them

    In the campaign for United States Congress from the fourth district of Kansas, Democrat Raj Goyle criticizes leading opponent Republican Mike Pompeo for accepting economic development incentives while opposing their existence.

    A Goyle press release reads: “Already a known outsourcer, Pompeo, in an act of hypocrisy, took government incentivized aid for three of his companies, including Sunflower, Thayer and Sentry. He did this despite repeatedly denouncing government assistance in the private sector.”

    This criticism — that those who oppose government programs nonetheless hypocritically take advantage of them — is an important topic to examine, not only as a campaign issue, but because the conflict that leads to this form of criticism arises often. It’s something that libertarians struggle with daily — and I don’t think Mike Pompeo would describe himself as libertarian.

    In an article examining whether presidential candidate Ron Paul should accept federal matching campaign funds, the libertarian scholar Walter Block described the pervasiveness of government and the impossibility of escaping it:

    For the modern state is so involved in the lives of its citizens that it is the rare individual who does not accept some form of government largesse, whether in the form of money payments, services, or goods of one type or another.

    For example, while not everyone goes to a public school or teaches there, it is the rare individual who does not: walk on statist sidewalks, drive on public roads, carry currency in his pocket, avail himself of the services of governmental libraries, museums, parks, stadiums, etc. Which of us has not entered the premises of the motor vehicle bureau, sued someone in court, posted a letter, attempted to attain a passport, or interacted with government in any of the thousand and one other ways it touches upon our lives?

    This hints at part of the conflict — angst even — that libertarians digest internally as we go about our business in a world dominated by government. I, for example, firmly believe that we would be better off with private ownership of the streets and highways. Each time I drive my car from my driveway onto the government street in front of my house, I think of this. I get it. I understand the conflict that government thrusts on me. It bothers me daily.

    But there’s no other way for me to get to where I want to go. I’m consoled somewhat by the fact that the motor fuel taxes I paid go to building and maintaining the roads. This doesn’t mean, however, that I agree that our system of primarily government ownership of streets and highways is the best system. But it’s the system I am forced to live with, and I try to change it.

    Business firms are generally aware, although not always, of government incentives available for economic development. These incentives are part of the economic and political landscape that business firms face. They have to be recognized and dealt with, just like any other factor such as regulation. If business firm “A” decides not to accept incentives and subsidies when firm “B” does, is this wise, even if accepting subsidy is against the principles of firm “A”?

    I would recommend firm “A” to apply for and accept the subsidy. For one thing, if firm “A” is a public corporation and doesn’t pursue these incentives when they are available, the company is likely to be sued by its shareholders.

    Second, these subsidies are part of the competitive landscape. Even though from a libertarian and conservative view they are wrong and harmful, they still exist. It does no good for a firm to pretend they don’t exist and thereby create a competitive disadvantage for itself. This is especially the case if firms “A” and “B” are direct competitors in the same industry. But even if they are not, these two firms still compete in the same markets for land, labor, capital, and other generic factors.

    Third, firm “A,” like all of us, is paying for these incentives and subsidies. While this may seem like conceding to the power of the state, firm “A” might as well get some back of what it paid for.

    So yes, business firms need to use government incentives and subsidies. At the same time, we need to work for the elimination of these programs. This is difficult, as the more government becomes involved in management and direction of the economy, it becomes harder to get government to stop. We see this in play at Wichita city hall, as more and more firms ask the city council for various forms of assistance or corporate welfare.

    The fight is important, too. The factors that made our country and its economy great are at peril. Gary North wrote in The Snare of Government Subsidies: “… those within the government possess an extremely potent device for expanding political power. By a comprehensive program of direct political intervention into the market, government officials can steadily reduce the opposition of businessmen to the transformation of the market into a bureaucratic, regulated, and even centrally-directed organization. Bureaucracy replaces entrepreneurship as the principal form of economic planning.”

    Returning to the politics of the day: Isn’t is a little strange to hear Goyle, who favors expansion of public-private partnerships, criticize those who use them, even if they are opposed to the idea in principle? Doesn’t Goyle want everyone to be in “the snare” that North describes?

  • In Wichita and Kansas, economic development is not working

    The effort of Wichita and Kansas to retain Hawker Beechcraft, one of our leading employers and a Wichita institution, provides a lesson in the futility of corporate welfare as an economic development policy: Someone is usually willing to pay more. We would be much better off if we start transforming Kansas to a state where all companies are nurtured, not by bureaucratic and political oversight and handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.

    Recently I was shown a listing of all the industrial revenue bonds (IRBs) that Hawker Beechcraft and its predecessors have been authorized over the last 20 years. The number is large: $1.2 billion. This is not money that any governmental body has lent to Hawker Beechcraft. The purpose, instead, of the IRB program is to allow companies to escape paying property tax on property purchased with the bond proceeds. In some cases, companies escape paying sales tax as well.

    It would be difficult to calculate how much tax Hawker Beechcraft and its predecessors have not paid due to the abatements, but it is a lot. The company still pays some property tax. Records from the Sedgwick County Treasurer’s system indicate the company paid $971,073 in tax year 2009.

    When asking for tax breaks like this, companies often point out that they hire many people and pay good wages, so the taxing entities make up their money in other ways. That may be true. In fact, the cost-benefit analysis the city and county use make just that reckoning: if we give up collecting some tax from a company, how much additional tax will we collect from everyone else? Perhaps government officials don’t realize that much of this “benefit” is simply taxes shifted to someone else.

    Nonetheless, politicians and bureaucrats call this making an investment in, say, Hawker Beechcraft or whatever company is asking for tax breaks at the moment. The problem is that we don’t know if investing in these companies is the right investment, if government should be making these investments at all.

    Somewhere in Wichita or Kansas there a small unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, engineering methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and few will, hopefully, succeed in a big way.

    But these small startup companies may not fit in to the economic development programs the city and state have. Some people may not even think of looking to government for economic development assistance, as when I interviewed a successful Vietnamese grocer in Wichita. He didn’t know “where to dig” for government handouts.

    Any of these now-small companies could become the next Microsoft, Google, Home Depot, or Pizza Hut. We just don’t know which. But these companies, when in small startup stage, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. It’s not necessarily the case that a small startup aviation company is competing directly with Hawker Beechcraft and is handicapped by the larger company’s tax advantages. But these two companies could be competing for the same employees, for example, and that puts the smaller company at a disadvantage.

    How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened at the expense of others? Allocating resources — deciding what to do — in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.

    For politicians, the prime motivation is to be reelected. It is rare that the time horizon of a politician extends beyond the next election.

    For bureaucrats, the motivation is to expand their sphere of influence and power.

    Neither of these motivations are compatible with entrepreneurship. Some are not compatible in any way with running a business. For example, a business firm looks at its employees as a cost that must be managed and controlled if a profit is to be made and the firm survive. But to government, spending on employees is a social benefit, and one that is paid for by someone else.

    Another problem is the nature of knowledge. In a recent issue of Cato Policy Report, Arnold King wrote:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    I emphasized the last sentence to highlight the problem of the dispersed nature of knowledge.

    There are other problems with government management of economic development. We need to move away from this and towards a free market approach to economic development. This will take some time, and until then, we’re forced to defend our industry from other states, as we are presently doing with Hawker Beechcraft.

    But if we don’t start transforming Kansas, we’ll be doing this forever. And someone else always seems to have more money to spend.

  • Wichita’s alphabet soup of ‘tax tricks’

    Thank you to Marian Chambers of Wichita for submitting this letter. It also appeared in today’s Wichita Eagle.

    I want to commend the courage shown by the October 10 Sunday Wichita Eagle editorial “Get control of incentives.” It takes some intestinal fortitude to speak out against the “tax tricks” (wonderful description) that have been foisted on the city and county taxpayers already burdened by federal, state, and property taxes.

    Wichita is a wonderful place to live. But some of our leaders seem to be threatening our historic legacy by burdening us with an alphabet soup of “tax tricks”; so far, I have counted TIF, STAR, and CID (not to mention the broader state version of EDX and PEAK). The alphabet soup of “incentives” has the same result, regardless of the letters: taking money from taxpayers without them seeing it in their paychecks.

    I have no objection to paying straightforward taxes that provide the services we all need and expect: firefighters, police, roads, water, sewers, emergency vehicles, basic schools for our children and basic coverage for our elderly. But “incentives” masquerading as hidden taxes do not promote a quality of life for our citizens.

    The Eagle has taken a courageous stand in drawing attention to these ugly, hidden taxes.