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6.9.09

Study shows why megafund needs no replenishment

Louisiana has allowed itself to be fooled again and again over acquiescence to industrial policy, and taxpayers may be asked again to throw away more good money after bad on corporate welfare that costs more than the benefits it brings the state as a whole.

In the past few years under previous gubernatorial administrations, funds were created to bribe companies to locate operations in Louisiana. These funds, instead of tackling the diseases that discourage capital formation, entrepreneurship, and commerce in the state such as higher taxation, over-regulation, unwillingness to do what is needed to enhance improvement of education, etc., masking the diseases as a form of compensation to firms to deal with these shortcomings.

Tax credits for movie making marked the first substantial foray into this dangerous territory but now unfortunately the state has bought whole hog into this ideology which is the outstanding weakness of Gov. Bobby Jindal’s tenure by his failure to prevent it. This past year saw major expenditures to salve several concerns entering the state. Combining those expenditures from film tax credits, the Rapid Response Fund, and the Mega-Project Fund (which was altered this year to make it easier for petitioners to qualify for it to justify its existence) are likely to go over $400 million of the people’s money for this past fiscal year, transferred to a small group of mostly large corporations.

As a result, the Mega-Project Fund, stuffed to the gills before all of this, has fallen to a “mere” $55 million. It has evoked hand-wringing from the likes of the Secretary of Economic Development Stephen Moret, state government’s equivalent of an interior decorator (paid to spend other people’s money) who plead that it needs replenishment.

If government intervention into the economy in this fashion actually produced more in tax revenues than in expenditures, such an argument might make sense as well as we would see a communistic end of government owning all of the means of production. But in addition to common sense alerting to absurdities like that and valid economic theory explaining why it is not a good idea, research consistently shows this strategy results in very cost ineffective outcomes.

Most recently, the Mackinac Center for Public Policy released a report that shows the nearly $5 billion that Michigan has poured into similar efforts predictably have produced few jobs (far fewer than predicted) and in fact where the largest transfers went jobs actually disappeared. Fortunately Louisiana, unlike Michigan, has not raised taxes also to help finance these giveaways, but the lesson should be clear enough. It concluded that Michigan’s similar plan to Louisiana failed to create jobs or increase personal per capita income. (It also recommended abolishment of the Michigan Economic Development Corporation; Louisiana has a similar government agency.)

Pecuniary inducements only paper over and do not solve the structural problems of Louisiana’s economy. Until those problems are solved through lower taxes, fewer regulations, etc., then government gifts to corporations serve only to compound the problem, and if these conditions were mitigated, there would be no need for them to camouflage these faults. The Mega-Projects Fund needs to be emptied for more useful purposes and legislated out of existence before it absconds with more of the people’s money to be given to a few.

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