The Terrorism Tax-Credit
October 26, 2001
comments powered by Disqus
The lead editorial in today's New York Times expresses support for a proposal by Senator Clinton and Senator Schumer "that would grant tax credits to businesses and residents that stay in or move into" the area of "Lower Manhattan." A news article in the Times metro section says "The plan calls for giving a $3,000 tax credit per employee to any business that agrees to return to Lower Manhattan or to set up shop there for the first time. The credit would be offered for up to five years."
The Times editorial is headlined "A Pragmatic Aid Plan" and calls the Schumer-Clinton tax-credit package "a good place to start."
Now, Smartertimes.com is all for lower taxes. But there's a difference between lowering taxes across the board and designing tax cuts that are so narrowly tailored that they amount essentially to government subsidies or spending in the guise of tax cuts. There are so few facts available about the Schumer-Clinton-Times tax credit plan that it is hard to tell which category the plan falls into, but the initial signs aren't good.
The Times doesn't say whether the senators are proposing that the tax credit be fully refundable. In other words, would non-profit organizations or money-losing startups that move into lower Manhattan qualify for the $3,000 and receive the full amount as a tax rebate, even if they owe no taxes?
The Times doesn't say what the definition of "employee" is under the plan. Suppose Al Smith starts a business in Lower Manhattan whose main purpose is to exploit the Schumer-Clinton-Times tax credit. Mr. Smith hires 100 "employees" at a salary of $50 a year. Their primary duty is to help Mr. Smith qualify for the tax credit. The government pays Mr. Smith $3,000 in tax credits for each employee. Mr. Smith walks away with a profit of $2,950 per employee. Not a bad business for Mr. Smith, but it's hard to see how this is a particularly efficient way of helping New York's economy. By rewarding "employees" rather than profits, the tax credits encourage inefficiency and make-work jobs. Say there are two companies that do the same thing. One company has 10 talented, highly motivated employees that make a total of 100 widgets a day. Another company has 20 mediocre employees that make a total of 100 widgets a day. Under the Schumer-Clinton-Times plan, the company that hires the mediocre employees and fails to motivate them well gets twice the tax credit.
It's also not clear whether the tax credit would create new growth or just shift it from one part of New York to another. Is it really good policy for the city, state and federal governments to encourage businesses that already exist in Harlem, downtown Brooklyn or Midtown Manhattan to pick up and move to Lower Manhattan? Why not lower tax rates citywide and make all of New York City a magnet for businesses from Connecticut, Westchester, Long Island and New Jersey?
Also unclear is who exactly is being rewarded under the Schumer-Clinton-Times plan. The Times editorial refers to "businesses and residents that stay in or move into" Lower Manhattan. But if the businesses and residents are going to "stay" there anyway -- and some have very little choice, having invested lots of money in their current facilities and being anchored to other institutions like the courthouses and the stock exchange -- why spend taxpayer money to pay them to do something that they were already going to do? The news article says the tax credit would go "to any business that agrees to return to Lower Manhattan or to set up shop there for the first time." That seems to suggest that if a business left and then returned, it gets the tax credit, but if it stayed the whole time, it gets no tax credit. That doesn't seem right, either, because those who left end up getting more benefits than those who stood their ground. Granted, not all of this is discretionary when it comes to the business owners. An office building that is closed because its windows have been blown out is a different situation than one whose tenants have decamped because they find the smell unpleasant and the view depressing. Still, these are complicated issues. The view here is that the free workings of the commercial and residential real estate markets will do a better job of restoring Lower Manhattan than will targeted tax credits. If the senators and the Times have suddenly come to see the benefits of tax relief, it would be nice to see them support it citywide.
And, to argue on the terms that the Times and the senators have used to oppose many of the other tax cuts that have come down the pike in recent years, it's quite likely that the tax credit they are proposing would be "regressive" and would mostly benefit the rich. Why should small entrepreneurs and taxi drivers in Queens and the Bronx who have been struggling to make it in this city have their tax dollars spent to subsidize big Wall Street firms that have been making billion-dollar profits in the past few years and paying their executives millions of dollars a year? When things get tough, these Wall Street guys -- along with the Times, Senator Schumer and Senator Clinton -- want the working man's tax dollars to pay to give the big firms a per-employee pay-off in gratitude that they don't permanently move their businesses to New Jersey?
Palestine: A dispatch from El Paso in the national section of today's New York Times reports on man charged with smuggling immigrants. "He recruited Middle Eastern clients in Jordan, Syria, Palestine and Greece, the prosecutors said," the Times reports. It's unclear whether the error is the Times's or the prosecutors', but there is no such country as "Palestine."
Subscribe to the Mailing List
© 2017 FutureOfCapitalism LLC