May 11, 2011

Even democrats concede economic reality in a crisis

We are continually told that taxes either don't matter or they somehow grow the economy. This is nonsense on stilts and even the most hardened of Democrats know it. Rather, they use this "logic" as a fig leaf for their desire to take money from others to reward their cronies and spent it as they see fit.

Even Illinois which is Democrat down to dogcatcher is facing reality. Motorola is threatening to leave the state. The taxes are too high and the cost of doing business has made staying untenable. So what did Illinois do? They offered $100MM in tax breaks. One Hundred Million Dollars not to leave.

They have been forced to face the reality that they can only bleed so much from corporations before they leave. Motorola is not a small outfit and moving is going to be expensive. That said, I don't think they're bluffing. They've run the numbers and staying long term isn't prudent.

Similarly, Sears the icon of Illinois is pulling up stakes. Think of what it says that the company with the most iconic tower in the midwest is thinking of leaving Illinois. How bad is the business climate? So bad, they're considering New Jersey. They are also considering Texas which is unsurprising to anyone who's been paying attention.

Taxes matter. Regulations matter. Capital flight is a reality. Not just from state to state but from country to country. Democrats ignore this reality over and over. Some of them are so brazen as to say "let them go". That is beyond foolish. Delaware has the jobs it does by making a favorable business climate. Low corporate taxes, solid Court of Chancery and streamlined regulatory environment. Trying to bleed corporations for pet projects is unwise. Better to draw more businesses and ask less of them than to drain those who are here.

When we were a manufacturing economy much of what they now believe was true. You could bleed companies like Ford. They had millions and millions of sunk costs in their factories and moving was nearly impossible. Those days are gone and are not coming back. New York City learned this the hard way which is why Jersey City looks the way it does now. Why do I work in Virginia instead of DC? Virginia got smart. They lured businesses away from the District with tax incentives and smarter regulation. They don't call them the Beltway Bandits for nothing.

As a service economy we are seeing less and less need for physical footprint and more and more virtualization. Why rent office space at $110 per square foot in NYC when you can move your people down to DE where you're paying half that. Add to that cheaper labor and taxes and not moving becomes a hard case to make. In my industry in particular, (IT consulting) more and more of us are working from home and travelling in only for specific meetings or events. One member of my team lives in Alabama and has not been to the office in literally years.

The wise politician in DE is going to be the one that encourages the hosting of IT service companies (and the like) in Delaware. If workers like me stayed at home to work on a project in another state and I'm paid from a DE corporation guess who's getting that tax revenue? Unlike now where I filed in VA and DE gets nothing either from me or my employer.

Posted by Duffy at May 11, 2011 04:32 PM | TrackBack

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