Kentucky Sen. Rand Paul (R) spoke to the Detroit Economic Club at the Motor City Casino about his Economic Freedom Zones plan to jumpstart economic growth in depressed areas. The plan would cause for an income tax reduction to a single, flat rate of 5 percent for individuals and businesses, reducing the payroll tax to 2%, child education tax credits to parents, suspending Environmental Protection Agency (EPA) rules and prevailing wage requirements for contractors working at public facilities and public works project.
Let's fact-check the arguments he made Friday in support of his plan.
"These zones don't ask Houston or Atlanta to bailout Detroit."
This assertion is false on its face. Unless federal spending is cut dollar-for-dollar with the loss of revenue from these tax expenditures, taxpayers outside these Economic Freedom Zones will have to make up the cost. If a Detroiter is only paying 2% toward the Social Security/Medicare payroll tax and a Houstonian continues to pay the normal 7.65% rate, then Houston is absolutely subsidizing Detroit's share of at least those programs, never mind basic government functions like national defense.
Furthermore, if you accept Sen. Paul's not unreasonable assertion that high taxation can be a hindrance on business, then businesses in Houston, Atlanta, and not other-non Economic Freedom Zone areas (Grand Rapids? Farmington Hills?) will operate at a competitive disadvantage compared to Economic Freedom Zone businesses.
"No central planner, no politician in Washington decides who gets the money."
In so much as defining eligibility for Economic Freedom Zones will be decided by Washington lawmakers, Washington's central planners and politicians will decide who gets the benefits from this tax expenditure.
"Campaign contributors get stimulus money."
Paul was speaking generally about stimulus programs that spend public money. Of course, President Barack Obama's 2009 stimulus package is top of mind here. Mitt Romney's campaign ran advertisements accusing Obama of directing stimulus money to "[f]riends, donors, campaign supporters, special-interest groups." The Washington Post concluded of that ad:
There may be a circumstantial case that the president has provided favors to friends, donors and special interests, whether it’s in the form of appointments, federal investments or beneficial restructuring deals. But no one to date has provided conclusive evidence that proves a direct connection between support and rewards--and as we have noted in the controvery (sic) over the exact date of Romney’s departure from Bain Capital, the burden of proof remains on the campaign or organization making such accusations.
The New York Times also notes the stimulus package was, like Paul's Economic Freedom Zones, largely a tax-cut.
But of $763 billion in stimulus money used so far, the largest amount has been hundreds of billions of dollars for such things as a tax credit for working middle-income families, larger exemptions for families hit by the alternative minimum tax, public school funding and Medicaid grants.
"People are going to Canada because the [corporate] income tax rate is 15%."
The Cato Institute in 2009 cited Tim Horton's closing their U.S. headquarters and shifting those corporate operations to Ontario in part because Ontario lowered their business tax rates. However, Canadian financial planner Roberts Keats told CBS in 2012 that: "Canadians are taxed at much higher rates in almost every respect."
The most recent statistics I could find on U.S.-Canadian migration pattern comes from Statistics Canada. Their report showed about 33,000 Canadians migrating to the U.S. every year between 2000-2006, while just 9,000 U.S. citizens moved to Canada annually during that time span.
"Government didn't discover or create Motown greats."
Well, sure. Motown Records is a private business. However, Motown didn't emerge from some libertarian utopia. The fully-funded, government-run public infrastructure of the day played a role in many the upbringing of many Motown artists. Diana Ross, for example, was the daughter of a public school teacher, the product of Cass Tech, and was a resident of Brewster housing project during her teenage years.
"We can't keep doing the same thing again and again."
This is the former Tiger Stadium. You probably knew that. It was, for more than a decade, designated as a Renaissance Zone. That means any economic activity on the site was eligible for "a waiver of city income and utility users taxes, most city property taxes, county property taxes, and state income tax or single business tax." Renaissance Zones sounds a lot like a city and state version of Paul's Economic Freedom Zones. And yet the city was never able to identify a viable developer for the site.
"Throwing more money at schools is not the answer."
There are numerous studies that show at least a high correlation between education spending and educational achievement. Even critics, such as the Hoover Institute's Eric Hanushek, focus their objections not on spending money, but on how it has been spent: "It’s absolutely true that if you spend money well, it has an effect. But just putting money into schools and assuming it will be spent well isn’t necessarily correct and there is substantial evidence that it will not happen."
Throwing money at schools actually is the answer, Senator. We just have to throw strikes.
