Is Less Really More?


Our governor’s approach to economic development has prompted some folks to indulge in gallows humor.


After the State Ethics Committee ruled that the “Guv-mobile” (the Governor’s spiffy RV) can no longer be used at fundraising venues, a friend of mine sourly suggested alternate uses:

·        Use it as a mobile office to replace those being closed by the Bureau of Motor Vehicles;

·        Press it into service as an extra classroom, while school corporations engage in the lengthy new process of demonstrating to state bureaucrats that they really do need that new building;

·        It could be used as a mobile clinic for the folks who are being dumped from Medicaid;

·        It could be a mobile unemployment office, offering outplacement advice to laid-off state workers.

There were others, but you get the idea.


Fair or unfair, these gibes underscore an important difference of opinion on economic development strategies. The Administration clearly believes that the best way to create jobs is by cutting taxes and services to the bone. Make Indiana a cheap place to do business, the theory goes, and we’ll be more competitive. As a theory goes, it is certainly defensible. The problem is, it doesn’t work.


Take a look at the states that are cleaning our clocks when it comes to new job creation. They have tax rates considerably higher than ours—even our Midwestern neighbors. But they have something else—something those higher taxes have bought them: a level of public services that makes their quality of life better.


Think it doesn’t matter? Recently, several Southern states were in hot competition for a new Toyota plant. They offered tax incentives (reportedly worth hundreds of millions of dollars), and they offered low tax rates–the same strategies Indiana has been using. In June, Toyota announced that the new plant would be built in Ontario, Canada, despite the lack of incentives and higher tax rate. Why? Two reasons were given: the quality of the workforce and the quality of life.


Think about it. If you were an employer looking to locate a new facility, would you choose a site where taxes were lower, but the quality of the schools virtually guaranteed that you would have to spend money on remedial education, in addition to providing health care and other social benefits? Or would you opt for a location with a higher tax rate that did not require you to provide either education or health insurance?


Americans like to congratulate ourselves because we pay lower taxes than other industrialized countries. It doesn’t seem to occur to us that those lower taxes don’t save us money—we don’t pay the government for our health care, but we pay for it (in fact, we pay much more for it). We starve our schools, and pay not just for remedial education but for the costs of wasted human capital. We support cultural tourism, but not if it means paying librarians.


And then we wonder why no one wants to live here.