Skip to comments.A Kemp Growth Plan for Detroit
Posted on 07/20/2013 4:56:40 AM PDT by Kaslin
With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming. Cutbacks of out-of-control government spending, pensions and health benefits. Major cutbacks. We know that.
We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed. Unions just loot the benefit lockbox at taxpayer expense. That was the message of Gov. Scott Walker's victorious crusade in Wisconsin. If any good comes out of the Detroit debacle, it will be the spread of that message across the country.
But there's another important point here. If Detroit is to truly recover, a growth program of tax-free investment incentives must be part of the process. Specifically, Detroit should be made a tax-free enterprise zone, along lines proposed years ago by the late Jack Kemp.
The capital-gains tax should be suspended for new ventures. Investment spending and profitability should be made tax-free. Some kind of income-tax break should be put into place for the new employees of new companies. And property taxes should be waved.
Chris Edwards of the Cato Institute tells me that Michigan suffers from a huge business-property tax that's levied on machinery and equipment. He also points out that Detroit has the country's highest property taxes on homes, the top commercial property tax and the second-highest industrial property taxes. Get rid of all that. And then let's hope Gov. Rick Snyder keeps lowering Michigan's corporate tax rate.
But the point is this: A Kemp-like enterprise solution would be vital to Detroit's comeback. Especially a capital-gains tax cut, along with other direct-investment tax cuts. It can be done.
Not forever. Perhaps for three to five years. Something like that. But states and cities compete with each other on a tax basis. And you can bet the ranch that a tax-free Detroit will see investors pouring in, making for a rapid economic recovery.
Land and labor are pretty cheap right now in Detroit. Combine those low costs with a low-tax regime, and the city could snatch victory from the jaws of defeat.
The biggest additional problem is the crime wave. The Detroit homicide rate is high. According to National Review Online's Jim Geraghty, the city has been named among America's most dangerous for years. Detroiters wait an average of 58 minutes for police to respond, compared to a national average of 11 minutes.
Years ago, when crime was a huge issue in New York City, Rudy Giuliani instituted new policing methods to make the city safe again. He accomplished that, and he lowered taxes too. Gotham had a huge comeback.
Now, I'm not suggesting that the outrageous public-union benefits shouldn't be slashed. That's the root-canal side of the reform equation. And it is crucial.
Steve Malanga tells me that 15,000 city workers currently pay lifetime retirement health care costs for 22,000 retirees. It's like financing a separate government. That one piece alone is about $5.5 billion.
And pension-fund accounting is as phony as a three-dollar bill. With a highly unrealistic 8 percent long-run return rate, the city government didn't have to make any more contributions to the retirement fund. And apparently the 40 or so municipal unions persuaded the city government to actually float new pension-obligation bonds just to fund their own bloated pensions. (Many municipalities use this fiscal gimmick.)
All in, Detroit is running a $350 million deficit with a near $20 billion total-debt position. They pay themselves a living wage and then spend way more on schools per pupil than the national average. The result is one of the lowest student-performance rates in the country.
I'm not going to go into the economic wreckage that the United Auto Workers created at Ford, GM and Chrysler. But the focus now should be on curbing the power and money of Detroit's municipal public unions, who have lined their own pockets at taxpayer expense. Taking a cue from Wisconsin's Walker, collective bargaining should be sharply cut if not eliminated. And hopefully a bankruptcy court will settle all the obligations at 5 to 10 cents on the dollar, as Detroit emergency manager Kevyn Orr tried to do but failed.
But again, creative economic-growth policies must accompany fiscal downsizing if Detroit wants to turn the streetlights back on, rebuild at least 78,000 abandoned homes and structures, and attract businesses and workers to erect a new Detroit.
It won't be about manufacturing this time. But like other recovering cities in the U.S., Detroit could morph itself into a technology/education/medical-research complex that makes use of all the firepower at its fine colleges, universities, hospitals and medical centers.
It can be done. But if ever there was a time and a place to put Jack Kemp's tax-free-enterprise-zone model into practice, now is the time, and Detroit is the place.
Don't forget the growth solution.
Heard this AM the bankruptcy petition was going to be declared unconstitutional.
There is opportunity in Detroit for conservatives and republicans with the stones to embrace it.
Anger never wins, solutions do.
Great idea—but how are politicians going to get their hands on the money to enrich themselves and get re-elected?
As Jack Kemp was famous for saying (over and over again): “IT’S COUNTERINTUITIVE.”
Won't happen. Obama will declare war on it.
or..... just forget about it. Let detroit just die and blow away.
Why save it?
That ruling won’t stand. It came from an idiot Ingam county judge with no standing to rule on issues in Detroit. (she says it doesn’t “honor” Obama.)
The governor could ignore her but will just do things through the court to slap her down legally.
That’s the (French) spirit!
There is a lot of infrastructure. It’s in a strategic location. It makes sense for there to be a city there. Just not the city that’s there now. Plowing in under and sowing salt isn’t a rational use of resources.
interesting creek ... Thanks for more info.
People who think any city will be allowed to disappear aren’t living in the real world. I don’t love cities but I recognize that they’re a part of our vital infrastructure.
Detroit is a major port city and the second busiest freight crossing on the continent. (likely to take top slot again once the new bridge is built) Detroit isn’t going to disappear any more than New Orleans.
Conservatives need to roll up our sleeves and look for free market solutions. 1 thing I would do is let creditors take control of vacant properties they want and they’ll find a way to make them profitable.
Detroit needs residents. My 4 point plan:
1. Flat federal income tax rate of 5% for 10 years for individuals residing in the city.
2. Permanently eliminate the zoning and planning boards. institute low flat fee construction permits and business licences.
3. Zero or very low property taxes for 10 years. reasonable taxes thereafter.
4. Close the government schools and institute a voucher program
Make people with jobs and money want to move in and things will fix themselves.
More info here on the judge and her idiotic ruling.
I thought Detroit was doing fairly well by letting the city be used as the prime location in post-nuclear war and post-apocalyptic movies and TV series.
I recently heard some conservative poo-poo even the Kemp model of Enterprise Zones, another playground for tax-code based malfeasance.
Give them a Flat or Fair Tax? Only in my dreams....
Detroit has a history, of liberal policies, which people can view and will give most if not all a reason to pause and think more than twice (imho). This is probably the first of many more to come in failures of large cities and seeking bankruptcy protection which too will be ripe for failure. Your partial plan is a beginning but one the ruling class will fight tooth and nail.
The NYT is trying desperately to sell the Boston globe... how about gifting Destroyit to the NYT, and then they include it in a package deal.
Seems to me, if a group of savvy investors can see thru to making the globe successful, this would tip them to putting in a GREAT bid, and let their plan be put in use for the motor city as well.
“There is opportunity in Detroit for conservatives and republicans with the stones to embrace it.
Well, the problem is; there are no Conservatives and Republicans in Detroit. Remember, this is where Romney received zero votes in some precincts, ZERO. The 700,000 or so people remaining in Detroit proper are either on some sort of government subsistence or are public employees dependent upon their unions for an ever larger piece of a dwindling pie. Soooo, who does that leave to execute a free enterprise, market based renaissance for Detroit? Answer; no one. As others have stated, Detroit has passed the point of no return and should be razed and returned to corn fields, produce ethanol or something. The few that want to actually work can find jobs in the razing, then afterwards in agriculture and such. The fresh air and physical labor would clear their minds and their diabetes. Win, win, win.....
Unions are simply the maggots that eat at the flesh of true freedom and enterprise of America.
Nothing more can be said to sum the existence of these filthy pests.