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.
I don’t think tax incentives are going to fix Detroit. It’s a third world country with an illiterate, barbarian population.
ok, if it only can occur at state level what do Boehner and Reid have to do with it? I don’t doubt though that the arrogant pos occupant of 1600 Pennsylvania Ave will try to butt in
But it will take an immediate dismantling of the entire Detroit city government so we can start over again. And I'd start by drastically shrinking the size of the city limits and split the rest into smaller, manageable towns.
What I meant was no federal tax code changes in the current environment, to much dysfunction...
Usually those who accuse others of doing something are the ones who are doing it themselves. It’s called projection
oh okay
I heard some talk show host yesterday (may have been Mark Steyn) say that we should give Detroit to the illegals and let them fix it up.
My plan: Turn it into a GAY MECCA. No kids. Just bunch of young men who have plenty of time to improve their lives/neighborhoods into something ‘taste full.’ No need for outside/gov assistance.
Glad to hear that. Have any groups been willing to listen? Ot shown honest interest?
What I’m wondering is if there is any sense that the old ways haven’t worked- let’s try something REALLY different.
We’ve got to get conservatives on board for a Family, Faith, and Free market transformation of our cities. I personally have befriended several inner city pastors to show them that conservatives aren’t a bunch of greedy rich white racists in hopes of pulling them away from the social justice preaching. Just last month the Americans for Prosperity hosted the Frederick Douglass day celebration in Detroit with the Union Conservatives.
The conservative plan was just presented to Kevyn Orr and the unions the other day and I don’t think there has been any answer yet.
I guess I’m just done accepting failure and blaming someone else. We have a simple choice of accepting the democrat “fix” or coming up with solutions of our own.
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