Uneven Playing Fields
As we have written previously, one of the great evils of tax increment financing (TIF) is that it offers special advantages to the beneficiaries selected by elected officials, forcing everyone else in the market to compete at a disadvantage. Sadly, there’s a new example of how destructive this sort of policy can be.
Months ago, the city of Rock Port, Mo., decided to approve a TIF project worth $175,000 in order to bring a new grocery store to town. The long-time owners of Rock Port Market (up to that time the only local grocery store serving the town’s residents) said they didn’t mind fair competition from a new store, but objected that the TIF would give the new store a gigantic financial advantage not offered to the existing business. Sadly, just six months later, the family that has operated Rock Port Market for nearly 80 years has decided to close the market’s doors.
True economic development happens best when governments allow businesses to compete on a field that offers no special advantages to any of the players. The government does a grave disservice to its citizens when it assumes the responsibility for picking winners and losers in the market, rather than letting businesses succeed or fail on their own merit.
I know we’ve been on different sides of this all along, but I still disagree. Rock Port had a grocery store, they still have a grocery store. Except now their grocery store pays less taxes, and can thus lower prices. Consumer surplus increases.
I agree it is unfair for government to pick who gets lower costs, but the fact remains, there is now a grocer with lower costs.
It would be preferable for the city to just say “All groceries pay $X less taxes” and see who comes out on top. Barring that, it is still in best interest of customers for SOMEONE to pay $X less taxes. So the TIF plan is better than status quo, if not ideal.
Comment by vroman — December 8, 2009 @ 12:58 p.m.
Vroman,
Any number of injustices have been defended using a similar “ends justify the means” argument. I cannot believe that a policy can be legitimate (or constitutional) if it allows government officials to choose winners and losers in the marketplace. Even if such a policy might arguably have some benefits to consumers in the short run, the long-term implications of such a policy would be to discourage entrepreneurship and innovation because of uncertainty about whether the government would come along and offer special advantages to a competitor. And, more disastrously, a willingness to allow this sort of favoritism necessarily presumes that government officials have a better understanding of what consumers need than the consumers themselves.
Comment by Dave Roland — December 8, 2009 @ 1:32 p.m.