World-renowned economists: On taxes, incentives and economic development

By James Wetzler and Arthur Laffer
New Brunswick | May 13, 2018 at 9:00 am
Op-Ed

James Wetzler, Ph.D. from Harvard, worked with former President Bill Clinton, former President Barack Obama and New York Gov. Andrew Cuomo.

Here’s an edited version of his opening comments at the Garden State Initiative’s recent Economic Policy Forum:

I think economic forces drive various regional activity (so) that there’s relatively little that states can do to affect them. They can operate at the margins, but they can’t really do all that much.

The main thing states can do is do their job properly. If you’re responsible for 15 percent of the GDP for state spending, it’s not out of the question that you might do it 15-20 percent more efficiently than your neighboring state. That would make a meaningful difference.

There’s no magic about what causes economic development, it’s making your state a place people want to live, especially talented people and a place where people want to start businesses.

Three areas are particularly important.

In urban areas, it’s law enforcement. The big economic development story of our tri-state region in the past 25 years has been the extraordinary growth of New York City, much of which has spilled over into New Jersey and Connecticut. That’s really a law enforcement story. About 25 years ago, when Rudy Giuliani was mayor, he figured out how to make the police department operate more efficiently. The murder rate has gone down by 90 percent. And that’s what’s caused New York to become an attractive place for tourists to come visit and people to come live.

Education is important in terms of creating a talented workforce, but it also makes your community more attractive to settle.

And third is infrastructure. Especially in our area. Transportation infrastructure. And that’s really a story of the Port Authority of our area and the need to reform.

What doesn’t work?

Corporate tax and non-tax economic development incentives.

I don’t think they are cost-effective … and, every now and then, governments make a huge mistake and create an incentive that’s overly generous and you can’t get rid of it.

Arthur Laffer, Ph.D. from Stanford, worked with former President Ronald Reagan and former British Prime Minister Margaret Thatcher.

Here’s an edited version of his comments:

New Jersey has an investment reservoir of assets. It really does. Terrific people, precious assets that have been there forever. Lots of capital. The location is incredible. Their history is incredible. New Jersey is a prime example of what should be a very successful state; unfortunately, in recent years, it has become an addict for a whole host of very dangerous substances.

I liken this to an individual who has become addicted to tobacco or alcohol or opioids.

The reason I make that addiction analogy is because it is much harder to stop smoking then to it is to never start.

You are very addicted and it’s going to be very hard for you to detox yourself.

(READ MORE from ROI-NJ on the GSI Economic Policy Forum.)

Think back in your history. In 1955, New Jersey had neither an income tax or a sales tax. It was one of the most prosperous states in the nation, growing very fast. People from everywhere were moving into New Jersey and it had a balance budget.

Nine years ago, when (Jon Corzine) was your governor, you had probably the highest sales tax, income tax, property tax, etc., and people were leaving. It’s just incredible.

New Jersey has become addicted to government spending, forced union labor spending, taxes and regulation.

Those three are killers. You cannot tax an economy into prosperity. Nor can a person spend himself into wealth. It just doesn’t happen.

New Jersey, in all honesty, needs an intervention.

That intervention is very difficult when you have the political structure which is currently New Jersey.

I’m not very hopeful about New Jersey. I wish I could be, but I’m not. Because it really requires a major political intervention and I just don’t see that in the cards like it’s happening in other states.

ROI-NJ Staff | editorial@roi-nj.com | @ROINJNews