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Fiscal Policy &Virginia politics Richard Falknor on 29 Jan 2010 04:17 pm

“Government must create opportunity.” Really, governor?

“Government should have this clear goal: Where opportunity is absent, we must create it. Where opportunity is limited, we must expand it. Where opportunity is unequal, we must make it open to everyone.” — Governor Bob McDonnell.

Virginia conservatives should be delighted with the fact our governor is Robert McDonnell.  The former attorney-general as governor, a newly-elected Republican attorney general, and more Republicans in the House of Delegates, are vastly better outcomes than the alternative.

But, as we always say, one wonders what the subtext was for the governor’s reply to the president’s state of the union on Wednesday.  Did the Party Elders intend Mr. McDonnell’s reply to be the foundation of a new national face of the GOP Establishment?

One major voice from the Other Team (Huffington Post via the Washington Post) declared – –

“Basically, McDonnell succeeded in showing up, being handsome, avoiding saying anything remotely teabaggy, and offering a generic and presentable face of the GOP to the public. It was nothing too terribly dramatic.” (Underscoring Forum’s.)

We wouldn’t have minded a little “teabaggery,” however – – meaning, in this context, a more challenging conservative tone.  Along these lines, Trevor Loudon of NewZeal drew our attention to James Simpson‘s post in the DC Independent Examiner (before the governor’s reply) recommending that “this cannot be a message of conciliation. It must be a message of truth.” But the content of the governor’s actual reply is our central concern.

Specifically, we were puzzled by the good governor adding to the Founders’ wisdom by setting forth these new aims of government – –

“Government should have this clear goal: Where opportunity is absent, we must create it. Where opportunity is limited, we must expand it. Where opportunity is unequal, we must make it open to everyone.”

If this is just a campaign-like bromide, the words will probably be lost in the the current noise surrounding this week’s State of the Union address. Little harm done.

Nor do we have a problem with advancing truly equal opportunity in employment or school admissions, for example, if the subtext is not (explicit or backdoor) admissions or hiring quotas, nor “equal outcomes.”

But if the governor’s words, however, are the basis for serious action, or even if the governor’s brain trust is toying with government “creating opportunity,” conservatives need to be vigilant.

During Mr. McDonnell’s campaign for governor, we raised several concerns about promised spending that would “create” jobs. Let’s take “green jobs.”  We wrote last July – –

“So perhaps Bob McDonnell could explain, in free-market terms, the economics of his ‘green jobs zone’ proposal here and how it will help Virginia taxpayers, and independent Virginia businesses across the board? 

Does anyone believe that such a program, once enacted, would not continue to grow? And not link into similar Obama Administration subsidies?”

Tertium Quids’ Norman Leahy keeps an invaluable free-market eye on the new governor’s plans. 

Here is blogger Leahy’s “McDonnell as Terry McAuliffe” post of Wednesday commenting on William Flook’s Washington Examiner report “McDonnell: Plan will bring 29,000 jobs, $311M in revenue” – –

“Targeted tax credits?’Green jobs?’ Subsidies for Hollywood moguls?

Rather than aping the McAuliffe campaign platform, McDonnell could have chosen to embrace a repeal of the corporate income tax or even the much-despised BPOL tax. That he hasn’t tells me that the Big Ideas Bob once had on his shelf not only remained there, they passed away due to neglect.” (Underscoring Forum’s.)

“Based on fanciful estimates of economic activity and tax revenue, states are investing in movie production projects with small returns and taking unnecessary risks with taxpayer dollars. In return, they attract mostly temporary jobs that are often transplanted from other states. States claim to boost job training with MPIs, but these tax incentives often encourage individuals to gain skills that are only employable as long as politicians enact ever larger subsidies for the film industry. “

Richmond’s Bob Marcellus rightly urges the abolition of Virginia’s corporate tax which would give the Commonwealth a significant competitive advantage over nearby states.  Investor Marcellus explains – –

“Countries and regions that have cut the corporate income tax have experienced impressive increases in the rate of new jobs, corporate relocations, economic competition, and new investment. The evidence is overwhelming.

Abolishing this tax, with a date certain 12 to 24 months in the future, creates a ‘wow’ factor for growth while still building tax revenue until the actual implementation. This window buffers state revenue while building the base that culminates in a sustained growth of revenue created by an ensuing 0.5 percentage point to 1 percentage point expansion in the annual growth rate of Virginia’s GDP. This roughly translates (on the low end of expectations) to creating new jobs for the entire city of Bristol — population 17,000 — every year.”

Some General Assembly Republicans are pushing repeal, according to a January 12 Richmond Times-Dispatch report “Lawmakers propose eliminating corporate income tax” by Olympia Meola and Michael Martz – –

“Sen. Ryan T. McDougle, R-Hanover, said he’ll submit a bill to get rid of the tax effective in January 2012.

It would give Virginia ‘economic competitiveness that is just really unparalleled,’ said McDougle, who quotes estimates that revenue from new jobs should exceed the money lost within two years.

But the idea is getting a cool reception from state business organizations, which wonder about the need for the change and the cost to a state facing a potential budget shortfall of $4.2 billion.”

We cautioned last June (“Is the Virginia Republican Party Well, Conservative?”) that Mr. McDonnell

“suggest[ed] that Virginia pick winners and losers with space ports, film industries, and ‘green jobs.’ (Free-market economists call this approach ‘industrial policy’ or state central planning.)”

As the Tax Foundation explains,

“The MPI [Movie Production Incentive] experience demonstrates that a politically connected industry can grow if the state greatly reduces its taxes, but states should have a tax system that operates as a welcome mat to all industries, not just those politicians have picked.” (Underscoring Forum’s.)

No, governor, the government cannot “create” opportunity, but it can make wide opportunity possible through lower taxes and lifting anti-competitive regulatory burdens across the board (in county, city, as well as in the Commonwealth government) thus further enabling the ‘messy’ freedom of the marketplace.  These steps may not endear you to Virginia chambers of commerce, but they are a more likely path to meaningful jobs and general prosperity.

This article has been edited since its posting on Friday, January 29, 2010.

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