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LeBron James Brings the High Cost of Bad Policy to the Fore

Public policy helps determine where economic activity occurs.

5:30 AM, Jul 22, 2010 • By JIM PREVOR
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Those who want to see better public policy in America owe a high five to LeBron James.

LeBron James Brings the High Cost of Bad Policy to the Fore

Photo Credit: Flickr user Keith Allison

His highly publicized decision to sign with the Miami Heat brought forth a torrent of articles noting that the star basketball player stood to save a lot on state and local taxes by moving to Florida. Although conservative media noted the incentive early, eventually it hit the New York Times and other mainstream media outlets. It was a great teaching moment, in which the costs of a public policy – in this case high state and local taxes – could be clearly seen.

The interesting thing is that taxes – and broader public policy actions – affect such decisions every day.

If LeBron James were an auto plant, considering re-locating to Cleveland, New York City or Miami, it is very obvious that the higher taxes in Ohio and New York wouldn’t matter at all, at least not directly. Why? Because the governments in New York and Ohio would offer all kinds of “incentives” to equalize the tax burden with Florida and maybe even undercut Florida’s level of taxation.

But LeBron James is a high-profile, high-earning individual and, so far at least, the government has no way of aiming legal exceptions at one individual.

Now, of course, every day, there are plenty of individuals and small businesses deciding to locate in Florida and Texas and other low tax states. Other people or businesses may not have the freedom to live or locate anywhere but they compare the tax rates within a region. So they wind up in Virginia rather than D.C. or Maryland or Connecticut rather than New York.

Most of this, though, is anonymous, and any individual move is completely below the radar of the media, politicians, and most voters.

Any time there is a big issue, the politicians avoid letting the voters see the cost of public policy decisions by exempting the high profile cases from the law that applies to everyone else – that is what tax abatements are about. They are not chump change either. One of the hot industries of the moment is the battery industry. The Feds appropriated $2.4 billion for this industry, but the states are also wooing the plants. Michigan has offered $800 million in tax credits; Ohio offered $100 million in incentives to get just one plant.

It is not just a tax issue either. Here’s another example of where the LeBron James debate might actually further a substantive policy difference: First Lady Michelle Obama proudly announced a $400 million initiative to help the 23.5 million people she claims live in “food deserts” – defined as anyone who lives more than a mile from a supermarket.

The first lady’s proposal, announced in the heart of the Philadelphia, among other things, aims to help inner city residents gain access to large grocery stores with lots of fresh foods (rather than the local mom and pop shops or more distant supermarkets, they currently frequent to purchase groceries). But, no matter Michelle Obama’s intentions, her proposal misses the root problem. Why directly subsidize individual stores to open in these areas closer to these 23.5 million people? Why not address the public policy problems that cause retailers to stay away?

The retail sector is highly competitive and, generally, many players compete vigorously for the opportunity to open retail food stores. Why, then, should it be necessary to give grants or loan guarantees to get retailers to open in underserved areas? In the inner city the issues involve things such as the inability of the local police to assure safety for patrons and staff plus keep shop lifting to national averages. Those retailers – such as Pathmark – that have made commitments and opened large supermarkets in inner cities have often felt the need to hire uniformed police officers to man the store 24/7. Between vacations, training, holidays and sick days, it can take five or more full time police offers to guard the store. In a unionized police force, take New York City for instance, salary and benefits to man that force can cost over half a million dollars a year.

How helpful it would have been for Michelle Obama to address the security problem directly, acknowledging that one benefit of solving that public policy problem, would be that, freed of the need to spend a half million a year on security, lots more retailers would open in underserved areas. Instead of facing up to the public policy problem, though, she is looking to spend money directly to de facto compensate individual retailers for these high costs of doing business – and doing nothing to resolve the root problem.

As Republicans approach the next election, they need to position themselves as something more than just the party of austerity. How about pushing for legislation prohibiting each state from engaging in ad hoc negotiations for incentives, or from valuing high profile or new employers more than any other taxpayer? How about fighting against federal spending that “enables” states and localities to maintain counter-productive policies?

Through his actions, LeBron James showed America that public policy matters in determining where economic activity occurs. Republicans should fight against programs that obscure this truth from voters.

Jim Prevor is the founder and CEO of Phoenix Media Network, Inc., a business-to-business media company specializing in the food industry.

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