Picking Winners and Losers

Member Group : Lincoln Institute

It sounds like an economic developer’s dream: over 243,000 direct and spin-off jobs with a core job average salary of $93,000 per year and the injection of billions of dollars into the state’s economy. No doubt state, county and local governments will rush in with a wide array of incentives to secure that business for Pennsylvania.

Such is what is happening as Pittsburgh and Philadelphia enter the next round of competition to be the site of Amazon’s second national headquarters, or HQ2. But the business I just described is not Amazon; it is the Marcellus shale industry.

Economic development policy in Pennsylvania is anything but consistent. It picks winners and losers, often based more on political considerations than economic viability. This has resulted in numerous examples of the state offering loans which ended up in default or businesses leaving when tax abatements expired.

There is no more stark comparison than the state’s hostile approach to Marcellus shale development and its courtship of Amazon. State, county and local governments are willing to give away the proverbial store to get HQ2, yet are intent on heaping punitive tax upon punitive tax on the Marcellus shale industry.

To be sure neither Amazon nor the energy companies need special treatment. They are all highly profitable, growing businesses with bright futures. Marcellus shale drillers and Amazon are each perfectly capable of paying the same taxes and operating under the same laws and regulations that every other business, large and small, operates under in Pennsylvania.

But that is not how we do things here in Penn’s Woods. Ironically our state’s approach to economic development was best summed up by Ronald Reagan when he said “If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it.”

Blessed with rich deposits of natural gas, the industry in the Marcellus shale region developed rapidly without the assistance of government economic development hand-outs. It being successful, following Reagan’s dictum, state government decided to tax it. And so a severance tax, misnamed an impact fee, was placed on the industry. It continued to be successful so more regulations were imposed.

Meanwhile the clever folks at Amazon are masterfully playing states and cities against each other. Already one of the most successful businesses in the world Amazon could simply have picked a location for HQ2 and announced it would locate there. But why do that when you can ignite a bidding frenzy?

So, for now, Pittsburgh and Philadelphia are filling goodie bags with incentives in the hope of landing the high paying jobs and economic benefits that will flow from HQ2. Unfortunately, we the taxpayers don’t know how much of our wealth they are giving away as the process thus far has been completely devoid of transparency.

Thus economic development policy in Pennsylvania continues to penalize success, while attempting to entice new business into the commonwealth by offering to have them pay less than their fair share of the tax burden when they get here. Fair warning to Amazon though: once you are here and become even more successful look for the welcome mat to be pulled out from under you.

Despite the wide array of incentives being offered to Amazon they are unlikely to select Pittsburgh or Philadelphia for HQ2. There is no doubt both cities have the educational institutions, work forces and infrastructure needed to meet Amazon’s needs. What Pennsylvania lacks, however, is a state tax structure that is competitive with other states.

The most recent edition of the American Legislative Exchange Council’s Rich States, Poor States report ranks Pennsylvania 39th among the 50 states in an economic competitiveness study. Other states in the Amazon competition, including Indiana, Tennessee and Florida rank in the top ten. Of course, New Jersey and New York are at the bottom of the list giving the Keystone state some reason for hope.

The dispirit treatment of various businesses, and the lack of state competitiveness point to a need for Pennsylvania, county and municipal governments to reassess their approach to economic development. At the state level onerous tax rates, job crushing regulations and dysfunctional bureaucracy must be addressed.

The picking of winners and losers and offering incentive packages to compensate for an uncompetitive tax and regulatory environment must end. Instead, we must cut taxes, eliminate over-regulation, and streamline the bureaucracy to create a business climate that is competitive, welcoming, and fair to all.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

Permission to reprint is granted provided author and affiliation are cited.