Go-Go Reconstruction

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Friday, September 23, 2005

PRESIDENT BUSH'S proposed Gulf Opportunity Zone has a fetching nickname -- the "GO Zone" -- but that's about the best that can be said for it. The idea of spurring business activity in needy areas with tax incentives has been tried by both state and federal governments many times before, but economists who've looked at the record find no evidence that such schemes work. Urban areas that don't get tax breaks appear to fare as well as those that do get them, perhaps because business decisions on where to locate are driven overwhelmingly by nontax issues such as proximity to desirable workers and customers or the quality of local infrastructure. Enterprise zones therefore wind up subsidizing businesses that would have invested there anyway. They depress tax revenue without generating any compensating benefit.

Moreover, Mr. Bush isn't just dusting off a failed policy tool. He's proposing a particularly bad version of it. Unlike many enterprise zones, the GO Zone offers tax breaks for investment but not for job creation. And

unlike nearly all others, it lavishes subsidies not only on desirable businesses but also

on dubious ones that clearly don't need tax

incentives.

This last error is illustrated by Mr. Bush's willingness to subsidize casinos. As The Post's Jonathan Weisman reported yesterday, some casino companies have already declared that they plan to rebuild "bigger and better" on the Gulf Coast, but the Go-Go Zone would extend tax breaks to them anyway. This charity amazes even the casino people. A spokesman for Harrah's Entertainment Inc. confessed to The Post: "We're actually scratching our heads. We can't ever remember an instance of being offered a tax credit -- ever."

There is a reason for this. Casinos create some tourism and employment, but they empty the pockets of many who can ill afford it; their contribution to social progress is doubtful. Casinos have therefore been expected to justify their existence by generating lots of tax revenue. Now Mr. Bush wants to give them tax breaks. Go figure.


© 2005 The Washington Post Company

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