Rand Paul's Ideas for Detroit

They won't work, but it's nice somebody is taking the problem seriously. Everyone's attitude is basically "Isn't it horrible that we can't do anything," when in fact it would be fairly trivial for any level of government above Detroit (including the County) to solve. They just don't want to spend money. Paul's idea would spend a large amount of money, by basically abolishing taxes in poor areas like Detroit, but it's nice that he's trying.

Granted he's trying to get Obama to sign a huge tax cut for free, but at least he's doing Detroit the courtesy of using us for political cover for his pre-existing anti-tax position. Everyone else is treating the City like it's got zombie-plague.

The problem with previous ones is Detroit's taxes are only high in comparison to the tiny little cities that dominate the rest of Michigan. In Cleveland today I pay more taxes then I did in Detroit. Sales taxes is almost three points higher, I pay income tax to two cities on every dollar I earn, and both cities charge at least Detroit's 2%, Detroit's property taxes were probably higher but I have never owned a home. This means that local taxes just aren't that big a deterrent from living in Detroit. In fact if the City had doubled the income tax, added a two-cent sales tax; and used the money to get reasonable police/fire response times and a working mass transit system back in the Archer years we could probably have avoided a lot of this mess. But that would have taken leadership, because the state would have had to agree with increased Detroit taxes, and Archer was a manager. In some ways Kwame had a better chance to pull this off because he at least had a Democratic governor (Granholm), but he wasn't interested in long-term planning.

The clearest proof of this was in Kevyn Orr's original "Report to Creditors," which was his attempt to convince the pension0funds and bond-holders to cave prior to filing for bankruptcy. Page 11 detailed the comparative tax burdens and insurance cost premiums of Detroit and several local 'burbs. Detroit's Tax penalty was $300-$600, but Detroiters pay an Auto insurance penalty of $800-$2,000. In other words, even waiving Detroit's taxes completely won't make the City competitive because much of the extra cost of living in Detroit is levied by insurance companies.

Paul's program might work because it also guts Federal taxes. If I can get a huge Federal tax break then that might compensate me for a) paying through the nose for insurance, and b) needing to hire my own private security.

The problem with implementing it on a large scale is that it could work too well. It would apply to a fairly significant proportion of the country (any area where unemployment is 1.5% higher then average), and it would give such massive tax benefits that you could see some pretty huge distortions in the market. For example, if I'm Apple I could move my HQ to a small city with a population of a few thousand, start a "philanthropic" homeless shelter that gives 1,000 people fairly nice apartments for free as long as they remain legally unemployed, and never have to bother with that Double Irish again. The unemployment rate can't drop below 20%, and the rest of the country isn't likely to hit 18.5%. I have saved myself a bucket-load of money.