Dumb Government and Smart Government

There were two stories in the paper over the weekend – both of them local to the Washington, DC area – that perfectly captured the difference between smart government spending and dumb government spending. Let’s start with the dumb first.

Since 2012, the Maryland state government has been offering increasingly generous tax credits to persuade filmmakers to locate their productions in the state, most notably the Netflix series “House of Cards.” A new report from the non-partisan Maryland Department of Legislative Services concludes that the state has wasted more than $60 million to encourage productions that create only a handful of short-term jobs and bring little revenue back to the state. For every dollar the state spends on tax incentives, the report found, about 10 cents comes back.

In addition, the report said, “states are fiercely competing with one another to draw productions into their state. This type of competition is not only expensive, but promotes unhealthy competition among states.” That was exactly the conclusion of our recent Renewing America Policy Innovation Memo, “Curtailing the Subsidy War Within the United States,” which proposed a compact among states aimed at ending the wasteful practice of tax subsidies. Subsidizing film production, which is highly mobile, may be the dumbest sort of tax incentive of all, because the benefits are entirely fleeting. “As soon as a film production ends, all positive economic impacts cease too,” the report said. Yet 37 states and the District of Columbia still engage in this folly.

Now for the smart spending. After years of political debate, Virginia earlier this year completed the first leg of the $6 billion Silver Line, an extension of the Washington metro that now reaches the booming suburbs of Tyson’s Corner and Reston and will eventually lead out to the Washington Dulles airport. Critics like former Virginia attorney general and GOP gubernatorial candidate Ken Cucinelli argued that the line was a “boondoggle” and a waste of taxpayer dollars. That now looks dead wrong.

A Washington Post story this morning showed that many commuters are now able to hop the metro in the poorer neighborhoods of Anacostia and Prince George’s County and arrive in Tyson’s Corner about an hour later. One young woman, who had been working for almost nothing in her mother’s hair salon, now has a $9.25 an hour job at Nordstrom’s in Tyson’s Corner and rides the Silver Line to work each day. Multiply that by the hundreds who already appear to be following a similar route and that’s a lot of money coming back to the poorer parts of the metro region where job opportunities are lacking.

This is exactly what infrastructure – a bloodless term for the the roads, rail lines, sewer and water systems that are the arteries of the economy – is supposed to do. It makes the economy more efficient by allowing individuals to move more easily to where the jobs are at, creating new opportunities where none existed before.

Infrastructure is one of the few areas where there seems to be at least faint hope of cooperation between the White House and the new Republican Congress. Voters in several states supported big ballot initiatives for new infrastructure spending, suggesting there would be plenty of public support on the issue.

Maryland will face a quick test under new Republican governor Larry Hogan, who has been skeptical about whether to build the $2.6 billion Purple Line, which would similarly connect the poorer suburbs in Maryland’s Montgomery County to the wealthier ones. The choice should be an obvious one.