This article was originally published in The News Journal January 17, 2015. Click here for the original I appreciated the Dialogue Delaware piece by Stacie Beck and Eleanor Craig entitled, “Unfriendly to Business,” which appeared in your pages on Jan. 11. It seems that there are a lot of things that folks suggest our various levels of government do to solve our impacted social problems and dearth of decent-paying jobs. The first impulse seems to be to start up “programs” to address Delaware’s failure to bring business people here. Perhaps, having visited Nashville, Tennessee, at intervals over the past four decades, I have a perspective on Delaware’s business climate that other Delaware natives may lack. One root of Delaware’s problem with attracting decent jobs is its long-standing commitment to being the “home of tax-free shopping.” While, in addition to stores, malls and traffic, that commitment does produce retail jobs, those jobs tend to be low-wage with low benefits – hardly a foundation for a robust state economy. Moreover, in order to compensate for the absence of sales tax revenue, Delaware has been forced to resort to burdensome, progressive income taxation, which has made our state Kryptonite to corporate CEOs searching for company headquarters. Companies love to form on paper in Delaware, and one would think that they should be tempted to headquarter physically in Delaware as well, due to the state’s temperate climate, excellent court system, close proximity to New York, Washington, D.C., and other urban centers, availability of the most sophisticated cultural and medical resources, and access to lovely beaches and other recreational destinations – all without the high cost of living and the commuting headaches that come with living in the big cities that surround us. So why don’t CEOs choose Delaware for their headquarters as opposed to, say, Texas, Florida, and Tennessee? I’d suggest that it’s our dependence on the personal and corporate income tax. Executives simply won’t bring themselves and their high earning colleagues here to have their substantial incomes taxed at high margins. This consistently deprives us of their spending, their charitable contributions, their services on non-profit boards, their insistence upon quality education, and their hiring of support employees. And, since they locate elsewhere, we get no income tax from them either. Many of us wistfully recall how our children benefitted from entry level executive opportunities from MBMA, simply because it was here. It is undisputed that the population of Delaware is growing. However, the people attracted by the absence of a sales tax are often elderly and/or of low or fixed income, who are unaffected by the income tax, large consumers of Medicaid, and who have scant incentive to support school referenda. Nice folks to be sure, but not job creators or net contributors to state revenues – revenues necessary to address deficiencies in infrastructure, education and law enforcement. In sum, we see the exodus of companies like Astra Zeneca (and their employees) and the appearance of more traffic intensive retail shopping. Another structural problem adversely affecting Delaware’s business climate is the refusal to partake of the savings available through metropolitan government. If one lives in the city of Wilmington, for example, one is served and taxed by three generously-populated levels of government – all for a state with less population that some counties in our neighboring states. I suspect that, even those who don’t realize that we are grossly over-governed wouldn’t think it wise to turn the states’ 33 hundreds into autonomous political units, each with an executive, a legislature, and the usual array of fully-staffed departments, so that the citizens can be better served. Further expansion of government and the creation of new government programs are simply the wrong ways to create jobs. In contrast to Wilmington/New Castle County, Delaware, Nashville/Davidson County, Tennessee, has a single government, and is a clean, vibrant, and safe place to live. It’s friendly to business, with major corporate headquarters virtually lined up along West End Avenue. It has a robust sales tax, but people have jobs, so no one seems to care. I’d suspect that Nashville/Davidson County has a lower crime rate than Wilmington and New Castle County with a much smaller proportion of the population employed in the public sector. These observations don’t seem to have occurred to our government officials or to anyone whose letters appear in The News Journal. Hence, I hold out little hope that we’ll ever get beyond endless hand wringing over job losses, low wages, unsatisfactory education outcomes and crime. As long as our multiple levels of government and plethora of school districts are seen as benevolent providers of employment and benefits, and the political party that normally would offer alternatives remains an ineffectual minority, I don’t expect the public finance and consolidation solutions to be examined or earnestly debated. Richard E. Franta is a Wilmington lawyer.
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