Innovation Investment Tax Credits Hurt Free Markets

According to Dictionary.com, innovation is “something new or different introduced”.  The caveman that turned a round rock into a wheel and used it to move things was an innovator. Steve Jobs, co-founder of Apple was an innovator. Even the neighbor kid who convinces you to let him mow your lawn is an innovator, because he tapped a new market. And the single mother who gets her kids to band practice, finds the time to help her kids with homework, and goes to work to provide for her family – that’s innovation.

So innovation is good, right? It expands our economy, helps businesses thrive and improves lives. Businesses, in turn, hire more people, buy more equipment, invest in more innovation.

However, not all innovations are equal.

In free markets, entrepreneurs are rewarded when they bring valuable innovations to their customers. And only the free market can determine whether those innovations are valuable. But when government decides to reward “innovators” it becomes a political decision - not a free market decision. Politicians have a notoriously bad track record when it comes to making good investment decisions.

My opponent in my campaign for State Representative believes her “Innovation Investment Tax Credit” idea will create jobs. However, that has just never proven to be the case.

An innovation tax credit requires that all taxpayers pay more taxes so that the few politically favored businesses (those that the government defines as “innovative”) can receive gifts from the government. If your neighbor kid somehow innovates the best, most innovative lawn mowing service in the world, he will likely not be popular enough with the State Legislature to get payouts.  

This is not government by consent of the governed - - it is government by elitists who believe they know what’s best for you and your family.

It’s what caused the debacle with Solyndra, the solar panel manufacturer that received $535 billion in federally guaranteed loans and then went bankrupt, eliminating 1200 jobs, and leaving you and me to pay the bill.

It is what nearly forced Colorado taxpayers to spend $300 million on the Gaylord Hotels project, a project which Gaylord itself decided is no longer financially viable. We dodged the bullet on that one.

My opponent’s “Innovation Investment Tax Credit” scheme is just another example of her flawed understanding of how economies and businesses work. In her vision for Colorado, entrepreneurs who have more concern for politicians and bureaucrats than customers will benefit – regular people like you and me will be left to struggle on our own against her redistributionist policies.

Many politicians seem to believe that government’s main purpose is to help them buy votes. I believe that my fellow citizens are smarter than that. They can run their own lives, they can build their own businesses, they can find employment in a thriving economy - if only government will get out of the way.

Reality Over Hope - Three Jobs Saved

We cannot solve our problems with the same thinking we used when we created them. Albert Einstein 

President Obama has explained his new stimulus program. Let’s see how the old one did. Obama’s Council of Economic Advisors (CEA) reports that the American Recovery and Reinvestment Act (ARRA) has been a success, creating or saving 2.4 million jobs through the first quarter of 2011 at a cost of $666 billion. As pointed out by The Weekly Standard, this comes to approximately $278,000 per job. We’d have saved $427 billion by just writing $100,000 checks to each person who has a job because of the stimulus.

The CEA is a group of three economists appointed by the President to…advise the President on economics. Being economic advisor to the man that spent $278,000 per job only to see unemployment stuck at over 9% would be a tough job. How do you tell the President that he wasted oodles of money and prolonged the recession –without losing your job? The report relies on Obama’s old campaign slogan. Heavily invested in HOPE, the president might see only what he wants to see in the report, and believe the skewed conclusions.

The report mentions twice that nobody can observe what would have happened in the absence of the stimulus. We can observe that the economy reversed its downward trend one quarter before the stimulus, and that the biggest positive jump was in the first quarter before 98% of ARRA funds had been spent. And we can see that as stimulus spending increased, the economic growth trend reversed again, going down. The report says that it can’t determine the cause of what happened, but in a triumph of hope over reality, it misconstrues facts, confuses correlation with causation, and lays the groundwork for more stimulus. 

It gets worse. The first company that got a government guaranteed loan under ARRA was Solyndra, a California solar panel manufacturer. Government guaranteed loans, by the way, are actually guaranteed by you and me. Solyndra got $535 million. Assuming all of its 1100 workers were hired because of the stimulus money, that’s over $486,000 per job. Now Solyndra is bankrupt. Solyndra’s 1100 jobs were lost because Obama was mistaken in his choice of handout recipients. How many more failures will we see? If a company requires a subsidy, it probably doesn’t deserve it. 

We’re not done with that CEA report yet. It relies on “independent approaches and supplements those estimates with those of numerous outside analysts”. The data was cherry-picked to create the desired outcome: Impress the President and save the jobs of three economists. If outside data is included, where is data from other countries that demonstrate whether their stimulus programs worked? 

Our nearest “rich country” neighbor is the closest thing to that which the CEA said could not be observed – the effect of doing nothing. Canada did next to nothing. According to David Lee, writing for the Mises Daily, Canada’s stimulus package “was little more than a clever display of political gamesmanship whereby the appearance of action was maximized, while the action itself was minimized…It is precisely in this abstinence that we find Canada's source of relative success”. Canada’s economy grew 3.3% in 2010. Job losses have been recouped. Their unemployment rate is 7.2%, compared with ours at 9.1%. A recent business survey indicates record hiring expectations and optimism about future demand. 

Canada is perceived as the hope-over-reality bastion of socialism in North America. But the truth is that in 1993 “Canada underwent one of the most fiscally responsible periods in its history…[Finance Minister] Martin made it clear from the start that the priorities of the government would be fixed squarely on eliminating the deficit and the record of the following decade leaves little doubt that this was a commitment that was delivered upon powerfully”. 

While the CEA shows us that they can save their own jobs, Canada shows us that government non-interference is how job creation really works.