Senator’s Fix For Detroit: Eliminate Federal Taxes And Regulations

Sen. Rand Paul (R-KY) is touting a plan to all but eliminate federal taxes and environmental regulations in places like Detroit to help the city bounce back from bankruptcy.

The proposal reflects ideas championed by supply-side conservatives like Jack Kemp in the 1980s and 1990s, and derided as a form of “benign neglect” by other urban policy experts. Tax cuts that primarily benefit the wealthy aren’t likely to do much for Detroit, where 60 percent of tax filers had taxable incomes of less than $20,000 in 2011. As the Detroit Free Press noted, “it’s difficult to know just how much impact a plan like Paul’s could have, with more than a third of the city’s residents living below the federal poverty level.”

While Paul argues that the tax breaks would give rich people an incentive to move to Detroit and invest in the place, that approach starts from a misunderstanding of Detroit’s real problems and its likeliest path back to prosperity, according to the Urban Institute’s Rolf Pendall. Detroit’s problem is a mass exodus of young people, and “the resulting demographic deficit won’t be resolved only by tax breaks to attract or retain new businesses and upper income people,” Pendall told ThinkProgress in an email. The “anchor institutions already in place there — hospitals and universities especially” will be the keys to bringing Detroit back, he said, and “these happen to be mainly nonprofits who can’t leave anyway and will not be affected much by supply-side, tax-based efforts.”


Paul’s plan isn’t just mis-targeted, though. It could even exacerbate Detroit’s dire straits. Cutting taxes also threatens education funding streams, which would only perpetuate the demographic problem by encouraging young people to continue leaving. Instead, it’s “extremely important to improve the skills of young people who are most likely to stay in the metro area,” Pendall added, “meaning continued investment by the public sector in the people of metro Detroit.”

Whereas Paul’s plan slashes tax rates and then steps back to let nature take its course, White House Promise Zones offer both tax incentives for investing and hiring and federal funding for local organizations with track records of success in tackling education and housing challenges in their communities. The administration plans to unveil the first five Promise Zones this year. After citing Pittsburgh and Chicago as examples of places that have turned around thanks to such help, he added that “cities like Detroit can do it too” in a speech on Wednesday.

The administration has already been paying some quiet attention to Detroit. In September, the administration announced a $300 million public-private partnership aimed at bolstering the city’s infrastructure and tearing down some of the tens of thousands of blighted structures that mar the bankrupt metropolis. Such a federal-city partnership could be part of what Pendall told ThinkProgress would be necessary for Detroit to transform itself from sprawling and vacant into a concentrated, livable, and self-sustaining urban center.

Because Detroit expanded outward for decades and then saw its population shrink in half as its manufacturing economy cooled, the city needs to contract and reshape itself dramatically in order to concentrate people near jobs and services. If designated as a Promise Zone, local Detroit organizations will get substantial federal help in pursuing that reorganization. The Department of Housing and Urban Development’s “Choice Neighborhoods” program would help tear down vacant housing and build “high-quality mixed-income housing” that would help lure investment back into struggling parts of the city. The Department of Education’s “Promise Neighborhoods” program would provide local non-profits and high-education facilities that have demonstrated their efficacy with the funding they need to reach more people. That would be music to Ryan Dinkgrave’s ears, as his Detroit-based Focus: HOPE adult education and job training organization has been left unable to provide real career training due to sequestration cuts. Promise Zones also bring Department of Justice money for local law enforcement and community groups that work to curb violent crime.

The zones also come with tax incentives for hiring and business investment as laid out in the White House’s 2014 budget. The proposed tax breaks total $1.6 billion from 2014–2018. Brian Smedley of the Joint Center for Political and Economic Studies told the Washington Post that the zones are “the biggest, most promising anti-poverty strategy” in a long time.