Rand Paul wants to re-launch the War on Poverty — with a libertarian twist.
On Monday, the Kentucky senator announced his “economic freedom zones” amendment to an energy bill that would target high-poverty areas of the country for entrepreneurship and reduced taxes, according to a press release.
“Economic Freedom Zones would be the largest anti-poverty initiative since the War on Poverty,” Paul said. “The Economic Freedom Zones Act will allow impoverished areas to remove the shackles of big government by reducing taxes, regulations, and burdensome work requirements.”
For any zip code where unemployment exceeds one and a half times the national average, the legislation would lower individual and corporate income taxes, as well as payroll taxes. Other taxes and regulations would be suspended, and school choice and tax credits would be expanded.
“This legislation will provide over $100 billion to communities that have been devastated by chronic poverty,” Paul said. He pointed to eastern Kentucky; Flint, Michigan; Ferguson, Missouri; and the south side of Chicago as areas that would benefit from his legislation.
This isn’t the first time Paul has pushed economic freedom zones. In a 2013 speech in Detroit, he spoke of the benefits those zones would bring to the city. His legislation went nowhere, but he connected the zones to criminal justice reform in his vision of revitalizing impoverished communities, cities, and regions.
Critics have dismissed the idea as a “terrifying vision” that is “something out of an Ayn Rand fever dream.”
“The neoliberal experiment in hyper-capitalism and the erosion of the state, which used to be run in places like Chile, after Washington helped install a dictator, has now come home,” Matthew Pulver wrote.
Paul’s idea isn’t a redux of authoritarian dictatorship from South America, however. It’s an expansion of urban enterprise zones that use incentives to attract businesses. Maryland, for instance, has 29 enterprise zones that offer businesses tax credits. Cities already use incentives and subsidies to attract businesses and families to certain neighborhoods. Paul’s vision follows a similar instinct, except he isn’t enthusiastic about government doing the investing.
Empirical evidence of the success for those special zones vary. “The economic effect of enterprise zones remains unclear,” Don Hirasuna and Joel Michael wrote in a 2005 policy brief. Evaluating the zone’s effects have been difficult for economists. Tax incentives have small positive effects, it appears, but the economic benefits can be short-lived, the growth might shift from other parts of the city or state rather than zones creating new growth, and more economic barriers are more difficult for those zones to succeed in.
Detroit might fare better as an economic freedom zone than, say, eastern Kentucky. Historically, Detroit has been a strong economic engine for the Midwest, but eastern Kentucky has been consistently poorer than the rest of the country.
“[Enterprise zone] subsidies cost state and local treasuries a lot of lost revenue, and like many subsidy programs, it is often unclear whether the developments would have happened in the area anyway,” according to Good Jobs First, an organization that tracks government subsidies for businesses.
Paul’s plan avoids the government tendency to dole out corporate welfare, though tax breaks and credit are a different form of subsidy. Lowering economic barriers to entry in impoverished areas could help, as successful programs depend on strong entrepreneurs to drive growth.
“They are much more than a government stimulus or handout. They empower communities by leveraging the human capital, natural resources, and business investment opportunities that already exist,” Paul said in promoting the zones.
For impoverished areas that were thriving 40 years ago, lower barriers to entry could attract talent and spur a recovery. For others that have struggled historically, the zones could come and go without notice. If Paul can keep himself in the media spotlight, however, he could spur a new round of experiments nationwide.
