Enterprise Zones

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The Los Angeles Times‘ editorial page is skeptical about Bush’s new “Gulf Opportunity Zones” in New Orleans—tax incentives to bring businesses back into the area:

To revive New Orleans’ economy, Bush has proposed creating “Gulf Opportunity Zones.” Similar to the “enterprise zones” that have been declared across the country since the 1980s, these would offer about $2 billion worth of tax breaks and loan subsidies to businesses that build and equip offices in Katrina’s wake.

Although some analysts are enthusiastic about enterprise zones, they may not be the best way to encourage New Orleans’ recovery. In general, most new jobs emanate from new, small businesses, which don’t benefit much from tax breaks because they don’t have much taxable income. By contrast, the beneficiaries of enterprise zones often are established businesses that move their offices into the zone to lower their tax burden.

Curiously, I haven’t seen any paper report on the fact that the city of New Orleans had already been designated a “Renewable Community”—in essence, one of the aforementioned “enterprise zones”—and the Department of Housing and Urban Development had already been offering $17 billion worth of tax credits to businesses in the area since 2000. Did it do any good? Well, New Orleans remains one of the poorest cities in the country, and I haven’t found any indications that things have perked up over the past four years. Interestingly, the Bush administration decided not to offer any new grant funding for these zones in 2004 “because the EZ program has not been deemed to be sufficiently effective.”

The classic knock against these tax breaks is that they are too small to entice most businesses to move, and the ones who do set up in these zones probably would have moved anyway, meaning they just get free money. I’m not sure how a few more tax breaks will help. That said, $2 billion is a relatively small part of the overall reconstruction budget, so in theory it’s worth a try, though this just seems like an odd thing for the White House to tout.

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