Detroit

Three governments, one lesson about stimulating the economy

February 25, 2014: 5:00 AM ET

What do Detroit, New York, and France have in common? They all understand that lowering taxes is the best way to boost business growth.

By Geoff Colvin, senior editor-at-large

French president François  Hollande of the Socialist Party is now pushing a tax cut for business.

French president François Hollande of the Socialist Party is now pushing a tax cut for business.

FORTUNE -- The flourishing debate over the effectiveness of Washington's 2009 stimulus package, occasioned by the law's fifth anniversary, will not accomplish a single thing. But if we keep it in mind as we notice a few other news stories playing out just now, we might learn something useful about what really gets an economy going.

The debate as conducted in Washington is pointless because neither side will budge from its predictable position. Republicans say the stimulus -- a mix of government spending and tax cuts -- obviously didn't work because, after five years, fewer Americans are employed than were employed when the stimulus was enacted. Democrats say it obviously worked because GDP recovered faster in the U.S. than it did in many other economies that were in recession at the same time. Neither side will ever acknowledge that the other might have a point.

What's actually useful is to note what three other governments that are up against the same challenge -- trying to stimulate an economy that badly needs help -- are doing right now:

"It is imperative that France restores the power of its economy. There is no time to lose," said President François Hollande last month. That's for sure. France's economy is one of Europe's weakest, performing so badly that Hollande's approval rating is the lowest of any French president's since World War II. But this Socialist who campaigned for office promising tax increases on millionaires now proposes a 30-billion-euro tax cut for business. That, he argues forcefully, is what will make the economy grow.

MORE: What Lego has in common with Apple

"You can't beat zero," said New York Governor Andrew Cuomo last month, proposing $2 billion of tax relief in an attempt to attract and keep more business in the state. A bipartisan commission had recommended cutting the tax rate on manufacturers, currently 5.9%, by about half. But why take half measures? Cuomo, a Democrat, wants to eliminate the tax entirely -- that is, make it an unbeatable zero -- at least for manufacturers north of New York City, who have been leaving the state for years.

"The City believes that the imposition of comparatively high and ever-increasing individual and corporate tax rates, in recent decades, has contributed to the City's population loss, dwindling tax base, and overall economic decline." So states Detroit's just-released plan for exiting bankruptcy. The plan is equally blunt about the solution: "The City believes that lowering selected income and property tax rates ... is critical to ... fostering job growth and expanding the overall tax base." Faced with the dollars-and-cents demands of bankruptcy, Detroit's leaders want to tax less, not more.

The theme is obvious, and the lesson is clear. When finally forced to confront inescapable economic trouble, government leaders realize that business is not a pit to be mined but a living plant to be nurtured. If only they could more often realize it before calamity looms.

  • The Pink Zone: Why Detroit is the New Brooklyn

    Detroit may not the richest U.S. city, but it's a place where millennials can build wealth

    By Andres Duany

    FORTUNE -- Detroit is going to be the next "Brooklyn." Perhaps not all of Detroit. But certainly a portion of the city has the potential to become as rich and thriving as New York's trendiest borough.

    Hope for Detroit would seem far-fetched if you had been on the "pornography of ruins" tour I have MORE

    Jan 30, 2014 10:09 AM ET
  • Detroit's new technocrat mayor

    Former hospital CEO Mike Duggan charted an unlikely course from running a successful company to leading a bankrupt city.

    By Anne VanderMey, reporter

    FORTUNE -- Mike Duggan's mayoral bid got off to an inauspicious start.

    First, he was kicked off the ballot during the primary for filing his election paperwork two weeks too early. Then, he briefly gave up on the race before changing his mind and jumping back in. And then, a MORE

    Nov 6, 2013 2:49 PM ET
  • For two businessmen, tough going in the public sector

    Wolf drops Mass. gubernatorial bid; Hantz inches forward with Detroit woodlands project

    By David Whitford, editor-at-large

    FORTUNE -- Mike Bloomberg notwithstanding, businesspeople tend to get slapped down when they venture into the public arena. Take for example Dan Wolf, the hugely successful founder of regional airline Cape Air, whose political ambitions I reported on last month on Fortune.com.

    Three years ago Wolf, a Democrat, won a seat in the Massachusetts state senate. MORE

    Oct 23, 2013 3:58 PM ET
  • Detroit: After bankruptcy, then what?

    A solution would be to merge the city and surrounding counties into a consolidated metro government.  Unfortunately, city and suburbs get along like Hatfields and McCoys.

    By Alex Taylor III, senior editor-at-large

    FORTUNE -- Speed records were set in 2009 when General Motors (GM) and Chrysler zipped through government-sponsored bankruptcies. By the time the final details were negotiated -- a matter of weeks -- the future of GM, and to a MORE

    Jul 24, 2013 11:40 AM ET
  • Detroit's benevolent dictator

    The man leading Detroit's bankruptcy thinks it will be the fresh break the city needs. It will also add to his already sweeping power over city finances and government. If Detroit owes you money, watch out.

    By Anne VanderMey, reporter

    FORTUNE -- Last week Detroit became the largest American city ever to file for bankruptcy. The decision came after four months of crisis leadership by Kevyn Orr. Now, all eyes are MORE

    Jul 23, 2013 1:53 PM ET
  • Detroit's bankruptcy is an utter defeat

    The city's darkest day is a tragedy a long time in the making.

    By Doron Levin

    FORTUNE -- The bankruptcy filing on the afternoon of July 18 by the city of Detroit isn't just a massive financial implosion. Nor is it simply a milestone moment, the biggest municipal collapse ever in U.S. history. It is an utter defeat.

    Detroit's bankruptcy is a profound failure for a place where once beat the heart MORE

    Jul 19, 2013 6:54 AM ET
  • Think you know Shinola? Think again.

    A high-end watchmaker bets big on Detroit.

    By Anne VanderMey, reporter

    FORTUNE -- Judith Walker used to have to drive more than an hour to get to her job at the General Motors plant in Lake Orion, Mich.

    Now, she commutes about five minutes to get to her job in Detroit. But she's not making cars, she's assembling the near-microscopic components of $700 watches.

    Walker works at Shinola, the high-end wristwatch company that MORE

    Jul 9, 2013 6:40 AM ET
  • Sign GM is firing on all cylinders

    The Detroit giant is moving its treasury staff to the Midwest.

    By Doron Levin

    FORTUNE -- General Motors Co.'s decision to move its treasury staff to Detroit from its historic home in New York is another sign of the automaker's restructuring as well as a subtle shift from a management philosophy that helped GM rule in an earlier time.

    The move, affecting 70 GM (GM) workers, will take place next year. Dan MORE

    May 24, 2013 11:34 AM ET
  • Motor City requiem

    In his new book, Detroit: An American Autopsy, journalist Charlie LeDuff chronicles his hometown's epic decline.

    By Anne VanderMey, reporter

    FORTUNE -- When Detroit's Big Three auto executives flew to Washington in corporate jets to beg for a taxpayer bailout a few years ago, they were sent home humbled and empty-handed. Their second trip, in which they drove company-made hybrid vehicles to the Capitol, was in some ways equally humiliating. Chrysler MORE

    Feb 8, 2013 7:13 AM ET
Search This Column
View all entries from this: Week, Month
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.