Thursday, October 4, 2012 | One comment

Sandy City Snubs Local Businesses, Offers Preferential Tax Treatment to Scheels

By Jeremy Lyman

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The imposition of taxes by government entities is defended as a necessary evil.  Many conservatives and others that theoretically believe in smaller government and fewer taxes contend that some taxes are necessary, that government must exist to provide order, and that it must be financed through taxes.  I would contend otherwise, as I have here, but if taxes are to remain (as a necessary evil), then shouldn’t they be administered equitably between tax payers?

Many governments have expanded their role beyond that of providing the minimum essential services that might justify government and taxes in the first place and have interjected themselves in the private market.  On the national level, Americans have witnessed seemingly unprecedented interference in the private market in recent years as the federal government has overstepped their rightful and constitutional bounds time and time again with measures such as numerous stimulus bills designed to rescue and stimulate a crashing economy, auto bailouts, bank bailouts, and bailouts of quasi-governmental institutions such as Fannie Mae and Freddie Mac.

The most basic principles of freedom and liberty defy these government actions and reveal their immoral nature.  Most conservatives and virtually all libertarian-leaning citizens recognize that the federal government is out of control, respects no constitutional bounds, and is no longer guided by the sound principles of liberty upon which the country was founded.  The cost to American tax payers today and in the future is gargantuan and unthinkable.  Nineteenth century Frenchman  Frédéric Bastiat wrote in his seminal essay, That Which is Seen, and That Which is Not Seen, the following:

“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil.”

The detrimental effects of the federal government’s interference will be felt for decades to come.  The debt that has been accrued will bind down our children and our citizens’ ability to improve their wellbeing, perhaps for generations to come.  The effects of inflation are already being felt, though few recognize the cause.  The markets will not be efficient because certainty has been removed.  People and companies have not been held responsible for unwise actions, and as such, there will inevitably be more malinvestment and waste in the future.  Most of the these consequences, which come as a direct result of the federal government’s out of control behavior will not be recognized as such by many, and will certainly not be admitted to be such by those that supported and continue to support such government interference.

Unfortunately it is not only the federal government that has overstepped its bounds in this way, but the Utah state government, many if not all of the counties within the state, and even many of the local municipalities.

I gave one such example in a recent post that focused on TRT (transient room taxes) that have been authorized by the State of Utah and are implemented by counties, cities and towns.  I highlighted Utah’s poorest county, San Juan County and pointed out that San Juan County imposes the highest tax rate on its citizens of any county in the state (coming in over 70% above the state average).

As with TRT one area in which government has gone awry is that of supposed “economic development.”  Another example of this is the State of Utah’s Governor’s Office of Economic Development (GOED).  GOED’s stated charter is based on the governor’s commitment to statewide economic development.  That alone should turn liberty-minded citizens against the whole concept of GOED.  Government has no business and no justification in concerning itself with economic development.  Government does not produce.  Government can only hinder and cannot help with economic development.

GOED claims to achieve its goals by utilizing “state resources and private sector contracts.”  In other words, state resources (taxes taken from some) are used to benefit others.  I would argue that the entire basis of GOED violates their first stated “value”, which is Integrity.

The state is not the only guilty party.  Many counties and cities have done similar things.  The City of Sandy just recently celebrated the opening of Scheels, a sporting goods retailer.  Scheels had reportedly considered other locations in other states, and ultimately chose to locate in Sandy, at least partially due to the 25 years of property tax rebates that they were promised (as long as they meet employment and sales benchmarks).

According to Fox 13 News , some other competing businesses are understandably frustrated with this preferential treatment.  Wasatch Running Center manager Brian Corbett states, “It’s a little disappointing, we’ve been here for eight years, that they’re offering those incentives to out-of-state companies to come in and local homegrown businesses aren’t really getting anything along the same lines.”

Sandy City’s Nick Duerksen, with their Business and Economic Development department justifies the tax breaks.  “We don’t do a lot of incentives in Sandy.  We’ve done very few to a tenant like this.  They have to be on that level.  Scheels is going to bring three to four million people to their store every year.”

I don’t understand why the city should concern itself with how many people come to Scheels each year, but I do understand the most basic principles of liberty and private property.

The above linked article quotes two customers, one (David Johnson) who said he “couldn’t care less” if Scheels received preferential tax treatment, stating, “If it brings a store like this into the area, I think it’s great.”  For some, the means justify the ends.  Of course, David is focused on “that which is seen” immediately and is completely oblivious to “that which is not seen.”

Thankfully, there were customers that recognized the injustice of the tax breaks.  Jennifer O’Neil was quoted as saying, “I don’t think Scheels needed to be here.  I don’t think they should have gotten such a big tax break.”  I agree.  In fact, a free market would be the best method of determining whether or not Scheels needs to be here.  Scheels should choose a location that will bear enough demand for them to be profitable.  If there are infrastructure costs provided by government that make the proposition unprofitable, then either the business model does not work, or government is taxing too much for the supposed services they provide.

In this case, the cost of those services is being born by all of Scheels’s competitors, to the clear advantage of Scheels.  Government is picking winners and losers.  The Fox News article addresses this issue with the following blurb, “At larger chains like Sportsman’s Warehouse and REI, some managers told FOX 13 they feel Scheels has an unfair advantage over competitors, while others are confident their store’s niche will keep business alive.”  It sounds to me like the implication is that the question is whether or not another business will be put out of business by Scheels.  This is an important question, but it does not end there.  Scheels will compete for employees and customers, and possibly suppliers and vendors as well.  Competing businesses will inevitably have higher costs, lower sales, and lower profits.  These are real costs, born by real people, business owners, investors, and employees.  Of course, these are all part of “that which is not seen.”

It is virtually impossible to analyze all of the effects of government offering tax breaks to Scheels, but one of the effects that is easily seen is that other businesses will pay property taxes, ostensibly to pay for government infrastructure and services, and Scheels will not.  Some businesses may be forced out of business.  Some businesses that may not exist now, but that would have been developed, may never materialize.  Some businesses will have lower profits for their investors and/or owners.  These businesses may hire fewer people, may lay off more people, may pay their employees less.

Whatever the results, they are not “fair” because government has interfered in the natural outcome of the marketplace.  Rather than individuals and businesses being rewarded for offering superior products, services, and prices, some businesses will be arbitrarily penalized.  This kind of government behavior is often referred to as corporatism or crapilatism.  It is not free market capitalism, and it unavoidably leads to worse overall outcomes than a true free market.

A more effective policy would be one that recognizes basic principles of freedom, liberty and private property.  I discuss those basic principles here.  They are basic. They are simple.  They are not complicated.  Libertas Institute encourages Utah’s citizens and taxpayers to oppose government interference in the free market.  We encourage you to petition your city, county and state leaders to get government out of the business of business.

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About the Author

Jeremy Lyman is Director of the Center for Private Property. For the past nine years he has held a real estate license in the State of Utah and has served on the board of directors for the Salt Lake Board of Realtors®, the Utah Association of Realtors®, and the National Association of Realtors®. He is currently the CEO for Blue Mountain Hospital, a Critical Access Hospital located in Blanding, Utah.


1 comments
Riley Risto
Riley Risto

So many conservatives would applaud this as a tax break, and who would argue with a tax break, especially if it brings a really cool store into town?  Unfortunately, this is just another example of government picking winners and losers. 

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