Thu December 5, 2013
Senator Rand Paul Proposes Economic 'Freedom Zones' for Detroit, Other Depressed Areas
Saying Detroit residents deserve a chance to "bail themselves out" U.S. Senator Rand Paul, R-Ky., is unveiling a recovery plan for the troubled city and other economically depressed areas.
The proposal is being viewed as another part of the libertarian-leaning Kentuckian's outreach to minority voters in urban centers, constituents the GOP has traditionally struggled to attract.
Next week, Paul, a possible 2016 presidential candidate, will introduce the Economic Freedom Zones Act of 2013 that seeks to give dramatic tax cuts to municipalities which meet certain requirements.
The bill would lower income and corporate tax rates to 5 percent and nix capital gain taxes.
Paul says this will help spur investment in troubled urban and rural areas facing bankruptcy and high unemployment.
"This is not Detroit specific, but obviously Detroit is suffering through a great economic problem at this point," he says. "It would apply probably to several counties in rural, Eastern Kentucky (and) parts of Louisville. So almost every major city is going to have some pocket of poverty. This would apply to those areas or zip codes."
Once a bedrock of American industry, Detroit has become a symbol a the country's urban decay as it carries a $18 billion debt and faces series economic depression.
A federal judge ruled earlier this week the Motor City can file for historic bankruptcy protections as some have suggested Detroit consider selling some of its art worth up to $866 million.
Paul's bill would apply to places where unemployment is 50 percent higher than the national average or cities filing for bankruptcy or at risk of doing so.
Economic freedom zones were first proposed by the late Republican Congressman Jack Kemp in the 1980s as a way to attract investment to impoverished areas. But Democratic critics of the plan have argued designated enterprise zones do little to move business to certain areas and are nothing more than dramatic tax cuts.
Janet Kelly is executive director of the Urban Studies Institute at the University of Louisville. She says Paul's plan is an ambitious free-market solution, but that factors beyond tax breaks have to be taken into account.
"The larger the tax benefit of locating in the economic freedom zone then the more attractive it becomes. In that sense, I think Senator Paul's proposal is sound," she says. "However, we do have to take into consideration the tax is only a small part of that business person's cost and it might not be determinative when it comes to locating in an area that is otherwise unattractive."
Kelly says investors moving to depressed areas will consider consumer demand, transportation costs and crime rates among other things. But she remains anxious to see more details from the senator's legislation .
A Paul spokesman told WFPL other provisions in the 10-year plan include suspending certain Environmental Protection Agency designations and the Davis-Bacon prevailing wage law.
It is expected to face a tough and skeptical road through the Democratic-controlled Senate, but Paul is hope that a more aggressive version of this idea will gain traction.
"We’ve studied the enterprise zones that Jack Kemp did and many people have felt objectively they weren’t as successful as people had wanted them to be. And some of the conclusion of my staff that’s looked into this is they weren’t long-term enough or dramatic enough," says Paul.
"This will create jobs because the money is not going to go to anyone selected by government. It's going back to businesses that customers have already voted on."
Paul is scheduled to outline his proposal further at the Detroit Economic Club on Friday.