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Tesla To Receive $1.3 Billion In Government Incentives

Tesla Motors recently announced that it will build its new lithium battery factory in Nevada. The Nevada state legislature and governor offered Tesla an incentive package of up to $1.3 billion to build the factory in the state. As part of the package, Tesla will face no property or payroll taxes for 10 years and no sales or use taxes for 20 years. The package also includes discounted electricity and other tax incentives.

While Tesla’s factory may bring jobs to Nevada, the tax incentive package is corporate welfare. Company-specific tax incentives let politicians favor selected companies over others. When politicians have the discretion to treat companies or people differently under the law, cronyism becomes a problem.

Tax incentives can also backfire on a state. Politicians hope that companies will stay around once tax incentives expire, but many don’t. For example, politicians in California previously gave Tesla tax incentives to expand car production in the state. California also offered additional tax incentives for Tesla to build its new factory in California, but Tesla ultimately chose Nevada despite the prior tax incentives from California. States play a risky game when they offer companies tax incentives.

To read more about Tesla’s new factory, check out this story from the Associated Press.

Georgia Auto Dealers Go After Competitor Tesla

Electric car manufacturer Tesla has sold 173 cars from its retail location near Atlanta, Georgia. That sales figure is not particularly noteworthy in itself, but it’s enough to have prompted the Georgia Auto Dealers Association to file a petition to the state of Georgia to have Tesla’s dealer license revoked. The association argues that the upstart automaker violated state law by selling more than the annual limit of 150 cars from its shop. While it’s not to say that Tesla’s founder, Elon Musk, is a model free-market entrepreneur (ahem, see here, here, here, and here), GADA’s self-serving appeal would help foster an uncompetitive market environment with limited consumer choice. From Yahoo! News:

“If the dealers prevail, here’s where the nearest Tesla outlets would be, and their respective distances from metro Atlanta: Nashville: 4 hours. Tampa: 6 hours. St. Louis: Over 8 hours. How many of you would be willing to travel four hours each way just to look at one car?”

Cheers To You, Big Government!

Pennsylvania’s Prohibition-era laws make it illegal for residents to bring alcohol purchased outside of the state into Pennsylvania, fining residents $10 per beer. That’s right, folks. That case of brewskis could end up costing you $240. According to Pennsylvania’s Bureau of Liquor Control Enforcement, police aim to prosecute large-scale bootleggers or, in other words, bars looking to stock their shelves with cheaper alcohol. If state-owned alcohol stores are privatized, Pennsylvanian drinkers will still incur an 18 percent state alcohol tax. As it stands, Pennsylvania continues to criminalize otherwise law-abiding citizens for out-of-state purchased alcohol intended for personal consumption. Cheers to you, big government! House GOP spokesman Steve Miskin said,

“Obviously making normally law-abiding Pennsylvania citizens into bootleggers is not one of the ‘freedoms’ people associate with government, and something we believe needs changed.”

Colbert Cronyism

The state government of New York plans to shell out $16 million in tax credits and grants to CBS in the hopes of keeping The Late Show in New York City when progressive funnyman Stephen Colbert succeeds host David Letterman next year. These lavish giveaways are to come through the state’s Excelsior Jobs Program, which was designed to give tax credits to the manufacturing, financial, and tech industries—but not the entertainment industry. The legality of the move is therefore questionable. From City Journal:

“The maneuver seems blatantly illegal. … The regulations are drafted vaguely enough to seem to allow almost any company to qualify, but both the law and the regulations state that ‘a business entity engaged predominantly in the entertainment industry’ is not eligible.”

Regulations Inhibit Productivity

According to a new report from the Mercatus Center, heavily regulated industries experienced a lower growth in productivity between 1997 and 2010 compared to less regulated industries. During that time, the most regulated industries experienced a 33 percent growth in output per person and a 34 percent growth in output per hour. While 33 percent may seem like strong increase, it is only 2.5 percent on an annual basis. Moreover, it is vastly overshadowed by the growth in the least regulated industries—a 63 percent growth in output per person and a 64 percent growth in output per hour. Additionally, while labor costs for the least regulated industries fell by 4 percent, those for heavily regulated industries grew by 20 percent.

Regulations serve as a barrier to entry for many firms wishing to enter the market. The largest businesses, which are better able to shoulder the costs of regulation, drive out their smaller competition. For this reason, it is often the largest businesses that lobby for regulation. This leaves smaller insurers at a competitive disadvantage and allows larger the larger companies to profit. In a heavily regulated and noncompetitive market, it is unsurprising to see inefficiency and higher costs.

Last Week In Regulation

According to the Competitive Enterprise Institute,  73 new regulations were added to the Federal Register last week, which places the current tally at 2,395 regulations on 51,781 pages. So far this year, 460 new rules will affect small businesses.

“The total estimated compliance costs of 2014’s economically significant regulations currently ranges from $7.62 billion to $10.87 billion. They also affect several billion dollars of government spending.”

Last Week In Regulation

According to the Competitive Enterprise Institute,  83 new regulations were added to the Federal Register last week, which places the current tally at 2,322 regulations on 50,432 pages. So far this year, 440 new rules will affect small businesses.

“The total estimated compliance costs of 2014’s economically significant regulations currently ranges from $7.62 billion to $10.87 billion. They also affect several billion dollars of government spending.”

The Revolving Door Keeps Swinging

Tim Carney of the Washington Examiner wrote recently about the revolving door at the Consumer Financial Protection Bureau and noted how multiple employees of the bureau have left it for private-sector jobs in industries regulated by the bureau. Carney writes, “Peter Carroll helped shape the mortgage regulations at the Consumer Financial Protection Bureau until this spring. Now, Carroll is senior vice president of capital markets at Wells Fargo Home Mortgages, the largest private mortgage lender in the country.”

The revolving door refers to the movement of people from positions in government where they make rules to positions in the private-sector, which is impacted by those rules. An individual may go back and forth between a regulatory agency and impacted industries multiple times in his or her career. The revolving door between government agencies and the private sector is ripe for cronyism as personal relationships can impact policy decisions. It is easy to imagine how favoritism can occur when a regulator’s friends and former colleagues work for the companies that he or she is regulating. The revolving door is related to another aspect of cronyism: regulatory capture. Here, an agency’s regulations benefit favored companies at the expense of their competitors or consumers.

To learn more about the terms “revolving door” and “regulatory capture” check out these resources:

The Center for Responsive Politics on the Revolving Door

Susan Dudley on Regulatory Capture

 

FAA Ruling Bans Planesharing

Ridesharing services like Uber and Lyft have already brought technology to those needing a ride across town, but what about those who want a ride to the next town over? Imagine being able to use an app on your smartphone to book a seat on a private airplane. Planesharing apps like AirPooler and Flytenow allowed pilots of small, non-commercial aircraft to post when and where they were flying. Passengers could then purchase seats on those flights. It was a good way to connect passengers wishing to make short trips with pilots looking to cover part of their expense in operating the aircraft. While these services would have lowered passengers’ costs and pilots’ expenses, they will be grounded due to a Federal Aviation Administration (FAA) ruling.

Under FAA regulations, pilots who want to carry passengers must acquire an air carrier license, something many pilots can neither qualify for nor afford. The claim is that this licensing protects passengers by preventing them from flying with rookie pilots. However, these are precisely the same claims made by the taxi industry against ridesharing services Uber and Lyft—claims that have been largely unfounded. Planesharing pilots were already going to be flying, and the addition of passengers changes very little. Even accepting the FAA’s protection argument, many would-be passengers will be pushed back onto the roads to engage in a statistically more dangerous form of travel: driving.

Like most forms of occupational licensing, this ruling does not truly protect passengers. But it does benefit the established commercial airline industry. By preemptively stopping these services, those with commercial carrier licenses can avoid competition and continue operating without disruption. Ultimately, it is the consumer who suffers.

“While the FAA’s decision is confusing, it’s also stalling the opportunity for private enterprise and government to work together to foster innovation in the sharing economy. It’s a big disappointment for hundreds of thousands of pilots and for everyday travelers. Pilots, who have always loved to ride-share but found it difficult to arrange, were looking forward to taking advantage of modern sharing technology to offer seats as a way of defraying costs.”

Last Week In Regulation

According to the Competitive Enterprise Institute,  75 new regulations were added to the Federal Register last week, which places the current tally at 2,239 regulations on 48,550 pages. So far this year, 417 new rules will affect small businesses.

“The total estimated compliance costs of 2014’s economically significant regulations currently ranges from $7.62 billion to $10.87 billion. They also affect several billion dollars of government spending.”

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