Why aren’t low taxes firing up Delaware’s economy?

Last week I wrote about an article in the Economist magazine that said Delaware came in dead last for wage growth.

According to the article, Delaware, between 2009 and 2014, actually experienced a drop in average wages.

The next day I received an email from Rep. Pete Schwartzkopf, D-Rehoboth, that included a letter to state legislators from John J. McMahon Jr., the state’s secretary of labor.

I’ll get back to that later in the column but first I wanted to continue addressing the recent letter state senate Republicans sent to Gov. Markell.

They called for a five percent across-the-board cut in state spending. This, they said, would free up $195 million to be used for road construction, a pay raise for state employees and a contingency fund.

“This idea will take true political courage,” the senators wrote, “but before we ask hard-working Delawareans to pay more, we must have our fiscal house in order.”

First, it doesn’t take political courage to, in effect, say, “Governor, the ball’s in your court.”

Here’s why: That five percent cut, in the abstract, causes no pain. No one thinks the cuts will apply to them.

It would take political courage to say, “We have too many school districts. We should have one for each county.”

It would also take political courage to say, “We haven’t raised the gas tax in 20 years. It’s time we kept up with inflation.”

Gov. Markell, of course, last year proposed raising the gas tax by 10-cents-a-gallon. In constant dollars, this increase would have left the gas tax lower than it was in 1995. (The 23-cents-a-gallon of 1995 would be worth 36 cents today.) The proposal was DOA, as in “dead on announcement.” He might as well have delivered the proposal in a casket.

Instead of facing hard truths, the Republicans conjure up goodies, including better roads.

“We agree that investing in our state’s crumbling roads is not only long overdue, it would also create thousands of construction jobs,” the senators wrote.

This is interesting because it contradicts a common conservative talking point: The government never creates jobs. Here, apparently, the state could create thousands.

(And no I’m not against all Republicans or their proposals. I was a Republican for most of my adult life. In Maryland, newly elected Gov. Larry Hogan, a Republican, is shaking things up in a state long dominated by Democrats. It’s likely to the good, as you don’t want one party to become too comfortable.)

But here’s a broader concern: Are we, as a state, moving in the right direction economically?

Conservative dogma holds that lower taxes are always better.

By that standard, Delaware’s economy should be skyrocketing. Why isn’t it? Kiplinger magazine rates Delaware as the number one “most tax friendly” state in the U.S.

Which is why so many people, especially retirees, are moving here. Just last week, I heard, again, a newcomer say that when she first heard a local house’s property tax bill she thought it was for a month, not the entire year. Our taxes are low.

But where is this ultra-low tax policy getting us?

People, naturally, want Sussex County to have a strong, diverse economy. They also want the Cape Region to offer well-paying jobs so their kids can raise their own families here.

But in Sussex County we have a rapidly aging population, lured by low taxes. A University of Delaware study predicts that by 2020, Sussex County seniors will make up about 31 percent of the population. This is going to mean that much of our economy, in addition to tourism, is going to be geared to serving an older population.

We’re also going to have added costs in caring for these seniors.

That doesn’t sound like a recipe for vibrant economic growth. It sounds like a lot of relatively low-paying service and retail jobs.

Obviously, dramatically raising taxes to slow growth isn’t going to happen. Nor should it. But we could do some common sense things like raising the gas tax, especially now that prices are low, and scrapping, or at least adjusting, the property tax credit for seniors.

Then we could start working on those roads.

Now back to the letter from Delaware’s secretary of labor.

McMahon said that the Economist’s story drew from a report based on a too-small sample of Delaware employers.

The state’s own, broader survey, McMahon said, showed an increase in average wages, between 2009 to 2013, from $47,755 to $52,040.

But it could be that many Delawareans aren’t feeling that much richer. Those numbers reflect average, not median, wages. If the people at the top are doing much better, that will pull average wages up.

According to a 2015 report from the Economic Policy Institute, that is exactly what’s happening, in Delaware and in many other states. The report said that Delaware was one of 17 states “in which all income growth between 2009 and 2012 accrued to the top one percent.” (The italics are mine.)

But you know how statistics are. I don’t expect that to be the final word on the subject.