Private capital, public goods

Friday, July 30, 2010, 3:33 pm

Predictably, a column like last week’s about a developer’s proposal for a health club and senior housing project in Railroad Square elicited an attack on the potential for profit and a question about what would happen to the “public benefits.” [Read "A chance to jumpstart SMART project at Railroad Square."]

The question reveals a fundamental misunderstanding of private and public economics. “Public benefits” don’t just magically appear. They result from taxes, fees and other costs paid by private-sector enterprises willing to risk their own capital for a return on that investment.

At least that’s how it’s been for most of our lives until recently. And cash-strapped public agencies are beginning to figure this out, although one still has to wonder.

The Santa Rosa City Council defeated a Wal-Mart proposed for a vacant Roseland area shopping center that would have generated hundreds of jobs and sales tax revenue. It also defeated a Lowe’s (more sales taxes and jobs) and delayed major local revenue-producing building projects.

The council now proposes a ¼-cent increase to the sales tax to 9.5 percent. How is raising taxes on a struggling private sector a winnable game?

The state of California has borrowed to help paper over its deficits, another losing game.

In Washington, the White House and others insist that the top 2 percent of earners can afford higher taxes. Those people are somebody else, right?

Or are they? The fact is there will always be a top 2 percent. It may be made up of different people – maybe you – of differing incomes, maybe lower than today or higher. But there will be the top 2 percent. And you can rest assured the truly rich will find ways to reduce the burden of higher taxes, like mooring the yacht in Rhode Island rather than Massachusetts.

Besides, many of the top 2 percent of earners in the U.S. are small businesses. Is this a great time to raise their tax burden?

Stripped to its core, the debate about taxes and public benefits is about which will dominate in the economy of the future, the public or private sector.

Re-routing income through government to be redistributed by public agencies to whomever they determine deserves it will produce one standard of living – the so-called “public benefit.”

That can take us one way, or we can choose to take another.

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Brad Bollinger is Business Journal editor in chief and associate publisher. He can be reached at 707-521-4251 or bbollinger@busjrnl.com.