Tesla Deal No Model for Economic Development

I was as happy as the next person when Tesla Motors announced last month that it was locating its new factory in Albuquerque. The company is planning to build electrically-powered sedans ranging in price from $50,000 to $65,000 here. If the car is successful – that’s a big “if” considering the car has not been tested by anyone outside the company – Tesla could be a boon to both the state and local economies.

The arrival of Tesla may indeed bring the jobs and economic development being promised, but it must be pointed out that this type of incentive-based “economic development” is not the best or fairest way to improve New Mexico’s economy. Tesla will receive an estimated $20 million in tax incentives. How many small business men and women work every day to grow their businesses, almost always without special tax breaks (and usually besieged by all manner of government regulations)?

The question of “fairness” may sound idealistic with special interests spending millions of dollars to get their “fair share” in Santa Fe and from the City, but our tax policies should be built on the principal of fairness. Indeed, giving special breaks to one company not only shifts the tax burden to the rest of us (including small business), but it creates incentives for companies to spend even more on unproductive activities like lobbying.

The fact that the state is considering investing permanent fund money into Tesla’s unproven electric roadster which happens to fill an “environmentally-friendly” niche makes the relationship between a private company and government a bit too cozy.

Perhaps more importantly, economic research has shown that the best way to do economic development is to keep taxes low, and to the best extent possible, levy them fairly on all businesses.

There is no way for taxpayers, or for Governor Richardson and Mayor Chavez, to know whether Tesla will be the next big thing or a bust. But, to use a baseball analogy, rather than using tax incentives to go out and sign the next “free agent,” New Mexico needs to reform its tax policies in ways that allow the state to build talent from within. This will allow New Mexico to finally become an economic powerhouse.

Paul Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.