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Three governments, one lesson about stimulating the economy

Geoff Colvin
By
Geoff Colvin
Geoff Colvin
Senior Editor-at-Large
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Geoff Colvin
By
Geoff Colvin
Geoff Colvin
Senior Editor-at-Large
Down Arrow Button Icon
February 25, 2014, 10:00 AM ET
French president François Hollande of the Socialist Party is now pushing a tax cut for business.

FORTUNE — The flourishing debate over the effectiveness of Washington’s 2009 stimulus package, occasioned by the law’s fifth anniversary, will not accomplish a single thing. But if we keep it in mind as we notice a few other news stories playing out just now, we might learn something useful about what really gets an economy going.

The debate as conducted in Washington is pointless because neither side will budge from its predictable position. Republicans say the stimulus — a mix of government spending and tax cuts — obviously didn’t work because, after five years, fewer Americans are employed than were employed when the stimulus was enacted. Democrats say it obviously worked because GDP recovered faster in the U.S. than it did in many other economies that were in recession at the same time. Neither side will ever acknowledge that the other might have a point.

What’s actually useful is to note what three other governments that are up against the same challenge — trying to stimulate an economy that badly needs help — are doing right now:

“It is imperative that France restores the power of its economy. There is no time to lose,” said President François Hollande last month. That’s for sure. France’s economy is one of Europe’s weakest, performing so badly that Hollande’s approval rating is the lowest of any French president’s since World War II. But this Socialist who campaigned for office promising tax increases on millionaires now proposes a 30-billion-euro tax cut for business. That, he argues forcefully, is what will make the economy grow.

MORE: What Lego has in common with Apple

“You can’t beat zero,” said New York Governor Andrew Cuomo last month, proposing $2 billion of tax relief in an attempt to attract and keep more business in the state. A bipartisan commission had recommended cutting the tax rate on manufacturers, currently 5.9%, by about half. But why take half measures? Cuomo, a Democrat, wants to eliminate the tax entirely — that is, make it an unbeatable zero — at least for manufacturers north of New York City, who have been leaving the state for years.

“The City believes that the imposition of comparatively high and ever-increasing individual and corporate tax rates, in recent decades, has contributed to the City’s population loss, dwindling tax base, and overall economic decline.” So states Detroit’s just-released plan for exiting bankruptcy. The plan is equally blunt about the solution: “The City believes that lowering selected income and property tax rates … is critical to … fostering job growth and expanding the overall tax base.” Faced with the dollars-and-cents demands of bankruptcy, Detroit’s leaders want to tax less, not more.

The theme is obvious, and the lesson is clear. When finally forced to confront inescapable economic trouble, government leaders realize that business is not a pit to be mined but a living plant to be nurtured. If only they could more often realize it before calamity looms.

About the Author
Geoff Colvin
By Geoff ColvinSenior Editor-at-Large
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Geoff Colvin is a senior editor-at-large at Fortune, covering leadership, globalization, wealth creation, the infotech revolution, and related issues.

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