The Florida Legislature’s move last week to revoke the Walt Disney Co.’s special taxing district in Orlando at the impetus of GOP Gov. Ron DeSantis highlights many economic issues.
Special tax treatment for projects of wealthy businesses, including those enriching team owners with taxpayer money for sports stadiums, are a cancer on the economy and society. So, in general, many economists are glad to see them curbed. But this move reflects one man’s desire to reach the Oval Office by dialing up animus surrounding divisive cultural issues.
Personal views aside, the action in Florida raises an interesting economic question, one that also applies to the impounding of Russian oligarch’s yachts and private jets, the freezing of the Russian government’s dollar-denominated foreign exchange reserves.
The issue, at its most fundamental level, is the base on which all economic reasoning lies — namely “opportunity cost.” Resources, including time and even personal emotional energy, are limited. Choose to use them on one alternative and you cannot devote them to another. When biting into a hoagie, you can’t also bite into a walleye sandwich. Spend a week in Branson and you cannot spend the same week in Vegas. Work 70-hour weeks to move toward the executive suite and you will spend less time watching your kids grow up.
Seize a nation’s U.S. dollar foreign exchange reserves just because it is doing something you don’t like, however horrific, and because you have power to do it, screams to other nations that they should keep their reserves in alternative currencies to minimize the possibilities of the same fate. Abolish a special taxing-and-local-services district set up 55 years ago, which all involved expected to continue, because a capricious governor thinks it will give him a political leg up, and you tell future investors considering building in your state that they would be well advised to go elsewhere. This is true for blue states as well as red.
That such political actions create economic incentives is clear. Yet the magnitude of the incentives created, and the degree to which time will show adverse consequences for the entity initiating the dispute, are not clear at all. Economists always consider what happens “at the margin,” and the marginal effects of such actions, immediate or long-term, may be tiny.
Russian oligarchs, whom leaders like Boris Yeltsin and Vladimir Putin let steal hundreds of billions of dollars of Russia’s assets and raw resources, like to loll in the Mediterranean sun with lithe mistresses on the decks of mega-yachts. But the democracies on the Mediterranean coasts have shown that such yachts, even if not the mistresses, can be impounded on what seems like a whim.
The oligarchs would be much safer from such affronts if they motored through the Suez Canal and on to the Yellow Sea separating China from North Korea. Neither country would be outraged by what Putin does, in Europe at least. But the Yellow Sea is bitterly cold in winter, swept by winds off of Siberia. The available ports for going ashore don’t have casinos, and can best be described with a vulgar term Donald Trump used for some African countries. Wealth would be no fun.
Similarly, it is now clear that putting one’s currency reserves in dollars may result in their temporary or permanent loss. But what are the options? The EU shows it will treat your euros little differently. China’s renminbi is the currency of an economic superpower, but one governed by an increasingly arrogant dictator, where there is no freely-operating, liquid market for renminbi bonds, the foreign exchange market is highly manipulated opaquely, and the economy is full of poorly quantified and poorly rated debt, including some representing the savings of a billion Chinese households. The whole situation screams financial time bomb. Why place one’s critical foreign reserves there?
So rich Russians and their government may have few alternatives for now. But they and their counterparts in many other countries will file 2022’s financial events away in their collective memories and this will influence future decisions.
Tit-for-tat, often with collateral damage, is common. U.S. and EU-nation sanctions against Russia were answered with Russian seizures of western-owned business facilities. Many western businesses already cut their losses and announced permanent withdrawal from Russia. Foreign oil companies play a big part in Russia’s petroleum industry, and negotiating these deals was former Exxon chief Rex Tillerson’s qualification for diplomacy as Trump’s first secretary of state. These are now up in the air. Russia needs them as much as they need Russia.
Boeing and Airbus jetliners leased to Russian airlines by western leasing companies are held hostage. No lease payments are being made. If the planes are confiscated outright, several leasing firms will go spectacularly broke. But western courts will ensure that the planes, or other ones owned by the Russian carriers, will be seized on landing anywhere outside of Russia or its buddy nations. Who, if anyone, will win the standoff?
Similarly, Disney, which is publicly traded and too heavily entrenched in Florida to really be undermined, will still be there after DeSantis leaves — and all parties involved know this.
Losing local tax advantages may hit Disney’s bottom line. But they cannot just load up their circus and move on to cheap land in Winnemucca, Nev. But while adjacent cities and counties might be able to now impose real estate taxes on “the happiest place on Earth,” taking over the costs of policing, roads, sewage treatment, etc., would be huge. Taxpayers in these municipalities also could be on the hook for millions in Disney debt, formerly the responsibility of the soon-to-be-dissolved district. And tens of billions of dollars of private businesses have grown up around the huge facility. Walt Disney essentially created the modern Orlando metro area.
The comparative situations may seem a like pile of spaghetti (the Disney district dissolution won’t happen until next year, and much could happen, legally or politically, to unravel the plan), but the effects will emerge over time. In some cases, these will affect the world or U.S. economy, including your business or job. Bullwinkle Moose might modify his usual adage to say, “Oh, what a tangled web we weave when first we practice political retaliation and sanctions.”
St. Paul economist and writer Edward Lotterman can be reached at [email protected]
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