Detroit’s Bankruptcy: Rand Paul’s $50,000 Idea

As we’ve noted before, Michigan generally – and Detroit in particular – are emblematic of the decline of America’s smokestack industries, and of the challenges faced by rust-belt cities that desperately need to reinvent themselves. But where many see blight, some see opportunity, and a laboratory for the sort of innovative thinking that is best spurred by the goad of necessity. [See, e.g. Immigration to the Rescue in Michigan, MurthyBlog, 29.Jul.2013.]

For the past few years, Michigan Governor Rick Snyder – a venture capitalist and former chairman of Gateway Computers – has been pressing his case to make Michigan a magnet for the world’s best and brightest. [See Imported from Detroit: Rationality in Immigration Policy, MurthyBlog, 28.Jul.2011.] Attracting more immigrants, especially immigrant entrepreneurs, would not just help repopulate failing cities like Detroit, it would make the region more competitive in an export-driven global economy.

In the wake of Detroit’s bankruptcy, finding a winning recovery strategy is more urgent than ever. Senator Rand Paul (R-KY) thinks he may have found one. Speaking at the Detroit Economic Club, earlier this month, Mr. Paul floated a plan for “economic freedom zones” that – among other things – would cut both personal and corporate taxes to the low single digits “in blighted communities with unemployment rates above 12 percent,” according to the Wall Street Journal. [See Rand Paul (Hearts) Detroit, by Allysia Finley, 10.Dec.2013, Wall Street Journal.]

Amid the customary smorgasbord of tax incentives that one might expect from Senator Paul, a leading member of the Tea Party movement, one choice offering stood out as truly innovative. To attract foreign entrepreneurs to these areas of greatest economic need, Paul proposed a special EB5 program with a dramatically lower investment threshold: $50,000 instead of $500,000. Under current law, the EB5 program provides lawful permanent residence – green card status – to foreign nationals who invest capital in a U.S. business, and thereby produce jobs for U.S. workers. [For background on the EB5 program, see EB5 Regional Center Program Extended to Sep 2015, MurthyDotCom, 22.Oct.2012.]

Normally, a foreign investor is required to invest $1,000,000 in a U.S. business to qualify for the EB5 visa, but that amount is reduced to $500,000 if the investment is made in a “targeted employment area,” defined as rural areas and places where the unemployment rate is at least 150 percent of the national average. The current U.S. unemployment rate is about 7.0 percent, based on November’s figures, the most recent available from the Department of Labor’s Bureau of Labor Statistics (BLS). [See The Employment Situation – November 2013, Bureau of Labor Statistics, 06.Dec.2013.] By contrast, the unemployment rate in Detroit was 16.3 percent as of May, 2013. [See Raw Data: Detroit’s Unemployment Rate Over the Last Decade, by Kristi Tanner, Detroit Free Press, 21.Jul.2013.] In other words, it’s just the sort of place that would benefit from the kind of help Senator Paul proposes, especially since the EB5 program will not provide a green card to a foreign investor unless s/he creates ten full-time jobs for U.S. workers.

At this writing, Senator Paul’s idea is still on the drawing board, and there’s no telling when – or if – it might become a reality, but it’s certainly an idea worth considering.

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