Trick, or Treat

The Michigan Legislature is this morning taking up House Bill 5275, a bill that authorizes a Michigan Economic Growth Authority business tax credit deal for a battery cell manufacturing facility. The new MEGA credit is intended to help convert a closed Ford Motor Co. property into what House Speaker Andy Dillon calls a “cutting-edge 21st Century energy park.”

 The deal would result in up to $100 million in tax credits being offered to lure a producer of batteries to the site in Oakland County. What is not being widely reported is that these would be refundable tax credits. This means that if the tax liability of the company fell short of the value of credits being offered the state treasury would write the company a check for the difference. In plain English, the legislature is offering cash subsidies.

This is the worse sort of industrial policy. Outright subsidies simply take scarce resources from the many and redistribute them to a favored few. Moreover, if the incentives are awarded by an expensive political entity not imbued with special talents for picking winners in this game. How does the state know best how to “create” jobs when it takes resources from one business and gives it to another? A review of the MEGA program through 2009 suggests that it does not, and that the public and legislators should be suspicious of MEGA’s job creation claims. Only around 29 percent of the jobs promised under the program ever came to fruition. Even then those claims must be discounted, since it’s is very possible that many of the tax break recipients successfully “gamed” the system, in that they would have expanded or moved to Michigan with or without the special treatment.

Lastly, just this week a Mackinac Center study of the MEGA program proved that it is not a job provider on net balance. According to our research, for every $1 million in actual tax relief claimed by MEGA companies 95 manufacturing jobs were lost in the county hosting the MEGA company. This comes on the heels of the Center’s 2005 study proving that MEGA does not create jobs, improve per-capita personal income, or the unemployment rate statewide.

 State Legislators are practicing a “jobs” witchcraft of sorts when they claim they can create jobs almost from thin air. Rather than handing out subsidies like candy on Halloween, they should roll-back the cost of doing business for all enterprises and people, and not a lucky few chosen by Lansing politicians and their lieutenants.

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