The 'Pro Big Business' Myth Put to Rest

The New York Times has a long piece discussing the use — and abuse — of state and local tax incentives to businesses.

The Times estimates a minimum of $80 billion worth of select tax breaks are given out nationwide each year, though the real number is much higher since many locals do not track the money or require a proper accounting. These breaks are the result of state and local bureaucrats and elected officials picking and choosing which companies should receive special economic treatment while the rest of businesses and individual taxpayers pay full freight.

The article includes a searchable database of more than 150,000 awards, an evaluation of dozens of the larger local incentives and their failures, and interviews with several government and business officials (including many who have changed their minds about these programs).

If you follow the Mackinac Center, you’ll not be surprised to learn Michigan is one of the top offenders. According to the database, Michigan spends $6.65 billion per year on incentive programs — or 30 cents per dollar of the state budget. The state and local municipalities have promised abatements equaling $672 per person.

The article mentions local municipal tax breaks in Lansing and Pontiac while focusing on the General Motors Willow Run facility in Ypsilanti, where the city had granted more than $200 million to the company over the years. The plant is now closed.

Film tax breaks and subsidies — of which Michigan is the worst offender — are also an issue:

When Oliver Stone made the 2010 sequel to “Wall Street,” in his mind there was only one place to shoot it: New York City. Nonetheless, the film, a scathing look at bankers’ greed, received $10 million in tax credits, according to 20th Century Fox.

In an interview, Mr. Stone criticized subsidies for industries like banking and agriculture but defended them for Hollywood, saying that many movies can be shot anywhere and that their actors and crew members pay state income taxes. “It’s good,” Mr. Stone said of the film subsidies. “Or like basically the way business is done. I don’t understand what the moral qualm is.”

This sounds very similar to another famed liberal filmmaker — Michigan’s own Michael Moore. Nearly three years ago, the Mackinac Center broke the story that Moore's production company applied for up to a $1 million subsidy for his film “Capitalism: A Love Story” which was, ironically, about big businesses receiving special favors from government via bailouts.

The piece does a good job of getting the side of the businesses who request these subsidies, and some are valid. For example:

“I know people like to blame the industry for taking advantage of the incentives, but you go back to what your fiduciary responsibility is to the stockholders,” Marilyn P. Nix, who worked as a real estate executive at GM for 31 years until retiring in 2005. “As long as you’ve got people that are willing to better the deals, the management owes it to their stockholders to try to get the best economic deal that they can.”

Nix is correct: Businesses taking advantage of every legal option to make money for themselves and their stockholders is not the key issue — taxpayers and government officials unfairly giving out special deals is.

Mackinac Center analysts have conducted two studies showing that the Michigan Economic Development Corp.’s MEGA program is unsuccessful. One showing the disappearance of jobs after just a short time and the other using a modeling technique to isolate the program’s effects on the larger economy, which showed a loss of 95 jobs per every $1 million in manufacturing tax credits per county. Another study by the Anderson Economic Group found that three MEDC programs cost the state 25,000 jobs and $85 million in tax revenue annually.

Despite the critiques of the Mackinac Center as pawns of “big business,” it is the main organization fighting select tax breaks and subsidies here in Michigan. The Mackinac Center has done so since its inception through four gubernatorial administrations, opposing Republican and Democrats, and it will continue to do so.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.