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A new Mackinac Center study takes aim at a myth that has long beguiled politicians, media and a large segment of the voters: the belief that corporate welfare provides a boost to Michigan employment.
Front Page Failures digs into the grand promises made when the state pays a private company to move to or remain in Michigan.
What we found was a surprise. Just one job out of every 11 announced in news coverage actually gets created.
How did such a wasteful practice become so popular? Michigan made very few deals for special tax breaks in the early 1990s. Then in 1995, lawmakers started awarding tax credits to select companies. The credits offered were often refundable and worth far more than what companies owed in tax liabilities, meaning that recipients received other taxpayers’ money. Though the specific programs have changed, the state is giving out more corporate welfare over time.
We opposed this at the time and oppose it to this day. It is unfair for taxpayers to hand their money to select companies. It is an ineffective way to create jobs, as the economic literature then and now suggests.
What we didn’t know back then was how deeply these deals would fail to live up to their own standards.
Lawmakers and administrators get a boost from news media whenever the state makes a deal. Elected officials announce that their work will create a specific number of jobs. Newspapers repeat that claim, and they almost never go back to see if it came true. “State paves the way for 4,500 jobs, $1B investments,” was how one typical headline put it in 2013.
After following this issue for a while, we realized that what the papers report is rarely what happens after deals are made. We have known that was untrue since at least 2014, when our comprehensive analysis of the state’s biggest subsidy program found that just 2.3% of projects met or exceeded expectations.
Lawmakers rename and tweak programs if they’re unpopular, and this allows them to keep handing out favors. We decided to go after the whole enterprise, to investigate all major business subsidy deals. We came up with a simple definition: If a deal made the front page of the Detroit Free Press, the state’s largest paper, it was a major deal.
We went through the front pages from 2000 to 2020, and we found 41 stories promising that subsidy deals would create a total of 123,060 jobs. The stories expressed no skepticism about whether these jobs would materialize. Company officials said jobs would appear, and elected officials reiterated the point. The announcements were incontrovertible.
We found that the programs and their proud announcements do not live up to their hype. Often, the business doesn’t open at all. Or perhaps it does operate for a few years, fails to hit its target, and then closes.
When we checked state announcements of 123,060 jobs against how many workers these companies employ today, we were only able to find 10,889 jobs. For every 1,000 jobs that were announced in news stories, 88 showed up. That’s a 91% failure rate.
It turns out that big job announcements are all show. Indeed, that’s the point of business subsidy programs. They do not drive economic development — sophisticated analyses by economists show that — but they do drive attention. They make news. They are news, and they can make voters believe their lawmakers are doing something about jobs — so long as nobody looks into the details.
At its best, policy research can change hearts, change minds, and eventually change policy by finding a nugget of information that turns people’s heads. The numbers we found are both grim and discouraging, but we hope they will change the way media covers these subsidies and the way voters think about them.
People ought to know that lawmakers deceive their voters — and possibly themselves — when they hand out taxpayer checks in exchange for job projections. Select business subsidies don’t deliver what their supporters say they will, and we are making sure Michiganders learn the part of the story that politicians and newspapers don’t want them to hear.
