Business taxes should raise money for government, not transfer cash to big business

Michigan lawmakers raised money from business taxes over the past two years only to hand it over to a few businesses. That’s not how state government is supposed to work.

Taxes are supposed to fund the government. One of those taxes, the corporate income tax, raises $1.6 billion annually. Over the past two years, however, lawmakers authorized $4.7 billion in business subsidies. They took $3.2 billion from thousands of Michigan businesses, then they gave that same amount plus another billion and a half dollars to a handful of businesses.

On the revenue-generating side of the ledger, the state taxes businesses to raise money for the costs of government. On the spending side of the ledger, that money isn’t going to cover the costs of government; it goes to select businesses.

This policy of punishment for many and reward for some might make sense if it led to good outcomes. But it doesn’t. Business subsidies are ineffective at creating jobs and unfair to taxpayers, including other businesses that must pay the costs.

The subsidies exist because they serve political interests. Subsidy deals get attention and create news stories that suggest elected officials are doing something about jobs. Politicians call them economic development programs, even when they demonstrably fail to deliver.

Subsidy deals make a splash when politicians and favored business executives promise hundreds or even thousands of jobs. Yet announcements fail to live up to expectations. A review of the state’s major deals from 2000 to 2020 discovered that businesses created just 9% of the jobs promised by officials. Subsidy deals fail, even on their own terms.

There’s a better alternative: Improve the state’s business climate. The basics matter more than special deals for a few companies.

If lawmakers are going to tax people, taxes should be fair, and they should fund only the operations of state government. They shouldn’t be used to penalize most businesses in order to give money to preferred businesses.

This piece by James M. Hohman — Northwood University alumnus and director of fiscal policy at the Mackinac Center for Public Policy — originally was posted by the Huron County Press.