Fiscal policy favoritism hurts everyone
Tax policy in Michigan makes no sense. It’s a seesaw that favors those who back the winning candidate in a general election. Members of each party work to deliver preferential tax treatment for supporters and buy favorable, job-related press coverage.
It doesn’t matter if Republicans or Democrats do it — it’s wrong either way and this must come to an end.
Michigan’s state legislature authorized $4.3 billion in corporate and industry handouts just in 2023. This wasn’t even a record. It’s only the second-highest in recent memory. The budget also includes hundreds of millions in tax preferences in the form of exemptions for pension benefits and a dramatic increase in the refundable tax credit for low-income workers. And that’s not all. In her State of the State address, Gov. Whitmer proposed a litany of additional preferences related to caregivers, new cars, housing, teacher student loans, and more.
We would all benefit from lower overall tax rates in Michigan. Lowering the individual income tax gives relief to taxpayers, and lower taxes on businesses help individuals. People eventually bear the brunt of business taxes that simply get transferred into the cost of production of goods and services.
Recent history shows this. Film production subsidies failed once before in Michigan even with $500 million in taxpayer spending. Few jobs were created, and those vanished along with the subsidies. Yet there is a proposal to bring them back, albeit with a tiny change to how taxpayer loot gets delivered. Lawmakers seem to believe they have cracked the code to make them successful, despite all the evidence to the contrary. There is no independent evidence to suggest film production subsidies work well anywhere.
The Strategic Outreach and Attraction Reserve fund was created by the legislature to inject massive amounts of your money into corporate projects. Academic evidence shows that’s counterproductive. Indeed, it has “starkly negative” employment impacts, according to a 2019 study published in the scholarly journal Urban Affairs Review.
Our lawmakers think their experience will, again, be different and continue to throw money at the big automakers and suppliers. Originally Ford was offered up to $1.8 billion in tax favors and direct cash, General Motors $824 million. Gotion, an electric vehicle battery supplier, was offered $733 million. The list goes on, but it shouldn’t. The political class spends a fortune adding and expanding new and existing tax preferences and subsidies. They claim credit for jobs that may likely never be all while making it harder to cut taxes for everyone.
Instead of chasing smokestacks, Michigan should focus on creating the best climate for everyone to pursue their dreams. It starts with fair and equal treatment. That means lower tax burdens for everyone, not just the privileged few who know how to play with Lansing’s powerful elite.
It also means a superior regulatory environment that protects public safety but doesn’t micromanage the day-to-day lives of people and businesses. Michigan has long been behind the curve on affordable electricity rates due in part to onerous regulations. The state’s new renewable energy plan will make that even worse.
Lastly, quality public services matter too. Had Lansing politicians dedicated just half of the handouts they offered to the three corporations mentioned above, the funds could repair and replace more of our broken infrastructure. The Michigan Transportation Asset Management Council reports that Michigan roads are still not being fixed as fast as they fall apart. It is shameful that roads and bridges are being ignored while a handful of corporations are showered with fiscal favors.
It’s just as important for our state lawmakers to kill bad ideas as it is to pass good legislation. If lawmakers take their thumbs off the scale — if they allow a fair field and provide no favors — everyone will be better off better off, regardless of who wins in November.
Editor’s note: This article originally was published by the Mackinac Center for Public Policy.