Economists: Business Tax Reform Helping, Not Hurting, Michigan

While Michigan’s unemployment rate dropped to its lowest in almost five years at 8.5 percent and Michigan’s labor force has grown the last four months, a top union leader is attacking one of the reasons leading to the improvements.

In an April 17 column in The Detroit News, Michigan AFL-CIO President Karla Swift wrote: "Gov. Rick Snyder presides over an unprecedented redistribution of wealth favoring those who are already wealthy. Annually, $1.4 billion is being given away to corporate special interests in the form of new tax breaks with no job-creation requirements attached." 

Swift's statements are inaccurate, says James Hohman, a fiscal policy analyst for the Mackinac Center for Public Policy.

The state didn't give $1.4 billion to "corporate special interests." Instead, it eliminated the Michigan Business Tax and replaced it with a corporate income tax. Hohman said Swift's comment about "corporate special interests" makes it appear that particular big business, industries and companies favored by politicians received some of that $1.4 billion as special deals, similar to a state film incentive program that gives money to out-of-state movie producers.

In reality, it was mostly small businesses that received a tax cut because they are not corporations and hence don't pay the corporate income tax.

Gary Wolfram, a Hillsdale College economics professor, said it was Gov. Snyder's tax changes that are leading to an improving economy.

"The elimination of the Michigan Business Tax and its replacement with the corporate income tax was a major contributor to the improvement in Michigan's economic climate," Wolfram said. "The MBT was a very bad tax, with improper incentives, inefficient structure, and a high burden on small- and medium-sized businesses."

University of Michigan Economist Don Grimes found that in 2011, Michigan ranked second in the nation in terms of private-sector job gains behind North Dakota. Michigan had 32,528 job gains due to the "competitive effect," which is the difference in employment growth for a specific industry between a local area and the national average.

"How much of this can you credit Snyder with? I don't know, but I do know the state is now on the right track," Grimes said in an email last month.

Charles Owens, Michigan director of the National Federation of Independent Business, said reports show small business are the ones creating most of the new jobs in the state.

"The change from the Michigan Business Tax to the corporate income tax mostly benefited small business owners and job providers and actually resulted in higher taxes for most larger corporations," Owens said.

Swift didn't respond to a request for comment.