In a previous blog post titled “What’s Old Is New Again” I mentioned just three similarities between the state’s disastrous Michigan Economic Growth Authority law of 1995 and the proposed Good Jobs for Michigan legislation (specifically, Senate Bill 242). There are many others — 12 major ones by my count — and most are marked by some identical language or concept.
The most notable difference between the old MEGA statute and the new Good Jobs for Michigan language is the method for handing out financial favors. Old MEGA provided refundable tax credits to select businesses, GJFM provides select businesses with “captured” tax money. The results, however, are the same. The favored get something at the expense of the many.
MEGA was a business tax credit program begun in 1995 and which was a demonstrable failure. Five different studies (two by the Mackinac Center) examined this program and were published between 2005 and 2014, which means the entire breadth of MEGA’s existence has been examined. This includes the period during and after which expensive “retention” credits were offered and for which taxpayers are still on the hook. Four of the five studies found a zero or negative impact. A fifth study found a small, albeit positive one.
It is naive to think that this tax capture proposal will be any more effective than MEGA or other similar Michigan programs or business incentive programs run in other states. The general academic literature on tax increment financing programs is mostly negative, and I have pointed to that evidence again and again.
Moreover, a 2014 study of a Kansas program that most closely resembles the GJFM proposal finds: “recipients are statistically not more likely to generate new jobs than similar firms not receiving incentives. A secondary set of findings shows that firms relocating to Kansas, with or without incentives, do not experience job growth at higher rates than existing firms.” The Kansas “PEAK” program allows chosen businesses to keep 95 percent of tax withholding provided they pay a wage above the average in the county in which they operate. Deals can last as long as 10 years.
When you have a hammer everything looks like a nail, and when you’re an advocate for the interests of large corporations the economic development programs you support inherently tend to favor big business over broad-based economic freedom. Perhaps all of the similarities — including identical language — between the old MEGA and the new MEGA (GJFM) is just a function of the old guard wanting to go back to the way things were, and without regard to consequences or costs to taxpayers. Even with the best intentions from the people in charge, the signal this sends to entrepreneurs is that success leads from swimming in the “swamp.”
The following is a list of major similarities between the 1995 MEGA statute and SB 242, the new MEGA proposal. The bolded material is meant to highlight identical language despite the 22 years that separate authorship of each.
MEGA Statute: “An eligible business may apply to the authority to enter into a written agreement which authorizes a tax credit under section 9.”
GJFM: “An eligible business may apply to the fund to enter into a written agreement which authorizes the payment of withholding tax capture revenues under this chapter.”
MEGA Statute: “The authority may request such information, in addition to that contained in an application, as may be needed to permit the authority to discharge its responsibilities under section 8.”
GJFM: “The fund may request information, in addition to that contained in an application, as may be needed to permit the fund to discharge its responsibilities under this chapter.”
MEGA Statute: “After receipt of an application, the authority may enter into an agreement with an eligible business for a tax credit under section 9 if the authority determines that all of the following are met:”
GJFM: “After receipt of an application, the fund may enter into an agreement with an eligible business for withholding tax capture revenues under this chapter if the fund determines that all of the following are met:”
MEGA Statute: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”
GJFM: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”
MEGA Statute: “The plans for the expansion, retention, or location are economically sound.”
GJFM: “The plans for the expansion or location are economically sound.”
MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”
GJFM: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”
MEGA Statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state.”
GJFM: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.”
(Note: The links above refer to articles related to the subject matter, not the statute or proposal, respectively.)
MEGA Statute: “The local governmental unit in which the eligible business will expand or be located, or a local economic development corporation or similar entity, will make a staff, financial, or economic commitment to the eligible business for the expansion or location.”
GJFM: “The eligible business has received a letter of support for the expansion or new location from the chief executive official, or his or her designee, of the municipality with jurisdiction over the location of that facility.”
MEGA Statute: “If the authority determines that the requirements of subsection (1) have been met, the authority shall determine the amount and duration of tax credits to be authorized under section 9, and shall enter into a written agreement as provided in this section. The duration of the tax credits shall not exceed 20 years.”
GJFM: “If the fund determines that the eligible business satisfies all of the requirements of subsection (4), subject to subsection (6), the fund shall determine the amount and duration of the withholding tax capture revenues to be authorized under this chapter and shall enter into a written agreement as provided in this section. The duration of the withholding tax capture revenues must not exceed 5 or 10 years …”
MEGA Statute: “In determining the amount and duration of tax credits authorized, the authority shall consider the following factors: (A) The number of qualified new jobs to be created; (B) The average wage level of the qualified new jobs relative to the average wage paid by private entities in the county in which the facility is located. (C) The total capital investment the eligible business will make. (D) The cost differential to the business between expanding or locating in Michigan and a site outside of Michigan. (E) The potential impact of the expansion or location on the economy of Michigan. (F) The cost of the credit under section 9, the staff, financial, or economic assistance provided by the local government unit, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.
GJFM: “In determining the maximum amount and minimum duration of the withholding tax capture revenues authorized, the fund shall consider the following factors, if applicable: (A) The number of certified new jobs to be created. (B) The degree to which the average annual wage of the certified new jobs exceeds the prosperity region average wage. (C) Whether there is a disadvantage to the eligible business if it were to expand or locate in this state versus a site outside this state. (D) The potential impact of the expansion or location on the economy of this state. (E) The estimated cost of the reimbursement of withholding tax capture revenues under this chapter, the staff, financial, or economic assistance provided by the municipality, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.”
MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”
GJFM: “Whether the expansion or location will occur in this state without the payment of withholding tax capture revenues offered under this chapter.”
MEGA Statute: “A written agreement between an eligible business and the authority shall include, but need not be limited to, all of the following:”
(A) A description of the business expansion or location that is the subject of the agreement. (B) Conditions upon which authorized business designation is made. (C) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business and the loss or reduction of future credits. (D) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the refund of credits received under section 9. (E) A method for measuring full-time jobs before and after an expansion or location of an authorized business in this state.”
GJFM: “A written agreement between an eligible business and the fund must include, but need not be limited to, all of the following:”
(A) A description of the business expansion or location that is the subject of the written agreement. (B) Conditions upon which the authorized business designation is made. (C) A statement from the eligible business that the eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.” “(E) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business, the loss or reduction of future withholding tax capture revenue payments under this chapter, or a repayment of withholding tax capture revenues received pursuant to this chapter. (F) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the repayment of withholding tax capture revenues received under this chapter … (G) A method for measuring and verifying full-time jobs before and after an expansion or location of an authorized business in this state.”
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Back to the MEGA Future: Good Jobs for Michigan Reinvents Failed MEGA Program
Proposed law shares remarkable similarities with old, failed law
In a previous blog post titled “What’s Old Is New Again” I mentioned just three similarities between the state’s disastrous Michigan Economic Growth Authority law of 1995 and the proposed Good Jobs for Michigan legislation (specifically, Senate Bill 242). There are many others — 12 major ones by my count — and most are marked by some identical language or concept.
The most notable difference between the old MEGA statute and the new Good Jobs for Michigan language is the method for handing out financial favors. Old MEGA provided refundable tax credits to select businesses, GJFM provides select businesses with “captured” tax money. The results, however, are the same. The favored get something at the expense of the many.
MEGA was a business tax credit program begun in 1995 and which was a demonstrable failure. Five different studies (two by the Mackinac Center) examined this program and were published between 2005 and 2014, which means the entire breadth of MEGA’s existence has been examined. This includes the period during and after which expensive “retention” credits were offered and for which taxpayers are still on the hook. Four of the five studies found a zero or negative impact. A fifth study found a small, albeit positive one.
It is naive to think that this tax capture proposal will be any more effective than MEGA or other similar Michigan programs or business incentive programs run in other states. The general academic literature on tax increment financing programs is mostly negative, and I have pointed to that evidence again and again.
Moreover, a 2014 study of a Kansas program that most closely resembles the GJFM proposal finds: “recipients are statistically not more likely to generate new jobs than similar firms not receiving incentives. A secondary set of findings shows that firms relocating to Kansas, with or without incentives, do not experience job growth at higher rates than existing firms.” The Kansas “PEAK” program allows chosen businesses to keep 95 percent of tax withholding provided they pay a wage above the average in the county in which they operate. Deals can last as long as 10 years.
When you have a hammer everything looks like a nail, and when you’re an advocate for the interests of large corporations the economic development programs you support inherently tend to favor big business over broad-based economic freedom. Perhaps all of the similarities — including identical language — between the old MEGA and the new MEGA (GJFM) is just a function of the old guard wanting to go back to the way things were, and without regard to consequences or costs to taxpayers. Even with the best intentions from the people in charge, the signal this sends to entrepreneurs is that success leads from swimming in the “swamp.”
The following is a list of major similarities between the 1995 MEGA statute and SB 242, the new MEGA proposal. The bolded material is meant to highlight identical language despite the 22 years that separate authorship of each.
MEGA Statute: “An eligible business may apply to the authority to enter into a written agreement which authorizes a tax credit under section 9.”
GJFM: “An eligible business may apply to the fund to enter into a written agreement which authorizes the payment of withholding tax capture revenues under this chapter.”
MEGA Statute: “The authority may request such information, in addition to that contained in an application, as may be needed to permit the authority to discharge its responsibilities under section 8.”
GJFM: “The fund may request information, in addition to that contained in an application, as may be needed to permit the fund to discharge its responsibilities under this chapter.”
MEGA Statute: “After receipt of an application, the authority may enter into an agreement with an eligible business for a tax credit under section 9 if the authority determines that all of the following are met:”
GJFM: “After receipt of an application, the fund may enter into an agreement with an eligible business for withholding tax capture revenues under this chapter if the fund determines that all of the following are met:”
MEGA Statute: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”
GJFM: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”
MEGA Statute: “The plans for the expansion, retention, or location are economically sound.”
GJFM: “The plans for the expansion or location are economically sound.”
MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”
GJFM: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”
MEGA Statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state.”
GJFM: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.”
(Note: The links above refer to articles related to the subject matter, not the statute or proposal, respectively.)
MEGA Statute: “The local governmental unit in which the eligible business will expand or be located, or a local economic development corporation or similar entity, will make a staff, financial, or economic commitment to the eligible business for the expansion or location.”
GJFM: “The eligible business has received a letter of support for the expansion or new location from the chief executive official, or his or her designee, of the municipality with jurisdiction over the location of that facility.”
MEGA Statute: “If the authority determines that the requirements of subsection (1) have been met, the authority shall determine the amount and duration of tax credits to be authorized under section 9, and shall enter into a written agreement as provided in this section. The duration of the tax credits shall not exceed 20 years.”
GJFM: “If the fund determines that the eligible business satisfies all of the requirements of subsection (4), subject to subsection (6), the fund shall determine the amount and duration of the withholding tax capture revenues to be authorized under this chapter and shall enter into a written agreement as provided in this section. The duration of the withholding tax capture revenues must not exceed 5 or 10 years …”
MEGA Statute: “In determining the amount and duration of tax credits authorized, the authority shall consider the following factors: (A) The number of qualified new jobs to be created; (B) The average wage level of the qualified new jobs relative to the average wage paid by private entities in the county in which the facility is located. (C) The total capital investment the eligible business will make. (D) The cost differential to the business between expanding or locating in Michigan and a site outside of Michigan. (E) The potential impact of the expansion or location on the economy of Michigan. (F) The cost of the credit under section 9, the staff, financial, or economic assistance provided by the local government unit, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.
GJFM: “In determining the maximum amount and minimum duration of the withholding tax capture revenues authorized, the fund shall consider the following factors, if applicable: (A) The number of certified new jobs to be created. (B) The degree to which the average annual wage of the certified new jobs exceeds the prosperity region average wage. (C) Whether there is a disadvantage to the eligible business if it were to expand or locate in this state versus a site outside this state. (D) The potential impact of the expansion or location on the economy of this state. (E) The estimated cost of the reimbursement of withholding tax capture revenues under this chapter, the staff, financial, or economic assistance provided by the municipality, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.”
MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”
GJFM: “Whether the expansion or location will occur in this state without the payment of withholding tax capture revenues offered under this chapter.”
MEGA Statute: “A written agreement between an eligible business and the authority shall include, but need not be limited to, all of the following:”
(A) A description of the business expansion or location that is the subject of the agreement. (B) Conditions upon which authorized business designation is made. (C) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business and the loss or reduction of future credits. (D) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the refund of credits received under section 9. (E) A method for measuring full-time jobs before and after an expansion or location of an authorized business in this state.”
GJFM: “A written agreement between an eligible business and the fund must include, but need not be limited to, all of the following:”
(A) A description of the business expansion or location that is the subject of the written agreement. (B) Conditions upon which the authorized business designation is made. (C) A statement from the eligible business that the eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.” “(E) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business, the loss or reduction of future withholding tax capture revenue payments under this chapter, or a repayment of withholding tax capture revenues received pursuant to this chapter. (F) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the repayment of withholding tax capture revenues received under this chapter … (G) A method for measuring and verifying full-time jobs before and after an expansion or location of an authorized business in this state.”
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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