Michigan Legislature gave cover to GM, MEDC on tax credits

The Michigan Legislature helped the Michigan Economic Development Corporation and General Motors conceal the amount of taxpayer dollars Michigan gives GM in the form of corporate welfare.

The Legislature went as far as to enact laws to ensure the amount given to GM remained a secret.

A lawsuit against the MEDC by Detroit resident David Sole challenged this secretive arrangement and asked the courts to force the state to reveal the numbers. Sole succeeded in the effort, and the Mackinac Center Legal Foundation played a part. The Michigan Supreme Court had asked the foundation to file an amicus brief in the case.

The foundation had argued that the tax credit agreement does more than wipe out the company’s tax liability in the hope that GM does not leave the state. Instead, the agreement uses a device known as a refundable tax credit to give the company money. The exact amount is based on a formula involving the number of employees retained, their compensation, and their benefits. When GM shows it has earned more than its tax liability, the state — Michigan taxpayers — will pay the company the difference.

The state high court relied on the Mackinac Center Legal Foundation’s amicus brief and ruled unanimously in favor of Sole, requiring the amount to be disclosed.

General Motors subsequently disclosed it will receive up to $3.8 billion. The state says it will most likely be paying on the agreement until 2030, according to MLive.

The Mackinac Center Legal Foundation brief asked questions such as: “What politicians are receiving campaign contributions from subsidy recipients or their executives? Is that influencing whether the agreements get modified and in what matter?”

The MEDC must report to the Legislature on how much the company receives. Only a few elected officials and agency employees are allowed to see how much corporate welfare is doled out to the company. To emphasize the secretive nature of the deal, the Legislature created a $5,000 penalty for anyone who leaks the information to the public.

“The Legislature shouldn’t attempt to hide these subsidies in the tax code. If politicians believe this is good public policy and these subsidies are necessary expenditures for Michigan economy, one would think that those politicians would be glad to have the public fully informed,” says Patrick Wright, vice president for legal affairs at the Mackinac Center for Public Policy and director of the Mackinac Center Legal Foundation.

Bipartisan legislation was introduced on March 1 that would prohibit employees of state or local governments from signing nondisclosure agreements about economic development projects.

GM had net income of $59.684 billion between the years 2014 and 2020.