Three Reasons to Oppose New Corporate Incentives

Michigan will end 2019 with some great news: State lawmakers didn’t re-up the audaciously named “Good Jobs for Michigan” corporate handout program. The state will not be able to give away new deals for taxpayer cash to companies through this program starting in 2020.

That’s good news for taxpayers and businesses. It keeps special favors out of the tax code. The money they might have used gets freed up for better purposes, like road funding.

Not everyone is happy. Six companies have been approved for millions in funding. Others that might be eligible for select incentives surely wanted the program. And state Sen. Ken Horn, R-Frankenmuth, has sponsored legislation to bring it back.

In sum, the “Good Jobs” program allows a state board to select major corporate projects to receive taxpayer funding. If a company adds a certain number of jobs paying relatively good wages, they get to keep the income taxes of those new employees that otherwise would have gone to the state.

Sen. Horn says the Mackinac Center position of low taxes for everyone and no incentives for individual companies or industries is close-minded and “unconservative.” But there are good reasons to oppose select economic incentives – which have cost Michigan’s budget hundreds of millions of dollars each year – and remain opposed to the “Good Jobs” program.

1. The program picks winners and losers. The state approved $7 million for an insurance company to move 21 miles. Even assuming all the jobs come to be – there are lots of other companies in the same industry which get nothing. Even if a small, competing insurance company in the same area adds jobs, they get nothing and their employees pay full freight to the state. That’s choosing one company over many others.
2. These projects rarely come to be. The Auditor General found that past Michigan economic incentive programs saw fewer than 20% of the jobs promised ever get created. $105 million in “Good Jobs” incentives were approved for FCA (Chrysler) – history shows that these often fail to deliver.
3. It is wasteful spending. Proponents of the program make a “but for” argument: They say this doesn’t cost taxpayers because the companies only get the money if the jobs are created. This would not have happened “but for” these incentives, the argument goes. But research shows the vast majority of these projects would have happened without the need for incentives. From the Upjohn Institute: “Based on a review of 34 estimates of ‘but for’ percentages, from 30 different studies, this paper concludes that typical incentives probably tip somewhere between 2 percent and 25 percent of incented firms toward making a decision favoring the location providing the incentive. In other words, for at least 75 percent of incented firms, the firm would have made a similar decision location/expansion/retention decision without the incentive.”

Senate Majority Leader Mike Shirkey, R-Clarklake, and House Speaker Lee Chatfield, R-Levering, have both signaled skepticism about select economic incentives. Michigan should stay the free-market course in 2020.