MEGA would set a precedent for discretionary state-level tax policy and allow a small group of political appointees to determine tax policy for some of Michigan's largest corporations.
As discussed in Part II, once a business has established that it meets the minimum criteria, the MEGA board has broad discretion to determine whether the proposed investment will "benefit the people of this state" and is "needed due to a significant cost disparity" between Michigan and the competing state.
MEGA is simply unsound tax policy. It allows a small political board to grant an unlimited total amount of Single Business Tax credits to large firms based on very subjective criteria. It is hard to imagine a program more open to abuse.
While guidelines would most likely be adopted by the MEGA board to further implement a more rigorous cost/benefit analysis, none exist in the legislation; it is meant to be highly discretionary. Controls on MEGA dollars require only that subsidized investments create at least 75 new jobs (150 for out-of-state firms), and that these jobs pay higher than average wages, and so forth. Bureaucratic discretion and bidding wars, and the absence of efficiency guidelines, create an environment in which public dollars might not be allocated to provide the highest return.
Other states have established objective, detailed criteria to determine eligibility for incentives. For example, Wisconsin examines ten criteria when considering preferential state aid for a firm or industry:
state cost per job created;
ratio of wages to state cost;
- ratio of capital investment to state cost;
extent to which business increases state wealth;
ratio of state to private dollars;
state linkages and multiplier effect;
protection of state interests; and
extent to which the project builds on existing strengths and weaknesses.
Public subsidies, indeed all public sector activities, should weigh costs and benefits. But the costs and benefits of industrial incentive programs are extremely difficult to measure, so the programs are usually established and administered according to political, not economic, criteria.