Mr. James M. Hohman

Michigan politicians are fond of blaming the domestic auto industry's decline for all the state's problems. But "auto industry" just doesn't mean what it used to here. For example, domestic auto sales have fallen by 49.8 percent since their 1999 peak. Over the same period, however, inflation-adjusted state tax and fee revenues have only declined by 15.9 percent.

Advocates of higher taxes frequently claim that Michigan's tax system is "out of sync" with the current economy, and needs to be "restructured" in ways that ensure more steady (and larger) extraction of revenues. But when it comes to extracting revenue from a declining tax base, Michigan has been taking a larger proportion of the population's wealth and income, not less. It's also been "outcompeting" other states in this regard.

A new report from the Pew Center on the States, Beyond California (pdf), erroneously suggests that Michigan's economic travails are due to the fall of the auto industry and the presence of what it characterizes as an "out of sync" tax system.

The appproach Michigan politicians have mainly chosen to show that they're "doing something" about the state's ongoing economic decline is a massive expansion of discriminatory tax breaks and subsidies for particular firms. The failure of such programs has created another political need, which is a way to demonstrate that this approach really isn't a waste of time and money. Enter the annual Governor's Cup ranking by Site Selection magazine, which is considered the "company paper" for government "economic development" bureaucracies around the country.

In the latest Michigan Senate Fiscal Agency Economic Indicators report, economist David Zin echoed an observation I made here last month on personal income: The recent increase in a key economic indicator — personal income growth — suggests the very opposite that Michigan has turned a corner.

In response to a question from Jon Boguth in Time on what makes Michigan's existing businesses less worthy of tax relief than film producers, Gov. Jennifer Granholm responded, "You can't give tax credits to everybody, because somebody's gotta pay for them." It's a clear admission that the program is not costless. And because the film incentive is so generous, the costs of "success" would be massive.

At the state level, government revenues and spending may be falling, but new Census Bureau evidence - considered the "gold standard" in such things, suggests that the overall revenues and spending of all units of government in Michigan have never been higher.

Since April 2008, Michigan has given qualified film productions up to 42 cents on the dollar for every expense they incur in the state. While the state is able to point to a number of films and projects given assistance from this program, the state's motion production and sound recording industries employ fewer people now than when the subsidy began.

According to the Bureau of Labor Statistics, Michigan's movie and sound industries employ 5,222 workers as of March 2009, the most recent month available from the quarterly census of employment and wages. This industry declined by 31.2 percent from a peak in 2002 of 7,586. And even at its peak, this industry accounted for only .2 percent of the state's total employment.

This chart might be called the "Political Class Desperation Index." The need for transformational reform of Michigan's tax, spending, labor and regulatory environments is indicated by the skyrocketing unemployment rate. The failure of the political class to buck special interests — including government employee unions — and finally undertake those reforms makes its members increasingly desperate to create the appearance of "doing something." Thus the massive increase in futile picking of winners (and losers) for receipt of discriminatory tax breaks and subsidies. These create diversionary "feel good" stories for local newpapers, but do nothing to reverse the state's economic decline — and may even accelerate it. ("MEGA" is the flagship program of Michigan's bureaucratic "economic development" empire.)