The MC: The Mackinac Center Blog

Corporate Welfare and the Michigan Business Tax

Some subsidies extend another 20 years

A common talking point in Michigan political campaigns this year is criticizing Republicans for “giving a “$1.8 billion tax break to business.” As is often the case with political claims, there is more to the story.

In 2011, policymakers here eliminated the much-reviled Michigan Business Tax and replaced it with a simpler corporate income tax and a separate financial institutions tax. This reduced the annual tax collected from Michigan job providers by $1.2 billion. While some firms benefited more than others, the reform was a substantial across-the-board tax cut. And it was a departure from the previous administration that approved huge subsidies or tax breaks for politically connected enterprises.

However, note that the reform’s net tax cut was $1.2 billion annually, not $1.8 billion. The difference is found in accounting for the open-ended corporate welfare that was the previous administration’s primary response to Michigan’s economic “lost decade.”

Specifically, the MBT was the vehicle used to deliver a myriad of financial “incentives” to favored businesses and industries. Through it, the state offered billions worth of “refundable” tax credits. In many cases these resulted in the state writing checks to a particular company. If the firm owed some Michigan Business Tax but less than the credit amount, its tax liability was extinguished and given a check for the difference.

The special treatment continues for some companies: The credits were offered through agreements that extended as long as 20 years into the future, and were contingent on a firm meeting certain job creation, investment or output milestones. For example, in 2009 and 2010 the Big Three automakers were given credit deals that will cost up to $3 billion over their 15- and 20-year durations.

To accommodate all that deal making, the “repealed” Michigan Business Tax was kept on the books, but only for firms to whom the credits were granted. Years after the special deals were inked, the state continues to write checks and/or reduce particular firms’ tax liability, both of which reduce state revenue from what it would be under a “fair field and no favors” tax system.

Thus, the MBT is gone except as a vehicle to deliver on past tax credit deals. As such, it doesn’t raise any revenue. In fact, it costs the state hundreds of millions a year. In the current year, state analysts projected that $560 million in these credits claimed by companies meeting their targets. This was later revised down to $429 million.

The political claim that “Snyder gave a $1.8 billion tax break to business” comes from adding that $560 million to the straightforward $1.2 billion across-the-board business tax cut enacted in 2011. Never mind that almost one-third of the “$1.8 billion” claim comes from selective subsidies and tax breaks granted under the previous administration’s open-ended corporate welfare programs.

Michigan Education Digest

Media fails on charter public school reporting

The new edition of Michigan Education Digest is now online. Topics include charter public school success, Brighton release time and school board elections.

The Science Behind Political Polls

Center experts' detailed explanation from 2008

Confused by all the political polls with varying results that seem to appear on a daily basis leading up to Election Day?

Understanding Public Opinion Surveys” from February 2008 provides an in-depth look at polling, including the history of political polls, how to read them with a cautious eye and what questions to ask about how a particular poll was conducted.

A 'Silver Lining' to Potholes?

A lesson from 1850 by Frédéric Bastiat

Frédéric Bastiat

While stopping short of going “full Krugman,” Michigan Radio suggests a “silver lining” regarding the state of Michigan’s roads:

In our recent conversation with MSU economist Charlie Ballard, he reminded us that we're going to pay for road repairs one way or another. Maybe higher taxes or, in Ballard's case, paying now, with blown tires and bent rims.

But, is there some kind of silver lining to the crummy roads? Maybe for local repair shops?

The spending certainly helps the local repair shop, but at the expense of the overall economy. The idea that simply spending money is good without regard to the value produced is relatively common. The best rejoinder comes from an 1850 essay by 19th century French political theorist Frédéric Bastiat, who wrote “That Which Is Seen and That Which Is Unseen.”

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation. "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

False Pretenses Should be Put to Rest

GOP candidates scrutinized

If current polling is a forecast of the election results, establishment Republicans have no grounds for claiming the candidates they prefer are any better at winning general elections than those that might emerge from the conservative base.

In the U.S. Senate race, former GOP Secretary of State Terri Lynn Land continues to trail Democratic Congressman Gary Peters by nearly 10 percentage points in the polls. Unless something changes drastically in the final week leading up to the election, Rep. Peters will win it in a walk.

That would mark the fifth consecutive Michigan U.S. Senate race in which the Republicans have failed to find a candidate who could mount a competitive campaign. Michigan’s previous four U.S. Senate races featured incumbent Democrats protecting their seats. Briefly in 2006 and 2012 it looked like there would be a chance to unseat Democratic U.S. Sen. Debbie Stabenow, but those chances turned out to be mirages.

This year, however, the cards seemed to be stacked more in the GOP’s favor. Due to the retirement of U.S. Sen. Carl Levin, his seat is open and, in a nonpresidential year, the Republicans should have at least been able to take a decent shot at it.

Though Peters winning this year is not an absolute certainty, at this juncture it must be considered a very high probability. Only the political equivalent of Hail Mary pass for a touchdown in the final seconds of a football game could give Land a come-from-behind victory. Perhaps desperate TV and Internet ads featuring Rep. Peters morphing into President Barack Obama — tied vaguely to topical issues like ISIS and Ebola — could still give Land a slim long-shot chance.

Land faced virtually no competition in becoming the Republican candidate for U.S Senate. There was no serious challenge from Tea Party activists. Early in the process, other potential candidates interested in running were discouraged from stepping in. Some might have fared better than Land, but not necessarily because they were either more or less conservative.

The issue in this particular case is not whether a candidate leans conservative or moderate. It is the repeated establishment Republican mantra that candidates from the right-wing of their party hurt the ticket and diminish the chances of victory. To put it bluntly, when it comes to selecting candidates, their track record simply does not justify such an assertion.

Tea Party activist candidate Clark Durant ran against former Congressman Pete Hoekstra in the race to become Michigan’s 2012 GOP U.S. Senate candidate. Rep. Hoekstra, who was clearly the establishment candidate, won the nomination and was then promptly crushed by about 20 percentage points by Sen. Stabenow.

Considering the strong showing the Democrats had in Michigan in 2012, it is doubtful Durant could have done much better than Rep. Hoekstra, but he could hardly have done any worse. The point is that if Durant had been the GOP candidate and suffered such a huge defeat, establishment Republicans would have insisted it was proof that candidates who lean too far to the right get walloped. But when the shoe is on the other foot and their own candidate selections lose big, establishment Republicans just shrug it off.

Few would argue that, like it or not, there is more to being a strong candidate than just whether a person is far-right, moderate, liberal or some niche in between. Communication skills and just plain likability counts for much — as do factors beyond the control of the candidates, such as unexpected issues arising and whether it is a particularly good year for one major political party or the other.

There is no magical mix of ingredients that automatically synthesizes into a winning candidate. Human judgment and the antennas of the voters are the only instruments sensitive enough to take the measure and make the call.

In early 1980 it was said that President Ronald Reagan was “too far to the right” to win. In 2008 it was said that President Barack Obama was “too far to the left” to win. When an establishment Republican insists a prospective candidate is too far right to have a chance, the context of electability is no more than camouflage.  All they are really doing is revealing that their own political tastes lie to the left of that prospective candidate; it is nothing less than that and most certainly it is nothing more.

Many conservatives are often no less irrational about this subject than moderates tend to be. For example, an axe that continues to be ground too finely by those on the right is the choice of former Massachusetts Gov. Mitt Romney as the GOP presidential candidate in 2012.

Sure, Gov. Romney did not wear conservative principles comfortably, virtually ignored the need to speak of freedom and liberty, and barely mentioned Obamacare. But to hear many on the political right talk, one would think Gov. Romney was picked as the Republican nominee on a dark night in a smoke-filled room.

Gov. Romney won the GOP nomination by winning primaries — and he won those primaries because no outstanding alternative candidate came out to challenge him. Elections are often described as horse races, and the comparison can be a good one. Horses that remain in the barn never win.

(Editor’s note: Jack Spencer is Capitol Affairs Specialist for Michigan Capitol Confidential and a veteran Lansing-based journalist. His columns do not necessarily represent the views of the Mackinac Center for Public Policy or Michigan Capitol Confidential.)

Beckmann Cites CapCon on Film Incentives

Host, state senator discuss Hollywood corporate welfare

Host Frank Beckmann on his WJR-AM760 show Friday cited Michigan Capitol Confidential while interviewing Sen. John Moolenaar, R-Midland, about the Senate’s vote to extend corporate welfare for film makers. Sen. Moolenaar was one of four senators to vote against the measure.

Beckmann mentioned that CapCon had reported some $500 million has been taken from Michigan taxpayers and given to Hollywood over the last five years through the film incentive scheme, but that the number of movie-related jobs in Michigan has dropped by 100 in the same span.

October 24, 2014, MichiganVotes Weekly Vote Report

Extend film subsidies, and more key votes from 2014

While the Legislature is on a campaign season break from voting, the Roll Call Report continues a series reviewing key votes of the 2013-2014 session, starting with one that occurred this week.

Senate Bill 1103, Extend film producer subsidies: Passed 32 to 4 in the Senate on October 22

To eliminate a 2017 sunset on the law authorizing state subsidies for film productions, and make various changes to the formula used to calculate a particular producer's subsidy. This would remove limitations on giving larger subsidies based on very high compensation paid to well-known actors and directors, which could allow particular productions to claim a larger share of the total subsidy budget. Legislators earlier authorized distributing $50 million in state tax revenue to film producers through in the current fiscal year.

Who Voted "Yes" and Who Voted "No"

Senate Bill 853, Ban automated eyeglass "kiosks": Passed 37 to 0 in the Senate on March 27

To prohibit automated testing devices that provide eye exams and issue prescriptions for glasses or contact lenses. Instead, only state-licensed optometrists and physicians could write lens prescriptions. This would pre-empt eyeglass kiosks in drugstores and other retail locations, which are reportedly a lower cost alternative to conventional optometry services and are available in some states.

Who Voted "Yes" and Who Voted "No"

Senate Bill 991, Let terminal patients try non-FDA approved treatments: Passed 31 to 2 in the Senate on August 13

To establish that a person diagnosed with a terminal illness has a “right to try” experimental drugs or therapies not approved by the federal Food and Drug Administration, subject to various conditions specified in the bill. Health care providers and drug makers who comply with these conditions would be immune from liability if the patient is harmed. The bill responds to criticism that FDA “safe and effective” standards are not appropriate in these cases.

Who Voted "Yes" and Who Voted "No"

Initiated Legislation 2, Preempt referendum banning wolf hunt: Passed 23 to 10 in the Senate

To preempt the effect of a referendum placed on the November ballot by interests opposed to wolf hunting. This measure (IL 2) was sponsored by groups in favor of a wolf hunt. Through a complex interaction of court rulings, statute revisions and the constitutionally authorized Initiated Legislation process, adoption of this measure by the Senate and House (below) means the anti-wolf hunt proposals on the 2014 ballot will not go into effect even if a majority of voters approve it.

Who Voted "Yes" and Who Voted "No"

Senate Bill 758, Authorize more stringent sanctions for delinquent hotel tax: Passed 37 to 0 in the Senate on March 26

To empower counties that choose to impose a tax of up to 5 percent on hotel and motel room charges to enforce the tax with more stringent sanctions that potentially include forfeiture and foreclosure.

Who Voted "Yes" and Who Voted "No"

House Bill 5233, Expand scope of criminal property seizure law: Passed 37 to 1 in the Senate on October 2

To expand the state's criminal forfeiture law by making the property of an owner deemed "willfully blind" to illegal activity taking place on the premises subject to forfeiture. The bill would also allow the seizure of property transferred to a new owner after the crime in some cases, and authorize forfeiture for more crimes. This law allows the government to seize property used in a crime or acquired with its proceeds, with the money from its sale turned over to the agencies that effected the forfeiture.

Who Voted "Yes" and Who Voted "No"

House Bill 5785, Expand permissible criminal court cost levies: Passed 37 to 0 in the Senate on October 2

To expand the costs that can be imposed on an individual convicted in a criminal case. This would authorize imposing assessments covering a share of court employee salaries and benefits, court building “operation and maintenance" costs and more. A court would have no duty to show how it allocated these costs to a particular defendant. The bill reverses a state Supreme Court case that limited charges to those specifically allowed in a particular statute.

Who Voted "Yes" and Who Voted "No"

Senate Bill 853, Ban automated eyeglass "kiosks": Passed 108 to 2 in the House on June 11

The House vote on the bill described above. This was signed into law by Gov. Rick Snyder on June 26.

Who Voted "Yes" and Who Voted "No"

Senate Bill 991, Let terminal patients try non-FDA approved treatments: Passed 109 to 0 in the House on October 2

The House vote on the bill described above. This was signed into law by Gov. Rick Snyder on Oct. 15.

Who Voted "Yes" and Who Voted "No"

Initiated Legislation 2, Preempt referendum banning wolf hunt: Passed 65 to 43 in the House on August 27

The House vote on the measure described above. The measure went into effect with this vote because Initiated Legislation does not require the Governor's signature.

Who Voted "Yes" and Who Voted "No"

Senate Bill 758, Authorize more stringent sanctions for delinquent hotel tax: Passed 97 to 13 in the House on September 9

The House vote on the bill described above. This was signed into law by Gov. Snyder on Sept. 23.

Who Voted "Yes" and Who Voted "No"

House Bill 5233, Expand scope of criminal property seizure law: Passed 93 to 13 in the House on September 16

The House vote on the bill described above. This was signed into law by Gov. Rick Snyder on Oct. 15.

Who Voted "Yes" and Who Voted "No"

House Bill 5785, Expand permissible criminal court cost levies: Passed 95 to 14 in the House on September 18

The House vote on the bill described above. This was signed into law by Gov. Rick Snyder on Oct. 15.

Who Voted "Yes" and Who Voted "No"

SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

 

CapCon Wins Journalism Awards

Michigan Press Association winners announced

Michigan Capitol Confidential staff won three awards in the 2014 Michigan Press Association’s “Better Newspaper Contest.”

Former Managing Editor Manny Lopez won a second place and an honorable mention in the headline writing category, while Jarrett Skorup, digital engagement manager, and Tom Gantert, senior capitol correspondent, took third place in enterprise reporting for their work on Michigan’s film subsidy program.

The judges remarked that the reporting by Skorup and Gantert was a “Solid outlining of various aspects of wasted government money.”

The second place headline winner was for “Reuben Sandwich with a Side of 500k Lost Jobs,” which dissected how local media covering an April visit by President Barack Obama to an Ann Arbor deli to campaign for a higher mandated minimum wage went into great detail about what the president ordered while ignoring a report that the increase could result in 500,000 lost jobs.

Judges said “This headline did an excellent job of characterizing the media’s reaction to the subject matter. Well played.”

The honorable mention headline was for “Barber Bill Barely Takes Anything off the Top,” a column regarding Michigan’s licensing regime — including a proposed decrease in the number of hours it takes to get a barber’s license.

Judges said it was a “Great use of pun to describe the situation at hand.”

Capitol Confidential won two MPA awards in 2013 and four awards earlier this year from the Detroit Chapter of the Society of Professional Journalists.

Checking the Facts

Brighton union, district agree with Center on facts

The Mackinac Center Legal Foundation announced today that Brighton Area Schools and the local union “have removed illegal language from a contract in response to a lawsuit filed on behalf of a Brighton High School teacher who said the union and district were violating his freedoms under Michigan’s right-to-work law.”

The union president for the Brighton Education Association blasted the lawsuit when it was filed last week.

"It would behoove Mr. Neuman and the Mackinac Center to check their facts before filing and publicizing this lawsuit that is 100 percent untrue," Ellen Lafferty told the Livingston Daily Press & Argus.

Mr. Neuman and our Mackinac Center attorneys did check their facts. The district and union now agree with the facts and have removed the illegal language from the contract, via a letter of agreement titled “clarification on union dues” signed by Ms. Lafferty.

Senate Votes to Continue Film Subsidies

Will House put Michigan residents above Hollywood actors?

Michael Moore received over $840,000 from Michigan taxpayers to make a film (image via David Shankbone at Wikicommons).

The Michigan Senate passed a bill yesterday that gets rid of the sunset provision for the state’s film incentive program, meaning the subsidies are set to continue beyond 2017. Senate Bill 1103 also removes a clause that previously capped the amount taxpayers would spend on highly paid out-of-state workers (such as actors, directors and producers), which is currently set at $540,000.

Mackinac Center experts have railed against the subsidy program because it has cost nearly half a billion dollars, but resulted in no new jobs, takes money away from other projects that better serve the public and is widely recognized as one of the poorest ways for states to spend tax dollars.

Joe Henchman is the vice president of state projects for the nonpartisan Tax Foundation. He was in Michigan recently to give an award to Gov. Snyder for tax reform and was asked by MIRS News about the film credit program.

“These states (with film incentive programs) are essentially writing checks to Hollywood — which is one of the most profitable industries in America — for what amount to transient jobs that don’t last very long,” Henchman said.

He expands upon this in a blog on the Tax Foundation website:

A big reason why Michigan pared the program back was a 2010 state-commissioned study that found the incentives cost $117 million and created 1,039 full-time equivalent jobs, for a cost of $112,800 per new job. Due to the nature of the film industry, most of the jobs are temporary and transient, with production companies using out-of-state labor to fill many positions.

Since then, California has tripled its film credit spending to over $300 million per year, and New York is over $400 million per year. To do battle with these states requires writing enormous checks to one of the most profitable industries in America. I would think Michigan has bigger priorities for its tax dollars than handouts for Hollywood.

SB 1103 now heads to the House for consideration. Members of the GOP-dominated chamber have a decision on whether they will stand by their previous support for ending the program, or take a vote to continue it indefinitely.