What department or agency is responsible for the state’s economic development programs?
The Michigan Strategic Fund is responsible for the state’s economic development programs, with the cooperative efforts of the Michigan Economic Development Corporation. As one example of their cooperation, it is the MSF board that approves subsidies for Michigan Business Development Program projects. It is the MEDC, however, that recommends the projects to the board.
Is the Michigan Economic Growth Authority program still approving tax credit deals?
No. But the deals signed with companies in the past are still costing Michigan taxpayers a princely sum. In 2016, legacy costs associated with MEGA deals alone cost the state treasury $924 million. To put that in perspective, the entire Corporate Income Tax revenue for the year was $930 million. In other words, MEGA cost the state nearly all of its business tax revenue.
Why do lawmakers continue to run business subsidy programs if they’ve been ineffective?
Politicians are expected to “do something” to create jobs and improve the economy. Business subsidy programs enable lawmakers to point to a concrete example — the programs themselves and subsequent ribbon-cutting ceremonies — of heeding this demand. Attaching their names to new job announcements, business expansions and all the media hype that goes along with these developments entices many politicians to support these programs. And, of course, voters back home won’t really know if the program actually succeeded at improving the economy — but they might remember the politician at the front of the ribbon-cutting ceremony. But there is a lot of evidence — and from scholars with no dog in Michigan’s fight — to show these programs are typically not effective. Indeed, the programs may even retard economic growth.
Since other states offer business subsidies mustn’t Michigan too?
Proponents of select business subsidy programs say that if we stop corporate welfare, Michigan will find itself at a competitive disadvantage compared to other states. But this is only true if the programs actually work. They don’t, on net, and ending them will have little effect on the state’s economic well-being. Academics often disagree about the efficacy of particular policies, but the majority of scholarship seems pretty clear about state and local corporate welfare programs. Handouts designed to improve job or economic growth are largely ineffective.
Are taxpayers owed a tax cut?
In 2007, during 11th-hour negotiations to fill a budget gap, politicians increased income tax rates “temporarily” by 11.5 percent, bumping the rate from 3.9 to 4.35 percent. Part of the deal was to gradually roll back the tax to 3.9 percent. That never happened. After permitting a 0.1 percentage point cut, the state income tax rate was frozen at 4.25 percent, effective on January 1, 2013. Taxpayers would be justified in claiming this was a form of “bait n’ switch” and that income tax rates should be rolled back to at least 3.9 percent.
Has any attempt been made to roll this back?
Yes. In 2017, a bill was introduced to roll back taxes by 0.1 percentage points in 2018 and again in 2019 and then possibly more, depending on revenues flowing into the state treasury. The bill was defeated.
Can the state afford an income tax cut?
Yes. The fiscal 2018 budget contains $32.1 billion in revenues from state sources, up $5.9 billion since fiscal 2011. This growth is above the inflation rate during that period.
Where should the state trim its budget to pay for an income tax cut?
The first thing to go should be ineffective business subsidy programs and perhaps other line items in the Michigan Strategic Fund budget. This could ultimately free up about $200 million. That won’t finance a personal income tax cut from 4.25 percent to 3.9 percent, but it is a good start. The Mackinac Center for Public Policy and other organizations have recommended billions worth of budget reforms in the past. Those ideas could be plumbed for savings. In addition, if the economy continues to grow, the state may end up with more revenue even at a lower income tax rate.