Over 100 Midwest Economists Call for End to Economic War Between the States

Resolution to be Introduced in Senate

Thirty-three Michigan economists and policy experts joined over 100 Midwestern signatories in eight states, adding their names to a resolution calling for an end to state-sponsored selective business incentive programs such as direct grants and targeted tax abatements, calling the schemes an "economic war between the states."

Senate Majority Leader Dick Posthumus (R-Alto) announced his support for the resolution and his plans to introduce it this Fall in the Michigan Senate.

The joint resolution, simultaneously released today in five Midwestern states, says that state governments should replace the targeted business incentives which benefit a relative few with broad-based tax relief for all businesses and citizens, a strategy it calls "a fair field with no favors" approach.

Economic development policies in many states are built on luring businesses away from competing states by offering an array of special tax incentives, direct grants, and other favored treatments. Forty-five states and most Midwestern states have adopted similar programs. Critics of these policies note that any competitive advantage which may result from these programs disappears when all competing states offer similar incentives.

Programs of this type include the recently-created Michigan Economic Growth Authority (MEGA). When lobbying for passage of MEGA, Governor Engler recognized the diminished benefit of targeted incentives when all states offer them when he said, "In a perfect world, [MEGA] would not be needed." He said that he would prefer that all states operate on an even playing field, in which case, "Michigan would win because of recent efforts to bring down tax liabilities on all businesses in Michigan."

"That is why we hope this resolution calling for an end to targeted incentives will be supported by all Midwestern Governors, especially John Engler," said Lawrence Reed, president of the Mackinac Center for Public Policy, the research and educational group which coordinated the joint resolution in Michigan. "We want states to compete, but we think they should do it by reducing the burdens they impose on everyone, not a select few at the expense of the rest."

Referring to programs such as MEGA, Senator Posthumus said, "Incentive programs such as these will put the State of Michigan in a position to give certain companies competitive advantages over others. This economic advantage is real and is unjust to those not picked."

Among Michigan's thirty joint resolution signatories are Mr. David L. Littman, vice president of Comerica Bank; Dr. Paul McCracken of the University of Michigan; Dr. William B. Allen, dean of the James Madison College at Michigan State University; Mr. Paul D. Ballew, formerly of the Detroit Federal Reserve and now with J. D. Power and Associates; Dr. Werner Sichel, chair of the economics department at Western Michigan University; and Dr. Charles Van Eaton, chair of the Hillsdale College economics department.

Other Midwestern states represented by signatories to the resolution include Ohio, Indiana, Illinois, Wisconsin, Minnesota, Iowa, and Nebraska.