Selective incentives distort price signals, encourage economic inefficiency, and politicize commercial exchange.
MEGA would discriminate against small businesses, retail businesses, and
capital-intensive businesses. MEGA would result in these employers paying a greater
percentage of total single business tax revenue, and cause inefficient use of economic
As mentioned previously, MEGA credits are available only to selected Michigan firms
that employ at least 75 new employees, and to out-of-state firms that employ at least 150
new workers. MEGA is clearly aimed at large firms, since only the largest employers can
consider projects that create at least 75 new jobs. But big businesses are not generating
Michigan's new jobs. Small firms have been and will likely continue to be the engine of
new employment in this state. Subsidizing employment in big businesses discriminates
against small firms, and forces small business to bear more of the tax burden.
Not even all big businesses can benefit from MEGA. If Grand Rapids-based Meijer
Corporation opens a new store and hires 150 new employees, it will not receive MEGA tax
treatment because of its retail status. Even if Meijer is contemplating a choice of
opening a new store in Clio, Michigan or Mishawaka, Indiana, MEGA benefits cannot
influence its decision. MEGA establishes a policy that retail jobs are not as valuable as
manufacturing jobs, an economic decision that is best left to sovereign consumers
operating in a market economy, not state bureaucrats.
Capital-intensive manufacturers, who use a high proportion of capital in relation to
labor, may also create too few jobs to benefit from MEGA tax credits. For example, Dow
Chemical may invest $50 million in a new production process, but create only ten jobs due
to its capital-intensive, highly automated production technology. Furniture maker Herman
Miller, on the other hand, may invest the same $50 million, employ 150 workers, and
qualify for MEGA tax credits because of its labor-intensive manufacturing process. Dow has
invested the same amount in the state, but would not be granted SBT tax relief under MEGA.
Subsidizing labor and taxing capital artificially changes the relative prices of capital
and labor, encouraging firms to use combinations of capital and labor that are not
efficient, which wastes society's scarce resources. Selective incentives distort price
signals, encourage economic inefficiency, and politicize commercial exchange.