Bills Swap Selective Business Tax Breaks for Broad-Based Relief

A package of 17 bills sponsored by State Rep. Justin Amash would eliminate or reduce targeted business tax breaks in favor of across-the-board business tax relief. According to Amash, his proposal would:

  • Eliminate the 22 percent Michigan business tax surcharge,
  • Reduce the MBT's "modified gross receipts tax" rate from 0.8 percent to 0.5 percent,
  • Reduce the MBT's business income tax rate from 4.9 percent to 4.5 percent,
  • Reduce the MBT's insurance company tax rate from 1.25 percent to 1.1 percent, and
  • Reduce the MBT's financial institution tax rate from .235 percent to .21 percent.

Amash says that an analysis by the state's Treasury department shows these changes would reduce the MBT burden on all firms by $591 million next year. The foregone revenue would be replaced by eliminating a number of selective tax breaks enjoyed by a relative handful of companies.

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The idea is to minimize state interference in business by preventing government planners from handing out special favors to a favored few, while simultaneously granting a measure of relief to all MBT payers. After all, if tax cuts create economy- and job-boosting "incentives" for a few hundred firms selected by government "economic development" officials, won't lower taxes do the same the 100,000-plus firms who get no special treatment?

Among the tax breaks and subsidies that would be phased out or eliminated are the Michigan Economic Growth Authority tax credit, a food retailer credit, and a "biodiesel infrastructure" credit.

Our research shows that only 29 percent of MEGA jobs claims actually are realized. And even when companies claim credits, an econometric analysis showed that it had no net effect on the state economy.

The Mackinac Center has written exhaustively on MEGA, considered the state's flagship "economic development" program, and found that at best, it creates no new net jobs on balance. The conclusion is that these targeted incentives aren't economic development programs, but political development programs. They give politicians an opportunity crow about all of the good paying jobs they claim will be generated by granting selective tax favors to a few companies.

A previous post described a new state Auditor General audit, which found that many of the MEGA recipients in its sample may not have truly qualified for the tax credits they received.

Rep. Amash's proposal may or may not have a chance in the current Legislature. Regardless,  it does provide one model of how Michigan's political class might swear off the destructive corporate welfare binge that for the last decade has been virtually its only response to the state's startling economic decline.