Editorial on Tax Subsidies Ignores Facts

(Editor's note: The following is an edited version of a letter to the editor first sent to The Grand Rapids Press by Mike LaFaive, director of the Morey Fiscal Policy Initiative.)

The Grand Rapids Press on July 27 published an editorial defending state business tax incentives ("Michigan needs to keep offering business tax breaks to create jobs," July 27) that fails to recognize one vital argument: They don't work.

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There have been four scholarly studies on Michigan's highest-profile business incentive program, the Michigan Economic Growth Authority. Three concluded the program had either no jobs impact or a negative impact. The fourth found MEGA created an average of just 1,600 jobs for each year of the study period. Even if true, that's a laughable figure in an economy that annually creates and destroys 500,000-plus jobs. If MEGA can't succeed, it's unlikely other subsidy programs do.

In 2004, Peter Fisher and Alan Peters of the University of Iowa reviewed hundreds of studies on a wide variety of development programs. Their review indicates programs either fail or their costs outweigh their benefits.

We shouldn't feel compelled to maintain failed policies simply because other states are doing the same. Research shows that robbing Peter to pay Paul is counterproductive — except in the case of politicians looking to take credit for jobs.

As one economic writer asks rhetorically, "Is reality optional?" The answer should be no, but calls for continued funding of these failed incentives suggest otherwise.