Pay Attention to Candidates' Stance on Subsidies

When considering which candidates to vote for in November — regardless of the office — be sure to examine their stance on Michigan's growing empire of economic development programs, which selectively hand out subsidies and tax favors to politically favored industries and firms.

The preponderance of empirical evidence regarding these policies shows that targeted incentives on balance don't work to expand incomes and employment. Beyond that, they are unfair and prone to abuse.

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For example, a massive "meta" review of the academic literature produced by two economists from the University of Iowa found that these programs either fail on their face or their costs exceed their benefits. In addition, my 2005 analysis of this state's MEGA program found that for every $123,000 in tax credits it offered, just one construction job was created, all of which disappeared within two years. A 2009 study I co-authored found that for every $1 million in credits earned by a MEGA company in a particular Michigan county, 95 manufacturing jobs disappeared from that county.

Last March, the Anderson Economic Group also found that the selective tax break programs do more harm than good. The most favorable study of MEGA showed that it created an annual average of between 1,600 and 3,900 jobs from 1996 through 2007. Compare these paltry figures to the 800,000 jobs Michigan has lost since 2000.

In addition, twice this year the programs were rocked by potential scandals. In March, convicted embezzler Richard A. Short was granted refundable tax credits for a company that may have existed only on paper. More recently, the Michigan's Attorney General's office filed a fraud complaint against Grand Rapids businessman Joseph A. Peters in connection with the Hangar42 subsidy debacle exposed by Mackinac Center analysts.

Candidates who champion selective tax credits implicitly admit that it costs too much to do business in Michigan. They're right, but the obvious solution is to cut taxes for all job providers, not just a favored few.