Mackinac Center Calls on Governor to Eliminate Corporate Favoritism, Focus Instead on Lower Taxes for All Businesses

MIDLAND — The Mackinac Center for Public Policy today called on Gov. Engler to reform the state's "economic development" programs in the same manner that he has helped to successfully reform Michigan's family welfare programs.

Since taking office, Gov. Engler has introduced several initiatives that have helped decrease state welfare cases by over 68 percent, putting many of Michigan's most disadvantaged citizens back on the road to self-reliance. Now that same approach should be applied to the state's jobs programs, said Mackinac Center Policy Analyst Michael LaFaive.

"What is ironic about Gov. Engler's policies," said LaFaive, "is that the governor has earned a national reputation for removing mothers and children from welfare rolls, while simultaneously presiding over the largest increase in corporate welfare in Michigan history."

For example, in the five years since its creation, the Michigan Economic Growth Authority (MEGA), the state's primary jobs program, has approved over 87 "economic development" projects, totaling more than $1.2 billion for those firms fortunate enough to be chosen by state officials for special MEGA-related tax credits, abatements, or subsidies. The state provides these special incentives to selected firms that promise to create or retain jobs in Michigan, and it is poised to approve five more incentive packages Wednesday, July 12.

But the fairness and effectiveness of MEGA and similar government programs is questioned by LaFaive. "What often ends up happening is that any jobs 'created' as a direct result of special government tax incentives and subsidies simply draw gainfully employed workers from other Michigan firms, so no net gain is made in terms of lowered unemployment."

LaFaive also drew a distinction between "corporate welfare" and government's use of selective tax credits to encourage job creation. The former involves direct taxpayer subsidies to selected companies for such things as employee training and is an "unfair and improper function of government," he said.

"Tax credits are not the same as subsidies," he noted. "We do not fault any company for accepting a lower tax burden, but it is still unfair for the state to provide only some firms with tax relief while other firms pay more to support the same government that is giving their competitors special advantages."

Meanwhile, state "economic development" programs continue to expand dramatically. MEGA has increased the number of its incentive packages in all but one year of the program's existence. The former Michigan Jobs Commission (now split into two departments, the Michigan Economic Development Corporation and the Michigan Department of Career Development) has seen its employment rolls balloon 925 percent from Fiscal Year (FY) 1992-93 through FY 1998-99, making the department "Michigan's number-one growth industry," said LaFaive.

By contrast, employment in Michigan's top private-sector industries grew at a far more modest pace during the same period. According to Department of Career Development data, Air Transportation grew 92 percent; Business Services, 66 percent; and Credit Institutions, 58 percent.

The Mackinac Center called on Gov. Engler to rename the Michigan Economic Development Corporation the "Corporate Independence Agency" to reflect a new direction. The re-christened department would oversee the phase-out of discriminatory business tax breaks and subsidies and focus instead on encouraging real job growth by offering equitable, across-the-board tax and regulatory relief to all companies doing business in Michigan, said LaFaive.

"The state's 'Project Zero' campaign aims to help welfare recipients' transition from dependency to self-sufficiency,' " said LaFaive. "Now it is time for a Project Zero for welfare-dependent corporations and their executives."