Mackinac Center: Engler Administration Unaware of Impact of Tax Favoritism

MIDLAND-The Engler administration's plan to eliminate the single business tax (SBT) for new, high-tech companies-and a subsequent "clarification" of the plan issued by the governor's office yesterday-suggest that the administration does not understand certain basic economic principles, according to a spokesman for the Mackinac Center for Public Policy.

            "We agree with many of the administration's economic policies, but the SBT should be reduced for all companies equally, not eliminated for just one sector of the economy at the expense of the others," said Mackinac Center Senior Vice President Joseph P. Overton, who was quoted in Sunday's Detroit News criticizing the Engler plan.  Overton characterized the administration's "clarification"-which denied that the proposed tax break would give high-tech companies an unfair advantage over existing Michigan companies-as displaying a low level of economic understanding.  In the written clarification, Engler spokesman John Truscott insisted other Michigan companies won't be unfairly hurt because the companies getting the tax break are companies " . . . that specialize in new technologies."

"But new technologies always compete with old, even though they may be very different in nature," Overton pointed out.  "The automobile competed with horses, and today blacksmiths are nearly nonexistent.  Lasik eye surgery competes with eyeglass manufacturers, and today many people have been freed from purchasing glasses.  DVDs compete with VCRs, which compete with network television and movie theaters.  Economists call these substitute goods, when one product or service can be substituted for another."

"The Engler administration's plan distorts the actual value of new technologies by discriminating against existing technologies through unfair tax advantages to certain politically favored firms," Overton said.  "Economic development polices should be based on sound economics, not politics."