MEGA Corporate Tax Loophole Worth $45.5 Million

Kmart, Robert Bosch Corp., are latest program failures

For Immediate Release

MIDLAND – Ending the MEGA corporate tax credit program could close a $45.5 million corporate tax loophole, according to an economist at the Mackinac Center for Public Policy. Gov. Granholm has pledged to not raise taxes, and has indicated a desire to eliminate corporate tax loopholes to offset the state’s projected $1.8 billion deficit.

The Michigan Economic Growth Authority (MEGA), in which politically appointed officials dispense tax credits to select firms, was created in 1995. The credits typically come with a host of other tax-funded subsidies and local property tax abatements. The vast majority of businesses do not receive any MEGA credits.

MEGA credits are expected to add up to $45.5 million in forgone state revenue in 2003, according to the Michigan Department of Treasury. The total value of MEGA credits and other incentives redistributed since the program began exceeds $2 billion.

"For eight years MEGA bureaucrats have picked companies that they thought would be economic winners, and rewarded them with special tax breaks," said Michael LaFaive, director of fiscal policy for the Mackinac Center, a research institute based in Midland.

LaFaive said, "Sound economics does not argue against business tax relief, but the best policy is tax relief for all businesses, not just a favored few. Governor Granholm should close this loophole and couple it to an equal amount of broad-based business tax relief. Closing the loophole alone would effectively be a tax hike."

MEGA incentives do not necessarily translate into economic success for businesses or taxpayers. MEGA recipients Kmart Corporation of Troy and the Robert Bosch Corporation of Kentwood have recently announced massive layoffs that will result in the loss of future MEGA credits. Those firms garnered millions in tax relief for promises to create jobs, but they are now eliminating more positions than they added under the MEGA program. The firms are not required to return the millions of dollars previously gained.

LaFaive said, "MEGA hurts employers that don’t receive state favors because they have to compete – for workers and in the broader market – against those who do get the favors. MEGA was bad policy when a Republican administration created it, and it’s bad policy now."

Contact: Joseph G. Lehman, (989) 631-0900
              Michael D. LaFaive, (989) 430-8669