May 11 update: After this post was published, a reader commented that the total income figures did not reflect the $4,900 personal exemption that all Michigan personal income tax filers are allowed to deduct on their annual returns. We have updated the spreadsheet to re-label “total income” as “gross income” with the pre-exemption amounts, added a “net income” column that shows the post-exemption amounts, and recalculated the tax capture columns based on net income.
Last month, a bipartisan group of senators introduced Senate Bills 981, 982, and 983, which would create a revolving fund mechanism within the Strategic Outreach and Retention (SOAR) program to pay for future company-specific incentives.
This bill package has a litany of problems but foremost among them:
This package will divert money from teachers and classrooms, roads, and public safety – and toward more special deals for large corporations – for decades.
It fails to resolve concerns about refilling resources for corporate welfare because the current generation of state legislators will still have to pay for future incentives from the state’s General Fund.
Under the SOAR incentive framework adopted last year, the income taxes paid by the newly created and retained GM workers in Lake Orion and Delta Township would be treated like yours and mine. Most would go into the state’s General Fund, while a portion would go into Michigan’s School Aid Fund.
However, Senate Bills 981-983 would insert a tax capture mechanism into SOAR. Companies that receive SOAR incentives would have the income taxes of their new/retained workers – as well as those of the workers involved in facility construction – re-routed back into the SOAR fund for future incentive deals. This diversion would be in effect until the workers’ income taxes had produced 105% of the Critical Industry incentive the company had received.
For the GM deal, that threshold would be $630 million. The tax capture would divert $480 million from the General Fund and $150 million from the School Aid Fund.
That point can be gleaned quickly from the bill language. It is less clear, on first glance, how long it could take for the tax-capture obligation of these deals to complete, so that the SOAR fund would be refilled and the Michigan public would start to benefit from the incentives.
Attached is a document illustrating two different scenarios. The first two pages show the tax-capture totals based on what GM does in Delta Township. The first assumes the term-sheet minimum creation of 3,200 jobs, and the second shows the promised creation of “up to” 4,000 jobs. The third page is a breakdown for the Lake Orion project’s contribution, for which up to 1,000 jobs are to be retained. The final two pages are on the Delta Township’s contribution based on the term-sheet minimum and the “up-to” promise.
On each tab, the average wage for each facility comes from the board packet of the Michigan Strategic Fund’s January 25 board meeting at which the Fund requested the Legislature to fund the GM incentives. We assume annual cost-of-living adjustments of 3%. Since we don't have data on wages or hiring timeline for the construction jobs, we are being generous and assuming them the same amount as though the plant were fully open and staffed in the first year.
Assuming 2022 is year one, by 2030 (when GM's agreement with the state expires), the amount of income tax recaptured between the Lake Orion and Delta Township plants combined would be between $81 million and $95.7 million. Remember that GM received a total of $666.1 million from its SOAR incentives.
The next request for SOAR funds to pursue electric-vehicle and semiconductor manufacturing projects is expected in the coming weeks, with estimates of the ask ranging as high as $2.5 billion. Even if the senate bills were to pass, funds for those projects – and probably any other incentive deals this decade – will have to come out of the General Fund.
Additionally, the General Fund and School Aid Fund won't get their first penny of income taxes from these new and retained GM jobs until 2058 at the earliest. Michigan’s incentive agreement with GM expires at the end of 2030…unless GM invokes its early-termination clause six months after creating 3,200 new jobs in Delta Township.
Auto manufacturers are making very optimistic projections about consumer acceptance of electric vehicles and the ability of their supply chains to provide exponentially greater supplies of the rare-earth materials needed for EV batteries. If Senate Bills 981-983 were to pass and the auto industry’s projections don’t hold up, it is very plausible that all of the income taxes generated by the SOAR deals would flow only to other large corporations…while the schools, roads, and public safety on which Michigan’s families and Main Street businesses depend never see a penny.
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