Michigan Senate bills to hand out fresh millions to brownfield developers follow a familiar corporate welfare script: Multiply benefits, ignore costs and declare success.
Senate Bill 289, which recently passed the Senate with bipartisan support, would remove the $1 billion limit on how much the state can authorize in subsidies. This “transformational” legislation has the support of Gov. Whitmer and received the support from seven Republican senators and the opposition of two Democratic senators.
It is also a terrible way to do business.
The United States didn’t become the most prosperous nation in the world because politicians wrote big checks to big business. It did so by letting people use their resources to pursue trades that leave us all better off.
Prosperity comes from setting the rules and letting people live under them. It does not come from thinking that, say, canals are the future and politicians should give tons of taxpayer cash to their canal-building buddies. (Which is exactly what happened in the early 19th century.)
Handing out selective subsidies is ineffective at creating jobs, unfair to businesses that don’t get them and expensive to governments. Worse still, business interests don’t have to demonstrate that their subsidy programs actually work. They just have to show that there are benefits to elected officials for approving business subsidies.
The corporate welfare script demands that politicians and special interests exaggerate benefits to make it sound like handing out special favors will make the economy come out ahead. Hand out money to Manufacturer Q and that company will employ a lot of people. Those people will then buy a lot of things and pay their taxes — so that, according to the script, the “investment” will “pay for itself.”
There is a cottage industry of economic consultants who will tell people this is exactly how the process works. The problem is that they all multiply benefits but ignore costs. The money has to come from somewhere, and spending money on something else also has economic effects. Yet the economic impact studies never take that into consideration.
The economist J.C. Bradbury had the bad fortune to produce solid academic work demonstrating that stadium subsidies don’t pay off for taxpayers. He is now cursed to be ignored when local media cover the extraordinary, silly and self-interested economic impact studies bought by team owners who want taxpayers to pay for new stadiums.
Perhaps consultants multiply benefits and ignore costs because the people asking for favors rarely acknowledge that what they’re asking for costs money. Michigan legislators are currently discussing handing out more subsidies to developers to build buildings. Supporters argue that the money developers collect from the program is new money and shouldn’t be considered a cost.
It’s understandable that supporters would like to ignore the costs of giving them money. Anyone else should recognize it. Customers don’t ignore costs when window salesmen tell them they’ll come out ahead if they buy new windows. Legislators shouldn’t ignore costs when subsidy supporters tell them subsidies generate new tax revenue.
Since these subsidies are presented as all benefit and no cost, supporters rarely bother to justify the costs. If a business subsidy is worth it, its supporters ought to be able to demonstrate that it does its job. They could try to demonstrate that their subsidies generate more economic growth than alternative spending. But this never happens.
Instead, every instance of a business subsidy is declared to be a success. According to supporters, every program that gives its supporters money produces the intended outcome. Michigan’s film incentive was a success, even though no evidence for that success ever showed up in the state’s job numbers. People should be wary when the only standard for the success of a subsidy is that the people who wanted money get paid.
There is often some back-and-forth on the issue.
Supporters sometimes argue that other states offer business subsidies and Michigan ought to compete. They’ll often say this without noticing that Michigan already has a program that lets politicians give however much they want to whomever they choose. No one subsidizes business like Michigan.
Supporters prefer not even to bring this up, choosing instead to rely on the basic script. They multiply the benefits, ignore the costs, and declare success. This script should not be so effective. Lawmakers have approved $2.9 billion in business subsidies this year alone.
People should be on guard the next time someone comes around asking for big checks from taxpayers, and we should hold both politicians and corporate welfare beneficiaries to a higher standard.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
Get insightful commentary and the most reliable research on Michigan issues sent straight to your inbox.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
Please consider contributing to our work to advance a freer and more prosperous state.