Lawmakers portray themselves as being in a high-stakes war with other states over jobs, thus needing to offer select businesses more subsidies in order to grow the economy. “For too long, we were fighting with a hand tied behind our back. Now we’ve got the upper hand,” Gov. Gretchen Whitmer said in her State of the State address.
The governor is mistaken. The way to increase jobs is not to write checks to a handful of big companies. It’s to improve the state’s business climate.
The state of Michigan already has a program that allows administrators to give whoever they want however much money they’d like, subject only to limits on how much money legislators put in the fund. That’s different from and more generous than programs in most other states.
But being a leader in subsidies doesn’t translate into job creation. Half the states have fully recovered from the job losses they endured during the pandemic. Michigan hasn’t. It’s down 71,400 jobs, a 1.6% decrease that is the 13th-worst among the 50 states.
Lawmakers can use subsidies to get headlines about companies locating or expanding in Michigan. But landing projects doesn’t translate into state growth.
We can compare the number of “job creation” headlines in each state with the actual number of jobs they create. The federal government tracks job growth, while Site Selection Magazine keeps a database of qualified capital projects, which the publication uses for its Governor’s Cup awards.
Each dot in the chart below is a state. States that land more business projects are placed further to the right, and states that have recovered from job loss more are higher on the chart. If there were a connection between business projects and job growth, the states would cluster around a trend going up and to the right. But there’s no connection at all.
The lack of success in turning job announcements into state job growth doesn’t stop lawmakers from trying it anyway. It certainly sounds like lawmakers believe they can drive growth. Whitmer boasted of the special deals when she made her State of the State address. Shortly after, lawmakers added even more money to the state’s corporate welfare fund.
But the states that have recovered the most didn’t get there by making the most deals. They recovered because they have the most favorable business climate.
Michigan lawmakers ought to stop trying to land the next business project and work to make the state a better place to do business. Instead of handing out big checks to a handful of companies, they can lower the income tax rate for everyone. They can improve tax rules to encourage business growth. They can eliminate harmful occupational licensing requirements.
All of these would do a better job of encouraging growth than the subsidies the governor wants.
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