Michigan lawmakers are considering a bill to authorize $300 million in additional business subsidies, which is intended to attract more companies to Michigan and compete with other states. This is the wrong way to compete, however. Lawmakers should grow the economy by improving the business climate and fostering a better quality of life in the state, not by offering the largest subsidy checks.
Offering select subsidies is a bad strategy for a number of reasons. It’s unfair to the businesses that don’t get them, which includes companies already here and paying their fair share of taxes. It’s an expensive option — the state can pave a lot of roads with $300 million. It also fails to be an effective way to grow the economy. The economists who closely follow the effects of select business subsidies rarely find that they are worth the effort.
There is a better option. State lawmakers across the country can agree with each other to stop offering select business subsidies. They can join in an interstate compact to jointly eliminate their corporate welfare programs. Indeed, legislation to do this has been introduced in Michigan and 14 other states.
Under the agreement, when states sign up, they drop their select subsidy programs. So, when Amazon or FoxConn or another company comes around asking for special treatment, economic development officers tell it why their state is a good place to set up shop, but they leave out an offer of taxpayer cash.
Citizens around the country should want their states to compete on a fair field. They should be wary that their states need to give select companies favors. State legislators should pass the interstate compact to end select business subsidies.
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