Lawmakers are working on the fiscal year 2021 budget and they will be finished soon. To their credit, both legislators and the governor agreed to cut corporate welfare spending in the current fiscal year. For 2021, they should take another swipe and cut it down, preferably to zero. Research by scholars at the Mackinac Center for Public Policy and at universities has repeatedly shown such programs to be ineffective, if not harmful. They certainly don’t qualify as fair.
The Mackinac Center recently published a study of Michigan incentives that evaluated data back as far as 1983. We found that subsidies from the state to corporations can have positive consequences for increased employment, but at a huge cost. For nearly 1,900 incentive deals, every job created required close to $600,000 in offered incentives, on average, per year.
That’s a breathtaking figure. Even if only an average of $100,000 was paid out by the state for each job, it is unlikely that the new job and its related economic activity would ever pay the state back for what it took to create it. Our study, by the way, is not the only one to suggest that the costs of state handout programs outweigh the benefits of operating them. Surely there is a better use for taxpayer dollars in the next state budget.
In February, another study demonstrated the ineffectiveness — even harm — that state economic development programs can do. The study, published in an academic journal, Public Administration Review, is titled “You Don’t Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health.”
The authors, led by a professor of budget and finance at North Carolina State University, examined incentive deals offered across 32 states, including Michigan, from 1990 to 2015. Their source for data on government incentives comes from the Kalamazoo-based W.E. Upjohn Institute for Employment Research. The authors report that the Upjohn database covers “more than 90 percent of the incentives that state governments offered.”
They concluded: “Despite the widespread use of incentives, there is little evidence to suggest that they provide the intended economic returns to government,” and “[f]inancing incentives leads governments to fiscally unhealthy positions by reducing the revenue available to them while increasing their expenditures.”
The Mackinac study and the journal article are just two of the many studies that demonstrate the questionable effectiveness of such programs. That is why it would be wise to eliminate handout programs and use the savings for higher priorities, be they balancing the budget, fixing roads or even cutting the personal income tax.
In addition to these programs being ineffective and weighing on the state budget, they are fundamentally unfair. They require the state to confiscate — directly or indirectly — resources from the many for the benefit of a few. Often, those few are politically connected corporations. Politicians even offer incentives to gargantuan, multination corporations who should need it the least, such as Foxconn Technology Group and Amazon.
As lawmakers work to complete the state’s fiscal year 2021 budget, it should be imperative for them to shift state spending away from corporate welfare and toward much higher uses of precious taxpayer dollars. It’s the right fiscal move and a fairer one, too.
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