Corporate Welfare and the Art of the Possible

A Mackinac Center supporter and I recently discussed Michigan legislation that subsidizes select businesses. He had wondered if some forms of subsidies might be needed or at least useful in the grand scheme of political tradeoffs. Both of us wanted a nuanced understanding of the other’s views, not just a stark reduction of our positions, which in my case might have sounded like, “Free markets good, corporate welfare bad.” It takes more than that to increase understanding and find common ground.

The bills Gov. Snyder signed into law were dubbed by their supporters as the “Good Jobs for Michigan” package., our legislative database, describes bills according to what they actually do rather than what their sponsors intend. Our description reads, “Transfer state revenue to certain business owners.”

I laid out eight problems with corporate welfare.

It doesn’t work. Most of the empirical research (ours and others’) shows negative or tiny positive economic outcomes. Even if the deals achieved the official job projections, they would constitute only a minute fraction of all jobs. Ending the deals isn’t “unilateral disarmament” in the competition with other states, as some claim, when the deals don’t work in the first place.

It isn’t fair. Only certain companies get the special favors, and they’re usually the ones with political connections or ones large enough to hire lobbyists to navigate the politics of getting chosen. The rest (more than 99 percent of companies) must keep pulling their own weight plus that of their subsidized competitors. Government shouldn’t be “picking winners and losers,” a phrase one political journalist credits us with coining and deeply embedding in the political lingo.

It isn’t honest. Job projections are exaggerated. Economic impact claims are inflated. Unprovable threats are invented. Real harms are ignored. Companies are enticed to claim they can’t thrive without special deals.

It’s secretive. Michigan’s last big corporate welfare program wouldn’t even release the names of subsidized companies. The agency in charge is notoriously secretive and was set up as a private-public entity in part to skirt the law governing public records.

It breeds corruption. Mixing tax dollars with secrecy inevitably attracts some of the wrong people to the party. We’ve discovered fraudulent attempts to grab cash by falsely inflating property values, creating fake companies, and more.

It’s expensive. The state will take $884 million from taxpayers for these programs next year, which would be enough to lower the personal income tax rate from 4.25 percent to 3.9 percent. It also requires paying state employees to select the companies, write up reports, and hand out cash.

It gives political cover to lawmakers who avoid tough choices. Giving free money to big companies is easy and fun and good publicity when people think it creates jobs. In contrast, controlling entitlements, reforming pensions, freeing workers from union compulsion, fixing infrastructure and balancing budgets all create more jobs. But they occur without the fanfare.

Every costly deal makes it harder to lower everyone’s taxes, and every big company that gets a special deal loses the incentive to support broad-based relief.

I conceded to our supporter that in some ways the Good Jobs package is not as bad as the corporate welfare programs that are winding down. He readily agreed that we must not let Good Jobs morph into something bigger, less accountable, and worse, as the last program did. (His firm, by the way, does not seek the special deals.)

He said, “We’re not really very far apart on the spectrum” of opposing corporate welfare in principle. He also reminded me in his own words of something we should never forget: All policy moves through a political process. And politics is full of compromises where a smaller defeat coupled with a larger win is considered a win overall. For instance, we still hail Michigan’s right-to-work law as a huge victory even though unionized police and firefighters were carved out and receive no protection from having to pay a union to keep their job.

Politics is said to be the art of the possible. The Mackinac Center’s job is to make yesterday’s impossible ideas possible today.