Election Night: More Corporate Handouts or More Personal Income Tax Cuts?

This week’s big political race in Michigan played out as expected. Marquee candidates Gretchen Whitmer, a Democrat, and Michigan Attorney General Bill Schuette, a Republican, each won their respective party’s nomination to be governor. Many of the policy choices advanced by each — it will not surprise the reader — are not championed by the other.

But they have agreed on something: Both candidates have supported state corporate handout programs. During her tenure in the state Legislature, Whitmer voted to approve $4.5 billion worth of discriminatory incentives for businesses. She voted in favor of 98 percent of the subsidies that came before her. Schuette, also a veteran state lawmaker, voted to approve just $224 million, but this represented 100 percent of the subsidy dollars that came before him.

Past, however, is not necessarily prologue. Both these candidates discussed targeted incentive programs on the campaign trail.

At a Michigan Economic Developers Association meeting in March, Whitmer promised to “Unleash the MEDC” in her first year as governor. Presumably, this means she believes that the Michigan Economic Development Corporation maintains a certain prowess for creating more jobs through state programs than might be destroyed by the taxes required to finance them. The MEDC is effectively the state’s corporate welfare department, and it redistributes money taken from taxpayers across Michigan to a select few corporations and industries.

Schuette, for his part, has focused his policy reform ideas around a broad-based tax cut, and he did so publicly even before formally declaring himself a candidate for the governor’s office. He has repeatedly advocated rolling back the state’s personal income tax to 3.9 percent. That was the rate promised to Michigan taxpayers in 2007 in exchange for an 11.5 percent income tax increase, one that was supposed to be temporary. But as for the MEDC, it is unlikely to disappear under a Schuette administration.

In an interview with the Mackinac Center’s Michigan Capitol Confidential, Schuette told reporter Evan Carter, “Objective one is have an environment of low taxes, fewer regulations, and so we can win again.” But he added, “We also need to compete against other states that offer incentives for businesses to plant capital and build jobs.” Schuette maintains that he doesn’t believe in unilateral disarmament, a common argument made by those who support taxpayer-funded corporate subsidies.

Both candidates would be wise to avoid the use of selective corporate handouts or other targeted favors to business as a way to create jobs. The evidence against them (scholarly and anecdotal) is overwhelming. The subsidy programs are almost always ineffective. Indeed, these programs do so little to spur real economic development that it is fair to say that states aren’t necessarily fighting over jobs so much as job announcements.

These programs amount to little more than expensive braggadocio and ribbon-cutting ceremonies for each state’s political class. They are fundamentally unfair too. Unfair to taxpayers who have their wealth confiscated and transferred by force to corporations, and unfair to in-state businesses who may have to compete against a subsidized rival.

The good news, at least, is that candidate Schuette has not made these programs the centerpiece of his economic strategy. Quite the contrary. As far as this author knows, the only reason Schuette even discussed the topic on the campaign trail was that a Mackinac Center employee asked him about it.

His policy platform — which is long on broad tax reforms — is much more likely to facilitate economic growth and development than any use of targeted, state-bestowed subsidies for business anywhere.

Last spring, the Mackinac Center estimated the impact of an income tax cut. We found that if the state rolled back the personal income tax rate from 4.25 percent to 3.9 percent, Michigan could add 15,000 jobs to its economy in the first year afterward.

That would create far more jobs than the state’s corporate welfare apparatus and be fairer too.