‘Trough Truce’ on Display in Latest Debate on Corporate Welfare

Lawmakers agreed on July 12 to deliver $200 million of taxpayer dollars to businesses selected by politicians, an idea the governor is expected to sign into law. This gift is a waste of money. Ostensibly, it is to create jobs, but it won’t work and creates an unfair playing field.

It may seem strange that government spending interests were almost entirely silent on the issue. One might reasonably expect public school officials, university leaders, local government groups, hospitals and other recipients of government funding to oppose plans to hand over taxpayer money to select companies. Their silence is evidence of the “trough truce,” in which interest groups that rely on government money agree not to complain about other groups receiving government money. These same interest groups came out in full force opposing a modest decrease in the state income tax. So it seems they are fine with handing out select subsidies to certain businesses but against letting all taxpayers keep a slightly larger sliver of more of their own money.

Some of the state’s left-leaning organizations registered their opposition. One was the Michigan League for Public Policy, which advocates for progressive policies. Another was the large government employee union, the American Federation of State, County and Municipal Employees Council 25. Progress Michigan put out a negative comment in June.

But skepticism from a wide array of organizations was not enough to convince lawmakers.

Some argued that the state needed more goodies to compete with the favors offered by other states. Yet Michigan offers a great many incentives already. The latest budget contained $136 million in select subsidies. The state expects also to transfer an additional $627 million from taxpayers to businesses from old deals in the upcoming year.

The question is what Michigan residents get for all of that spending. The answer is not very much. Economists have used sophisticated tools to tease out the effects and mostly find negative results.

That means the new spending won’t deliver the “the strongest possible future” for the state, as the governor stated. Nor will it result “in a stronger economy and more robust neighborhoods and communities,” as the president of Business Leaders for Michigan, Doug Rothwell, remarked.

Spending on these business subsidies is perhaps the most wasteful thing the state government does. Prison spending, for instance, pays to incarcerate people the justice system has determined need to be removed from society. Education spending, for all its inefficiencies, ensures nearly all kids are enrolled in a school from ages six to 18. Business subsidies given for economic development purposes, however, do not develop the economy.

But there’s another reason to oppose these types of deals: They are unfair to the businesses that don’t get the special treatment. Businesses operate in a competitive environment and taxpayer cash can tip the scales in favor of one business over another. These deals create an environment where one business could be indirectly subsidizing its competitor.

Not all lawmakers bought into the program. There were 22 Republicans and 13 Democrats who opposed a giveaway bill in the House; five Republicans opposed it in the Senate. That is an improvement from the Granholm years when opposition to taking money from everyone and delivering it to select business owners received only a handful of legislative naysayers.

The support for business subsidies is narrow: The people handing out the new deals and the people receiving them obviously like them. The opposition should be broad, and it was good to see diverse groups opposing it. Perhaps if the trough truce was broken, there would have been enough weight opposing this latest waste of taxpayer money.