News Story

Subsidies For A Few And Tax Hikes For The Rest Worked Poorly Here

All the former governor’s selective corporate handouts couldn’t overcome her huge tax hike or the Great Recession

Since leaving office, former Michigan Gov. Jennifer Granholm has tried to reinvent herself as an expert on job creation.

She co-authored a book in 2011 titled, “A Governor's Story: The Fight for Jobs and America’s Economic Future.”

In 2017, when she joined the board of electric-bus manufacturer Proterra, the company described Granholm as “a leading voice for American jobs and manufacturing.”

In a 2013 video, Granholm called herself a political scientist and Michigan her laboratory of democracy. She said she became obsessed with trying to figure out how to create good jobs in America.

Granholm’s preferred policy for increasing the number of Michigan jobs was to focus on using state taxpayer dollars to support select companies and industries, through direct and indirect government subsidies administered by the Michigan Economic Development Corporation.

Her videos and writings have given less attention to another policy she adopted – imposing a 22 percent surcharge on the amount that companies owed under the state’s since-discontinued business tax, the Michigan Business Tax. Granholm championed the tax when it was enacted earlier in 2007, and the bill that established it also extended the main law authorizing state business subsidies, which otherwise would have ended that year.

The bill imposing the surcharge was signed by Granholm on Dec. 4, 2007, after being approved by both the Republican-controlled Senate and the Democratic-controlled House. At the same time, the Legislature and Granholm enacted an increase in the state income tax from 3.9 percent to 4.35 percent.

The 22 percent annual business tax surcharge was projected to collect an additional $772.7 million from Michigan companies in its first full year. According to the U.S. Bureau of Labor Statistics, the average cost of an employee in the Midwest is $30 an hour, which includes salary, insurance, vacation, paid leave, sick time and overtime. At that rate, the $772.7 million the surtax would take from businesses each year was enough to have allowed private sector employers to hire an additional 12,383 full-time employees.

Granholm said in her 2013 video that the head of the state’s economic development agency had told her the state had a big problem: Refrigerator-maker Electrolux said it would close a Greenville facility and move production to Mexico. The factory employed 2,700 people, and became a test of selective-granted state business incentives.

Granholm made a number of highly visible visits to Greenville, including one during which she brought her entire cabinet to the Montcalm County town. But the 22 percent business tax surcharge she imposed the year after Electrolux left affected thousands of employers across the state. Its passage coincided with a deepening of what had been an unofficial one-state recession starting around 2002, and it occurred the very month that the nation’s Great Recession officially began, December 2007.

In that month, Michigan’s unemployment rate was 7.2 percent, with 4.6 million people employed. The surcharge and the Michigan Business Tax it was part of were repealed and replaced by a much lower Corporate Income Tax in January 2012. By that time, the state unemployment rate was 9.2 percent and 380,000 fewer people had jobs.

As of June 2018, the state’s unemployment rate is 4.5 percent and 4.7 million residents are employed.

“It was a job killer,” Charles Owens, state director of the National Federation of Independent Business, said of the 22 percent surcharge. “It was another reason for businesses not to come to our state and it was a reason for businesses not to expand. It was a big wet blanket.”

An Auditor General report in 2013 found that the relatively small number of companies that benefited from MEDC-managed subsidies and selective tax breaks only created between 19 and 22 percent of the jobs that the agency had projected.

In 2010, MIRS News evaluated the targeted business subsidy programs that Granholm preferred over broad-based tax cuts. It concluded that the MEDC claimed credit for generating 1.4 million direct, retained and indirect jobs during Granholm’s tenure. However, by the end of Granholm’s two terms as governor, 596,000 fewer Michigan residents had jobs.