Why did the Governor Flip Flop on Corporate Welfare?

Corporate handouts remain unfair and ineffective

Gov. Rick Snyder’s support of legislation this year to provide taxpayer subsidies to a billionaire real estate developer (and others) and to large corporations has compelled me to ask “Why?” in a very public way.

Why the changed position? Why was buying “businesses into the state” — as the governor mentioned in a 2013 speech (below) — not good early in his administration, but perfectly OK and even encouraged by him later? The scholarly evidence on state and local economic development programs hasn’t changed since then — such programs still appear largely ineffective — so what happened?

Some background is in order. As a gubernatorial candidate, Snyder’s campaign material was encouraging. While it didn’t eschew incentives completely, it did state, “The use of incentives must decrease as Michigan improves its overall business climate.” It also said, “[R]ather than spending more on incentives, credits and deductions that benefit certain industries, Lansing should lower the tax burden on all industries.”

He initially followed through as governor, killing the multibillion-dollar Michigan Economic Growth Authority business subsidy program and lowering corporate taxes. These initial strokes were so bold I thought he deserved a “Profile in Courage”-type award. Justifiably, Gov. Snyder bragged about these accomplishments during a speech at the American Enterprise Institute in 2013. 

In the speech, the governor lamented that the previous administration was:

… trying to buy businesses into our state by giving out these big tax credit programs to get people to come to Michigan. I don’t think that’s right because I think that’s not fair. You’re not creating a level playing field — a fair, competitive playing field — and in fact, you’re disadvantaging people that have been in your state doing business for how many years.

The tax credits you referred to in the AEI video as the “heroin drip of government” were actually refundable ones, making MEGA an outright cash subsidy program.

Since these early reforms, however, the governor appears to have capitulated on handing out larger incentives. Indeed, he lobbied for and signed into law two new subsidy programs in 2017. A Crain’s Detroit headline from last December read “Snyder: I’m warming up to business incentives.”

Why is the governor now happy to “buy businesses into the state” and related jobs through handouts when he considered this unfair a few years ago? Subsidies to purchase businesses and related jobs come at the expense of small businesses and Michigan workers, now apparently forgotten, who pay the bills of government.

The “Good Jobs for Michigan” legislation was passed this year, in part, with the hope of securing a plant for the multinational, Taiwan-based corporate titan Foxconn. An Oct. 19 Detroit News article reports that the total value of incentives the state dangled in front of Foxconn exceeded $7 billion. How is that not “buying” jobs? In addition, these are not even the first new subsidy programs he has championed, just the most recent.

Even when subsidy recipients are homegrown, such handouts are still unfair. One of the most recent programs signed into law was basically initiated for the benefit of Michigan’s wealthiest citizen and a handful of other big developers. This subsidy program for developers would actually let a lucky few keep a percentage of the personal income tax of their workers. The symbolism is remarkable: The state allows very wealthy developers to take money from workers of modest or even humble means and retain it for itself.

What is all the more galling about the passage of this legislation is that during the same year, Gov. Snyder and other Republicans also opposed an across-the-board personal income tax cut for the rest of us. Eleven of 12 Republicans that voted against one small tax cut proposal voted for developer subsidies. The message, it seems, is that: All Michigan citizens are equal, but some are more equal than others in the eyes of some Lansing politicians. The politically favored rich still get to play by different rules than everyone else.

If you’re a billionaire developer with access to Lansing’s power corridors, you get to keep someone else’s income taxes. But if you’re just another worker, you can’t keep even a little more of your own. There is a lot that is grievously wrong this picture. Since Gov. Snyder is currently the chief painter, I can’t help but circle back to my original question: Why the about-face change in positions?

Many would like to know the rationale for the governor’s capitulation on corporate welfare. Why have Lansing politicians betrayed their ideals? Has the evidence presented by the Mackinac Center or other scholars suddenly changed? By all means, if it has, would someone in Lansing please share it?

I want to offer the governor a presumption of goodwill. There must be a sound reason for his change. Could someone please provide it?