Bill would force workers to pay their bosses – Mackinac Center

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Lansing politicians are nothing if not persistent. Their latest bet is a business aid bill that would allow businesses – mostly very large multinational conglomerates – to keep up to 100% of income taxes on employees hired under promises they make to the State.

Senate Bill 615, known as the Michigan Employment Opportunities Program, is designed to revive the previously broken and misnamed “Good Jobs for Michigan” program. Only about 10% of the bill’s wording is original, with the rest taken directly from previous good jobs legislation. Large swathes of the good jobs legislation itself have been taken from the Michigan Economic Growth Authority’s corporate welfare program, which has now failed and has been shut down.

Academic research has shown that corporate taxpayer subsidy programs are inefficient and expensive. They are also fundamentally unfair. Until Lansing’s political class can prove otherwise – and beyond the usual buffoonery and hyperbole – SB 615 should not become law.

Academics have studied state and local economic development programs for years and found them largely ineffective.

A study from a program called Promoting Employment Across Kansas – or “PEAK” – deserves special mention. It is structured the same way as the proposed Michigan Employment Opportunity Program. Economist Nathan Jensen studied PEAK by comparing job changes at companies funded by the program to similar companies that weren’t. He found that the subsidized companies did not add more employees than the Kansas companies that did not.

In 2018, a study by three academics collected information on 2,400 incentive agreements in 35 states (180 in Michigan) and tracked their employment performance against a database of jobs and of commercially available sales known by the acronym “NETS”. The researchers found that overall employment growth was 3.7% slower in subsidized establishments, compared to those that were not subsidized. The authors pointed out that small businesses performed better. The MEOP does not appear to be designed to ensure the expansion of small businesses.

The Mackinac Center published a similar study in 2020 with 2,300 Michigan-specific incentive agreements dating back to 1982, and in nine programs or program areas. She found no impact of incentives on employment in five cases, and explicitly negative in another. In three cases, he found positive job creation figures compared to similar but unsubsidized companies. But the work comes at a huge cost. For example, the MEGA program was to offer $ 125,000 in grants per job created per year. The costs clearly outweigh the benefits. There are $ 537.5 million in MEGA credits that are expected to be paid out to MEGA beneficiaries in FY2021 alone.

In addition, these programs are often sold as a way to attract a large business out of state. Indeed, the Good Jobs program was partly sold to lawmakers as a way to land a FoxConn factory. FoxConn is famous for making iPhones, among others. Many states are creating programs to throw billions in front of giant corporations. The FoxConn plant went to Wisconsin despite the GJFM program, did not perform as promised, and it may have cost the Governor of Badger State his job.

The Center also used the NETS database to track the movement of establishments in the state of Michigan. From 1990 to 2015, less than 1% of all net new jobs were due to these offshoring. Even then, only a tiny fraction of these received state subsidies and an even smaller portion of these was needed. A study published by the Kalamazoo-based WE Upjohn Institute for Employment Research estimates that 75-98% of business decisions about relocating, expanding, or staying where they are would likely have been made without incentive.

How do promoters react to all of this evidence? They don’t, at least not with a lot of scientific evidence of their own. There isn’t much to find in the academic journals that support these programs. Instead, their advocates point to promises of job creation or the government’s own obviously questionable estimates and creative spin doctoring.

Business subsidy programs are also woefully inefficient and costly. Even when they lead to a bigger payroll, they usually come at such a high cost that they can do more harm than good.

Lawmakers in Lansing should reject Senate Bill 615 and do so right away.


Permission to reprint this blog post in whole or in part is hereby granted, provided the author (or authors) and the Mackinac Center for Public Policy are properly cited.

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