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Tax credit proposal aimed at luring jobs to Michigan divides business leaders

By   /   June 29, 2017  /   News  /   No Comments

A package of bills that would give tax breaks to companies bringing large-scale, job-generating projects into Michigan hit the skids amid political squabbles and charges that the rewards amount to corporate welfare.

Republican House Speaker Tom Leonard canceled a floor vote last week on the “Good Jobs for Michigan” bills sponsored by State Sen. Jim Stamas, R-Midland.  The speaker expressed concern that Republican Gov. Rick Snyder had placed the party’s legislative priorities at risk by engaging in horse trading to get Democrats to support the jobs bills.

It remains uncertain when the lower house will take up the issue again because it is out of session and is scheduled to meet on one day only – July 12 – next month.  The “Good Jobs” bills have already passed the Senate.

The bills have already garnered strong bipartisan support in the legislature, Sara Wurfel, a spokeswoman for the “Good Jobs for Michigan” campaign, said.

“We’re hopeful that Republicans and Democrats alike will come together in the currently slated July 12 session day for the short- and long-term success of our state and Michiganders,” Wurfel told Watchdog.org in an email. “This legislation will reaffirm how open for business Michigan is while benefiting working families and communities everywhere and growing our economy.”

But some public policy experts and business groups strongly oppose the bills, saying they could signal a throwback to policies of former Gov. Jennifer Granholm’s administration. The state is still on the hook for about $9 billion in outstanding tax credits that the previous administration handed out to corporations, according to Charlie Owens, the Michigan state director of the National Federation for Independent Business.

“In the past with the previous administration, these incentives were used extensively to the detriment of the overall business climate,” Owens told Watchdog.org.

Many of the NFIB members in Michigan oppose targeted incentives philosophically because they put government officials in the position of deciding which businesses will succeed and which ones might fail, he said. The result, according to Owens, is a totally inappropriate situation.

“Other businesses have toughed it out and paid taxes, and here comes a competitor from another state that gets a handout from the government,” he said, indicating that broad-based tax reform is a better way to improve the overall business climate in the state.

Senate Bills 242, 243 and 244 would allow businesses planning projects in the state that require at least 250 high-paying jobs to keep a portion of the personal income tax withholdings of the new workers. Normally, these funds would flow into the state treasury.

The program would cap new projects at 15 annually, and the value of all projects could not exceed $250 million at any one time, according to Stamas’ office. There are also provisions to disclose to the public how much companies receive under the incentive program.

Although Stamas did not immediately respond to requests for comment, the coalition supporting the “Good Jobs” bills says the incentives are crucial because neighboring states offer aggressive programs to lure companies. In fact, the only two states that offer no tax credits to boost economic development are Michigan and Alaska, the coalition reports.

But analysts at the Mackinac Center for Public Policy have urged lawmakers to reject the bill package. The incentives are weighted toward larger companies at the expense of smaller ones and allow politicians to essentially choose winners and losers in the economy, they say.

“This is not about economic development,” James Hohman, assistant director of fiscal policy at the center, told Watchdog.org. “These programs are about political development.”

Jarrett Skorup, a policy analyst at the Mackinac Center, testified before the House Tax Policy Committee earlier this month against the bills. The Michigan Economic Growth Authority tax credit program, which took effect in 1995, created fewer than 20 percent of the jobs that were promised, Skorup said.

“The economic literature on tax-increment financing shows the effects to generally be negative, with the costs of the programs outweighing the gains,” Skorup said in his testimony.

The bills are designed to allow state government officials to reward their chosen companies, according to Hohman, who said the agency that would administer the new program, the Michigan Strategic Fund, has a poor record in terms of transparency.

“The mechanism is just part of the excuse that allows them to deliver taxpayer dollars to their preferred candidate,” Hohman said.

The bill package has divided business groups around that state. The Saginaw County Chamber of Commerce supports the measures, calling them a key addition to the state’s toolkit to attract businesses and provide a higher level of good-paying jobs.

But the Traverse City Area Chamber in northern Michigan objects to the bills’ “one-size-fits-all” approach. In a statement released in April, chamber officials said the bills would not benefit more rural areas of the state.

“The problem … is that very, very rarely does a business relocation or expansion effort in the Traverse City area include between 250 and 500 new jobs,” the chamber’s statement said.

In turn, the chamber has been lobbying lawmakers for an amendment to the bills that would allow rural areas to take advantage of the proposed economic incentives.

Owens credits the Snyder administration with improving the overall business climate in Michigan but says the state’s citizens and businesses could end up picking up the tab for any new round of economic development incentives through tax hikes or program cuts.

“We need to learn from the mistakes of the past and stick with what works over the long run,” he said.