Howes: Brewing tax-incentive battle all about the money
The silence says just about everything.
Michigan's tax-credit bombshell, a liability totaling $9.4 billion, is forcing state lawmakers to explore ways to limit the damage to the state's budget and other priorities — and putting them on a collision course with Detroit's automakers and their future investment decisions.
The Michigan Manufacturers Association, joined by the heavyweight General Motors Co., broke an otherwise eerie corporate silence Wednesday to voice opposition in Lansing to bills that would limit the use of tax credits to offset the costs of jobs-creating plant investment.
No surprise, right. Why wouldn't Detroit-based multinational automakers with choices (can you say Mexico?) want to protect a taxpayer-financed gravy train that helps make business cases to invest in their home state and give them a PR benefit to boot?
Of course they would; but it's not that simple. The political revulsion at the steep price tags attached to the (mostly) Granholm-era incentives for GM, Ford Motor Co. and FCA US LLC's Chrysler unit risks a policy over-correction that could make Michigan less, not more, competitive for future industrial development.
The propensity of the Snyder administration, its Michigan Economic Development Corp. and the Detroit automakers to hide many of the details of the deals and their amendments — as demonstrated by the MEDC's response to a Freedom of Information request from The Detroit News — doesn't help. It only fuels suspicion and backlash.
The incentives the Legislature now loves to hate, because they create financial pressures they'd prefer to avoid, helped land job-creating investments. Without them, there's a good chance Ford would not be building compacts in Wayne, GM would not be building Chevy Sonics in Lake Orion and Chrysler would not be in Sterling Heights.
"We don't compete with ourselves," Tim Sowton, Business Leaders for Michigan's vice president of government affairs and public policy, told the House Tax Policy Committee. "We compete with Ohio and Texas and Tennessee and Georgia and other regions around the world. We need economic development programs that allow Michigan to stand toe to toe with anyone in the world."
What those might be — or how they might balance the interests of taxpayers and increasing skepticism about corporate welfare against economic competitiveness — he didn't say.
But know this: the hand-wringing in Lansing decrying the long-term impact of the incentives on the state's general fund, among other things, isn't happening in a vacuum. The automakers, for one, are watching closely, and if GM's opposition to proposed legislation is any indication, they're preparing to push back hard.
Actually, they already are. Even as the committee gathered testimony on the bills and their prospective impact on state economic development, Toyota Motor Corp. said it would invest $1 billion to build an assembly plant in Mexico to create 2,000 jobs.
Ford is expected later this week to announce a $2.5 billion investment in two plants building engines and transmissions in Mexico. GM already has pledged to invest $5 billion there over the next six years to create 5,600 jobs — all of it signs that Business Leaders' Sowton has it exactly right: Michigan is not competing against itself.
Nor can the economic nirvana envisioned by the Mackinac Policy Center's Jack McHugh necessarily achieve the desired result. He told the committee that "the ultimate economic development program" for Michigan would be "to eliminate the personal income tax."
To which Rep. Jim Townsend, a Royal Oak Democrat, sputtered: "The idea of repealing the income tax is lunacy, is lunacy, if you have any concern about tax equity in this state."
He could have made the point even more sharply. Namely, if auto investment flows only to states with no income tax, how come Alaska, Florida, Nevada, New Hampshire, South Dakota, Wyoming and Washington are not automotive powerhouses? Only Texas and Tennessee can lay claim to an auto industry, portions of which are represented by the United Auto Workers.
Look, there are states around the country that would spend almost whatever it takes to land billion-dollar auto plants, to prepare sites for automotive engineering campuses, to beat Michigan at its own game.
Likewise, a primary job of executives and directors running these companies is to deliver returns on investors' money. Making the numbers pencil includes testing the willingness of state governments to make their patch more attractive than the other guys, or looking elsewhere.
It's OK to object to the practice. It's OK to label it "corporate welfare," which it undeniably is. It's OK to use the rules of the game to press the kind of competitive policy-making proposed by the idealists at the Mackinac Center.
But don't kid yourself: until the rules are repealed by some higher power, this is how the game is played — which is exactly what the relative corporate quiet amid political grandstanding is saying, loudly.
Daniel Howes' columns can be found at detroitnews.com/staff/27151