Calabrese: Tax credits are breaking Michigan’s bank

Dan Calabrese

The world is not going to end because Michigan state government finds itself, on a one-time basis, with a $325 million budget shortfall.

Services have to be cut? A few people might have to be temporarily laid off? It happens — companies in the private sector do stuff like this all the time when revenues don’t quite come in as expected. It’s never popular and it’s never fun, but it’s what you have to do. This hasn’t been a pattern for state government since a certain former governor, Jennifer Granholm, headed off to California.

“We’re starting to pay for the sins of the past,” said Rep. Al Pscholka, R-Stevensville, chairman of the House Appropriations Committee. “Now what we’re seeing is the bill is coming due.”

Not surprisingly, Democrats go on to say that Snyder has been no slouch at giving out tax credits either. Generous incentives designed to attract and bring about expansion of business has long been a bipartisan game, and not just in Michigan. States up the ante on each other, each one trying to offer the most generous package of giveaways and goodies to get businesses to stay or to come.

And when someone points out that it would be much better policy to just maintain a simple, non-oppressive tax code with low rates evenly applied to everyone, the response is usually along the lines of, “We can’t unilaterally disarm! If other states are going to do it, we have to do it!”


Why do we “have to do it” if one of the results of doing it is to be stuck with an unexpected budget deficit, brought about by a company laying claim to the very large and perfectly legal tax credit politicians promised? “Everybody’s doing it” doesn’t sound so smart. Whatever benefit was enjoyed by this unknown company coming here (or expanding, or just sticking around) seems awfully muted now that their cashing in on the promise is throwing Lansing into a budgetary meltdown.

Tax credits are at best a double-edge sword and at worst a foolhardy game that sometimes provides a momentary reward but costs the state a lot more in terms of revenue uncertainty and an uneven application of its tax laws.

If that’s the case, Republicans need to use their massive majorities in the House and Senate to get rid of all such incentives. They can simply adopt a business tax code that’s simple, with low rates, and doesn’t change the rules for companies that do certain things politicians want them to do. Everybody pays the same low rate no matter what they do. End of story.

Having identified the problem and promptly blamed it on our dear departed Democratic governor from the Lost Decade gone by, and having successfully won not only the governor’s mansion but massive legislative majorities in every election since she left Lansing, the GOP surely has no conceivable reason to leave this troublesome system in place. Right?

We should expect Republican leadership to sponsor the legislation ending these foolhardy giveaways within a week or so. Correct?

I, for one, can’t wait.

Dan Calabrese is a longtime contributor to The Politics Blog.