Drolet: Corporate welfare undermines broad tax relief
Filing tax returns is a painful reminder to most taxpayers of how much of their income is skimmed by government. But for a privileged few, tax policies are artfully twisted to allow politically connected elites to shield themselves from taxes everyone else must pay. Critics call it corporate welfare — and recent activity in our Michigan Legislature illustrates how entrenched, bipartisan, and ongoing corporate welfare policies are.
Last month the House narrowly rejected cutting the state income tax paid by all taxpayers from 4.25 percent to 3.9 percent — a cut promised in 2007 when the tax was “temporarily” raised. That same week, legislation creating hundreds of millions of dollars in additional tax handouts for Detroit businessman Dan Gilbert and a few other large developers passed the Senate with bipartisan support.
That effort isn’t the only new corporate welfare scheme heating up in Lansing. Other new legislation supported by Business Leaders for Michigan was introduced in the Senate. The legislation would halve the state income tax — but only for the most rapidly expanding companies in Michigan.
Opponents of the broad-based income tax cut for all cited a hole in the state budget created if the cut happens, yet that objection is rarely invoked to oppose corporate welfare policies. Former Govs. John Engler and Jennifer Granholm, and Gov. Rick Snyder, received wide legislative support for many tax cuts benefiting narrowly-targeted, politically-favored corporations — resulting in billions in forgone state revenues.
Engler created the state’s corporate welfare department — the Michigan Economic Development Corp. — to compete against business incentives given out by other states. Granholm tripled-down by borrowing $400 million and appropriating tens of millions more to create the 21st Century Jobs Fund, where a panel of government “experts” dole out that money to selected “job creators.” Granholm famously declared we would be “blown away” by the results.
Instead the policies’ benefits are overblown: Studies declaring the program a success are usually paid for by the state’s own corporate welfare department, the MEDC. Research by the Mackinac Center for Public Policy has challenged MEDC’s claims and provided evidence that painfully few jobs were created by the handouts. Gov. Snyder has admirably scaled back these policies, but hasn’t fully eliminated them.
I have an embarrassing confession: When I served in the House from 2000 to 2006, I supported legislation creating narrowly-tailored tax cuts. I believed any tax cut was better than no tax cut, but I preferred wide, broadly-applied tax cuts. I voted for smaller tax incentives that were too narrowly-targeted. I was wrong.
Over time, I realized narrow and targeted tax cuts create more harm than good. They mostly serve to enhance the power of the political class by allowing lawmakers to decide which companies win and which lose. This power incentivizes businesses to serve politicians instead of customers. I also learned the proliferation of these limited tax breaks undermine efforts to enact broad based, democratic tax relief.
The cost to repay money borrowed for the dubious 21st Century Jobs Fund and other MEDC giveaways was at least $1 billion in the 2016 state budget and is more than $500 million next year, according to House Tax Policy Committee testimony by the state treasurer. In 2007, the state raised the tax on your income from 3.9 percent to 4.35 percent, helping fill budget holes created by that borrowing and other MEDC handouts.
House Speaker Tom Leonard and other House leaders tried to honor Granholm’s promise that the income tax hike was “temporary” by cutting the rate back. Their effort failed by two votes due to critics contending the state cannot afford to let you keep any more of your earnings. At the same time, legislation creating new special tax benefits for Dan Gilbert and a select few others sailed through the state Senate with bipartisan support.
Leon Drolet is a Macomb County Commissioner and chair of the Michigan Taxpayers Alliance.