Column: Tesla debacle will haunt state
When it comes to manufacturing jobs, Michigan might be its own worst enemy.
Tesla Motors plans to build a new factory for its Model Y crossover SUV, which could translate into thousands of manufacturing jobs. The company is likely to consider Arizona, California, Nevada, New Mexico and Texas as the site of the plant.
As you can tell, Michigan is not on the list. In 2014, Gov. Rick Snyder signed the controversial House Bill 5606, which prevents Tesla from selling its electric cars through company stores without a dealership network. More recently, the Michigan Secretary of State’s office denied Tesla’s request for a dealership license, leading the company to sue the state and request documents related to the passage of H.B. 5606 — now known as the “Anti-Tesla” bill.
It’s safe to say that Michigan isn’t the friendliest business environment. Both Forbes and U.S. News and World Report rank Michigan among the bottom half of states in terms of its business environment. A separate CNBC report ranks Michigan 30th for its “business friendliness”—behind high-tax strongholds such as Massachusetts and Connecticut.
Closing the door to business carries tangible consequences. Tesla’s California plant, for example, already employs more than 10,000 workers and the company is expected to hire 4,400 new employees in the state through 2019. Why would Michigan take itself out of the running for thousands of jobs?
Adding new companies like Tesla is exactly the jolt the Michigan economy could use. According to the National Association of Manufacturers (NAM), $1.81 is added to the economy for every $1 spent in manufacturing. NAM also estimates manufacturing’s total multiplier effect to be $3.60 for every $1 of value-added output, with one manufacturing employee generating another 3.4 workers on average somewhere else.
But these jobs will never come to Michigan. The state government has instead chosen to vilify the company on behalf of the traditional automobile lobby. When it comes to job creation, states like Michigan need to look to their future instead of protecting their past.
Fortunately for the broader U.S. economy, other states are doing better at keeping cronyism at bay. Low-tax, low-regulation business environments that incentivize businesses to invest are integral to job creation and economic growth.
This basic principle must be applied in Michigan and nationally. President Trump’s proposal to slash the corporate tax rate, for example, would make the United States more competitive and a likelier destination for business investment. The federal corporate tax rate is 35 percent, the highest in the developed world. Taking double taxation into account, American corporate income is actually taxed at more than 55 percent, placing U.S. companies at a severe competitive disadvantage. Ireland, on the other hand, boasts a 12.5 percent rate, making it a more attractive place for American companies looking to expand their business and create more jobs. According to the Tax Foundation, a 15 percent corporate tax rate would boost U.S. economic output by nearly four percent and could lead to 613,000 new jobs.
Congress must follow the president’s lead and make tax reform a reality. The White House has already pursued free-market reforms through executive fiat — the Paris climate rejection comes to mind — but the onus is now on legislators to act on their mandate.
Those in Michigan should do the same and prioritize pro-business — that is, pro-jobs — policies in our state. If the Tesla debacle is any indication, working Americans lose out when state politics replace common sense.
Michael Clark is the Reemelin Chair in free market economics at Hillsdale College.