Lay Your Weapons Down

Last Friday Governor Granholm focused her weekly radio address on the Michigan Economic Development Authority (MEGA), and called for help in keeping the program running. MEGA, which offers tax breaks as an incentive to draw employment to Michigan, has already reached its legal limit, and cannot offer additional tax breaks for the remainder of the year. Speaking of MEGA Granholm said:

Their efforts have been so fruitful that they’ve used up almost all the MEGA tax credits available this year under present law.  If Michigan can’t award more credits until next year, we could miss out on tens of thousands of new jobs and even lose existing jobs.

How much one can give away is not a good measure of economic effectiveness. I could walk outside right now and hand out money from my own wallet to people walking by on the street, but I have not made the economy more ‘fruitful’. I have not gained any goods or services from this transaction. I could have used that money to commission a new piece of furniture, and not only would I have given money away, one more chair would have come into the world.

MEGA has proven to be unfruitful and inefficient. A 2007 report by the Mackinac Center found that for every $123,000 in MEGA tax incentives, only one construction job was produced – jobs that lasted only two years.

Gov. Granholm also stated:

MEGA tax credits are performance-based. That means that a business can use the credit only if it creates or retains a certain number of jobs.

Again, the Governor has fallen for a fallacy. Creating jobs is not economic performance. It is the creation of goods and services that increases wealth. Simply creating, or retaining jobs does not increase wealth.  MEGA has not been creating very many jobs either. The Mackinac Center found that over a ten year period of operation, only 13,541 jobs could be attributed to MEGA; very different from the 62,000 Governor Granholm is claiming it created or retained in just this past year.

The Governor concluded:

Expanding the number of MEGA tax credits will enable us to bring thousands of new jobs to Michigan, which we need right now obviously.  I urge the state Senate to quickly pass House Bill 4922.  Virtually every other state is out there competing for these companies with incentives.  With the competition for jobs so fierce, Michigan can’t afford to be without one of its key economic development tools for very long.

This gets at the heart of the issue. States across the nation are taking taxpayer money and using it to entice businesses to shuffle around the country. State governments need to stop wasting our money by building bigger and bigger programs to fight with each other. Its time to disarm.

Adam Rule – MCPP Intern


2 thoughts on “Lay Your Weapons Down

  1. No one can deny that these facility locations are parts of economic growth. You can point to it, count the jobs, herald it as a positive. But the dynamic nature of the economy makes even the opening of the largest plant seem insignificant. In Michigan, there’s a quarterly turnover of about 6.5 percent–over 200,000 jobs gained and lost every three months. That’s like having two Grand Rapidses being hired and fired every three months. Programs like MEGA are not setup to address the speed and volume of the kind of change that goes on in the economy.

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