- - Tuesday, March 12, 2019

ANALYSIS/OPINION:

Emboldened by their success at running Amazon out of New York City, left-leaning political activists apparently have discovered that corporate subsidies and handouts are bad policy. It’s about time.

The academic literature on the subject clearly shows that there is little long-term relationship between corporate subsidies — whether reduced taxes, tax rebates or outright grants — and increased economic growth. At best, the handout game is an expensive distraction.

Indeed, as Wisconsin taxpayers are now realizing as they see former Gov. Scott Walker’s troubling Foxconn deal flounder, the promises made when these deals are announced are rarely achieved. It’s time for a bipartisan consensus to eliminate the handouts.

Michigan is a case in point. Since 2001, Michigan lawmakers have approved 71 legislative proposals — establishing and amending the Michigan Economic Growth Authority (MEGA), the Michigan Economic Development Corporation, the 21st Century Jobs Fund, and amending the state business tax — that together authorized the expenditure of more than $16 billion in business subsidies. That means the legislature authorized an average of nearly $1 billion per year in business “incentives” since the year 2000.

During that time, our state produced zero net new jobs; in fact, we lost more than 200,000 jobs. So much for the effectiveness of the subsidies.

Not all of the available grants and tax incentives were claimed, of course. In 2017 , for example, state officials handed out “just” $86.2 million in taxpayer funds in 86 deals. The deals were projected to produce 12,200 new jobs. While overall employment in Michigan increased by 52,000 in 2017, the 86 subsidized projects, even if they eventually meet all of their projections, will be responsible for less than a fourth of the total. The remaining 77 percent were produced without any taxpayer kickbacks.

Michigan is not the only state in the subsidy business, of course. Virtually every state is, to one degree or another. Texas, for example, is notorious for its incentive program — the Texas Enterprise Fund — which “awards ‘deal-closing’ grants” (i.e., taxpayer funds) to companies considering whether to locate in Texas or elsewhere. The program is considered highly successful. And in 2017, Texas closed 12 deals involving $28.6 million in grants and some 10,640 “promised” new jobs.

Yet, when it came to actual economic performance, the 12 deals at best produced a comparatively modest number of jobs when compared to the overall increase in employment in Lone Star State in 2017, about 213,300. In other words, Texas taxpayers — like Michigan taxpayers — paid significant amounts of money to subsidize the creation of a relatively miniscule number of jobs.

If such handouts made any meaningful difference, one way or another, it’s hard to tell. We actually have estimated that Michigan has lost 600 jobs for every $500,000 paid out in subsidies. We’re not implying that the subsidies caused the job losses. What we are saying is that other factors obviously are far more important to job creation.

Despite the fact that there is no evidence incentives work, state lawmakers plow ahead. Wisconsin, for example, pledged $11.9 million in “refundable” business tax credits to 31 companies in 2017, on the promise that the companies would add 2,100 new jobs. What, if any, impact the tax credits had on Wisconsin’s economy is debatable, since the state added just 18,300 net new jobs during the entire year, underperforming both Michigan and Texas.

There are two important lessons here for liberals and conservatives alike. First, the fact that job announcements aren’t jobs. Companies receiving subsidies based on “new job” targets often don’t meet their commitments. Here in Michigan, for example, state auditors found that companies created just 19 percent of the jobs they had promised under a previous economic development program.

Lesson number two: The minuscule impact that economic development subsidies have on job growth indicates that economies are driven by the basics — location and quality of infrastructure, a fair regulatory process, efficient spending and lower overall tax rates — not by subsidies.

Even if they don’t drive growth, business subsidies do serve one function: They provide politicians an opportunity to show that they’re “doing something” about jobs.

Lawmakers justify corporate handout programs as necessary to compete with other states, whose politicians make the same argument. If these programs are weapons in a war for jobs, it’s clear that they shoot blanks.

• James Hohman is director of fiscal policy at the Mackinac Center for Public Policy, headquartered in Midland, Michigan.

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