Sunday, September 13, 2009

Learning from the Failures of other States

If you spend much time watching business or news networks such as CNBC or FOX, you may have noticed a commercial promoting Michigan as a good location for business owners to conduct business. For the past several years, Michigan's political leaders have offered $3.3 billion in tax credits through the Michigan Economic Development Corporation, and spent another $1.6 billion in outlays to create and retain jobs. The subsidies include tax breaks for film production, funding for new industrial plants, and millions for the nationwide TV ads starring celebrities talking about business and tourism to Michigan.

Upon seeing the ad, and aside from thinking about how wasteful it is for state government to spend money on television commercials, I seriously question how the politicians in Michigan can so aggressively insult the intelligence of American business owners.

Even though I live miles from Michigan, I know all too well that the state has one of the most business unfriendly tax climates, and I would never consider locating a business in that hostile business environment. In 2007 alone, Michigan raised business taxes by $1.4 billion. It does not matter how much money they want to spend on first class television commercials. it is hard for them to cover up the truth.

A recent article in the Wall Street demonstrated just this point. The article stated that Michigan's program is "one of the largest experiments in smokestack chasing in American history, but one thing it hasn't done is create jobs."

The article also pointed to a study by Economist Michael Hicks, a business school professor at Ball State, in which he calculated the rate of return on the corporate tax credits. He found that for every $1 million in tax credits awarded, there were 95 manufacturing jobs lost in the counties where the companies were located, and there was no gain in personal income in those counties. Fortunately, these massive failures in Michigan may mean good news for states like Oklahoma.

For years, state level politicians across the nation, including Oklahoma, have engaged in a foolish arms race by spending millions of state dollars in a recruiting war for offering tax incentives for new businesses. These incentives punish business owners who are already here by giving their new competition an unfair advantage and opens the door to corruption and massive amounts of waste.

High profile failures like Michigan will make it easier for those of us who oppose these schemes to win the critical votes when the next tax giveaway is presented in the Legislature (it seems like some sort of new scheme is concocted or expanded on each year).

By saying no to these types of schemes, perhaps we can focus the attention of Oklahoma's leaders on the polices that will result in true economic development while treating those who currently have businesses in Oklahoma in an even handed manner. What really should be implemented is across-the-board tax reduction for everyone.

No comments: