In his recent speech calling for legislation to stop corporate inversions, President Obama added fuel to the misperception that when a company moves its headquarters to another country it avoids paying U.S. taxes. He...
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Governor Granholm's Energetic but Futile Effort to Buy Jobs
The Washington Post has published a fascinating profile of Michigan's energizer bunny of a governor, Jennifer Granholm. From dawn to dusk she never stops trying to "create jobs," usually with tax credits.
Alas, governors can't buy prosperity, and every job she does buy with state money destroys at least that much economic activity somewhere else in the state, making it harder for the state to actually recover. In the meantime, she's not attending to what her job is supposed to be, the less glamorous tasks of making state services more efficient and state laws more sensible.
The most telling example cited in the article is probably this "success story":
Her quick focus pleases businessmen such as David Hardee, top executive of California-based Clairvoyant Energy, who encountered Granholm at a meeting after spending three months negotiating with her economic development officials over a green-energy development.
"We were on the third slide and she politely interrupted and said, 'I get it. What do you need? I'm here,'" Hardee said.
With a tax incentive package worth more than $100 million, Michigan beat out Arkansas, Missouri and Oklahoma, as well as Spain, in getting Hardee's company and two other alternative-energy firms -- one from Texas and one from Switzerland -- to take a factory that once made the Lincoln Continental and Ford Thunderbird about 40 miles northwest of Detroit in Wixom and turn it into a solar panel and battery storage pack manufacturer employing 4,000 workers.
The Washington Post should really do better than to refer to the price tag as "over $100 million" because $150 million, $250 million, and $500 million are all "over $100 million," but let's assume it's really just slightly over, say $120 million. That means Gov. Granholm committed the state to pay three companies that have never paid Michigan taxes roughly $30,000 for each job they move into the state.
Since state spending is notoriously uncuttable, largely due to legally binding union contracts and the long-term nature of state investments in roads, prisons, etc., that $120 million tax gift has to be funded by other Michigan taxpayers. What would they have done with $120 million if Gov. Granholm weren't funneling it to these newcomers? Those longtime Michigan taxpayers would have spent the money on productive things like salaries to their employees and investments in better products.
This is the age-old economic problem of the seen versus the unseen. Mr. Hardee's new location in an abandoned Ford plant is seen (in high-tech pics featuring the governor), but the economic activity destroyed among the state's taxpayers is unseen.
The typical pattern after such "job creation" purchases is:
- far fewer jobs appear than were promised;
- the tax incentives turn out to be far more generous than advertised (see recent scandal about Iowa's film tax credits, a type of tax giveaway that Michigan has indulged in to a remarkable degree); and
- the state's politicians distract the public's attention from the failure of previous job creation deals with new ones.
The bottom line is that politicians should focus on the nuts and bolts of government, which does not include gallivanting around the globe searching for companies to bribe.
The Tax Foundation recently ranked states' tax systems, rewarding states that have fewer of these giveaway "economic development" boondoggles.
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