Why Do Politicians Prefer Targeted Tax Breaks?

You've got to hand it to the folks at the Mackinac Center for Public Policy. The free-market think tank in Midland (MI) keeps churning out studies that criticize the effectiveness of Michigan's economic development incentives, even though those reports are met mostly with indifference in Lansing.

Its latest study, finds that between 1995 and 2004, the Michigan Economic Development Corp.'s main business tax credit program generated just 17,971 of the 61,043 jobs the credits were expected to produce.

As it has several times in the past, the Mackinac Center is calling for the state to eliminate the MEDC and its Michigan Economic Growth Authority (MEGA) tax credit program. "You could shut down the department itself and we would be no worse off than we are today," said study author Michael LaFaive, director of fiscal policy at the Mackinac Center.

A scathing Wall Street Journal editorial on Sept. 4, agreed. Citing the Mackinac Center study, the Journal asked if the MEGA tax credits might better be called "cash for clunkers." The Journal editorial, though, ignored the fact that every state employs some kind of economic development incentive.

The Mackinac Center's core belief is that Michigan should end targeted tax breaks and lower business costs across the board. But shuttering the MEDC is about as a likely to occur as the Detroit Lions winning the Super Bowl this year. Created by Republican Gov. John Engler in 1999, the MEDC enjoys wide bipartisan support and has been strongly endorsed by Democratic Gov. Jennifer Granholm.

~Michigan business writer Rick Haglund

MP: There's a very good reason: a) why every state including Michigan has targeted tax breaks for targeted economic development, b) why those targeted incentives enjoy wide bipartisan support, and c) why targeted tax breaks and incentives are preferred over non-targeted, across-the-board lower business costs.

Q: What is the reason? Hint: It has nothing to do with economics, and everything to do with pure politics and photo opportunities.