Wednesday, December 17, 2008

Michigan: $3 Billion in Business Subsidies

According to the Mackinac Center for Public Policy:

1. April 18, 2005 marked the 10th anniversary of The Michigan Economic Growth Authority (MEGA), a program established by Michigan government with the mission of spurring in-state job creation and business investment. The authority is the state of Michigan’s agent for selecting firms to receive Single Business Tax credits in return for creating new facilities and jobs in Michigan.

2. The incentives offered through MEGA packages total more than $3 billion since the beginning of the program (through 2005). These incentives include state tax credits, local abatements and other state and local inducements, such as job training and road improvements.

3. The largest local incentive was $165 million over 25 years to General Motors in June 2000. General Motors has been the direct beneficiary of six MEGA deals, by far the most of any corporation. Additional MEGA deals have been concluded with GM suppliers as part of an overall package benefiting GM.

Here's an example of one MEGA deal that provided GM with almost $100 million of incentives in 1999 ($127 million in today's dollars) to build a new Cadillac factory in Lansing, Michigan (thanks to Jim for the link).

Bottom Line: It's not just the foreign transplants that have received generous state subsidies for building new plants; Michigan has doled out $3 billion of taxpayer money to attract business investment, and GM and Ford have both been the recipients of Michigan taxpayers' largesse.


At 12/17/2008 11:38 AM, Anonymous Anonymous said...

Isn't it interesting - even amusing - that conservatives have always incessantly decried government welfare for indigent individuals, but have silently looked the other way when massive abatements or grants have been bestowed upon large wealthy corporations. The latter is substantially more expensive.(The only exception seems to be the proposed big 3 bridge loans.) Why haven't true purist capitalist devotees been equally critical of both kinds of welfare(individual and corporate)? Could there possibly be any hypocrisy in the neo-con religion?

At 12/17/2008 12:01 PM, Blogger Monkeesfan said...

No Mika, it isn't interesting, because corporations produce wealth; indigent individuals don't.

At 12/17/2008 12:07 PM, Blogger Mark J. Perry said...

Mika: The libertarian/conservative Mackinac Center, the source for the information provided in the first part of the post, has been very critical of this type of "corporate welfare."

At 12/17/2008 12:17 PM, Anonymous Anonymous said...

Whoa, Jennifer Granholm is a convert to the "neo-con religion"? Who knew. It looks like Barak Obama, Chuck Schumer, Harry Reid and Nancy Pelosi also worship at the altar of the "massive abatement". But just how "costly" is this? Let's look at the massively abated oil industry:

"Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues—more than twice the amount of domestic profits earned by major U.S. oil companies during the same period ..."

Exxon has already paid $19.828 billion in income taxes for 2008 (data here), and will probably pay almost $40 billion in income taxes this year (see graph above, income tax data for 1999-2007 taken from Exxon's annual reports).

To put $40 billion of income taxes in perspective, it can be reasonably estimated that Exxon will pay more in income taxes this year (both here and outside the U.S.) than the entire bottom 50% of American individual taxpayers (about 67 million) will pay in income taxes this year.

Only a liberal looks at letting an industry or individual keep more of what they earn as a "cost". And shouldn't the "subsidies" have to exceed the revenue to the government before we call it welfare? Remind me again, how much does the government collect from those "indigent individuals"?

At 12/17/2008 12:19 PM, Anonymous Anonymous said...


Manufacturing produces wealth by adding value at every step in the supply chain. For example, we take a $15 piece of flat sheet metal and turn it into a $300 hood using about $5 worth of direct labor. Not a bad deal at all for the capitalists is it?

When we focus on making business decisions on information like that instead of an arbitrary and capricious value system of how much someone is worth to society for bolting on a fender, our objectivity pays off.

At 12/17/2008 12:47 PM, Blogger Unknown said...

Also, keep in mind things aren't isolated to the Auto industry or Michigan versus the South. Every state offers some sort of incentive to attract business.

Ohio gave about $232M (although all-in tax braks were closer to $280M) to DaimlerChrysler. This was done to entice an expansion the Toledo operations.

NYTimes: Tax Break from Ohio for DaimlerChrysler

I'm sure this figure is very high due to the fact that $500M tax breaks were available in a Southern states... so Ohio has to be somewhat competitive. $232M from Ohio wins out versus the increased costs, investment dollars, and business impact that would have resulted if Chrysler were to try expanding operations to the South.

Outside of the automakers, you have all industry getting some bait to keep jobs. Kansas gives out a few million to keep some health-care jobs in the state.

BNET: Tax Breaks in Kansas for BCBS

And Iowa is trying to attract some tech jobs from Seattle by using tax breaks to lure investment for data centers from Washington.

Data Center Knowledge: Tax breaks from Iowa for Data Centers

At 12/17/2008 1:03 PM, Blogger Unknown said...

As a followup... Iowa ended up winning a bunch of investment dollars and tech jobs after dangling their carrot.

Information Week: Iowa Data Centers

Excerpt: ...Google (NSDQ: GOOG) is investing $600 million in an under-construction data center in Council Bluffs that's slated to go into operation next year. Now,Microsoft (NSDQ: MSFT) plans to build its own data center 130 miles to the east, in Des Moines...

My favorite part of the article: Why central Iowa? Des Moines features "strong fiber connections, low-cost power, and good local infrastructure," says Mike Manos, Microsoft's general manager of data center services. Yet "where" isn't the biggest issue. With IBM, Google, Microsoft, and others pouring capital into infrastructure, companies want to hear the "what" and "when" about the cloud-computing services these vendors will offer.

If you net MSFT's cash flow from operating and their investment cash flow - they had about $17B of positive cash flow for the year ending June 30, 2008. And I'm sure no tears are shed on the struggles with GOOG.

I believe Iowa wins out since they're trying reinvent the state economy although it's debatable if they're actually doing a benefit for America and her combined economy.

At 12/17/2008 2:49 PM, Anonymous Anonymous said...

Mark J. Perry,

Glad to see you do visit here. There is another problem on our horizon which is Banks taking TARP money and NOT leanding!

When will the Fed understand Interest rates are NOT the problem. The problems are the Banks not living up to the present loan commitments they have. Commercial Lenders are throwing up road block after road block to hold up lending. Buy-down request after buy-down request. Debt- Ratio changes and Contract mandates that are 100% BS.
The Banks are killing us out here. Soon we are all going to be GM before the fed figures out the Banks anti-lending issues.
The Fed. Should take back the money from Banks who are NOT living up to their loan commitments.

I am hearing B of A just stopped all Commercial RE lending. They were about the only ones doing any.

Sacramento Republic Of CA.

At 12/17/2008 6:31 PM, Blogger Monkeesfan said...

Walt G. - I understand that about manufacturing, but I'm tired of the bashing of "corporate welfare" that goes on. We need intelligent conversation about issues like this; the screaming of people like Mika has dominated the discussion far too much and added nothing to it.

At 12/17/2008 9:19 PM, Anonymous Anonymous said...

I look at all the government initiatives to bring in business and it seems to me, it's the equivalent of not watering your house plants except for the expensive one. I love the story of Buck Knives looking to flee Kulifornia and bypassing Oregon for Idaho. Oregon even offered to sweeten the deal with deferred taxes, but cheap land and labor won.

At 12/18/2008 12:32 AM, Anonymous Anonymous said...

Isn't this a logical outcome of federalism?

States are competing with each other for tax base, taxpayers, etc. So it should be hardly a surprise that states give away billions to business and impose regressive taxes on individuals.

At 12/18/2008 12:34 AM, Anonymous Anonymous said...

Mika said:

"sn't it interesting - even amusing - that conservatives have always incessantly decried government welfare for indigent individuals, but have silently looked the other way when massive abatements or grants have been bestowed upon large wealthy corporations."

Neither interesting nor amusing; only a logical outcome under federalism.

At 12/18/2008 12:37 AM, Anonymous Anonymous said...

Monkeestan said:

"No Mika, it isn't interesting, because corporations produce wealth; indigent individuals don't."

Fortunately, conservatives also know how to reduce poverty - tax it!

Reagan takes the prize for his brilliant idea to effectively tax the earnings of welfare recipients at 100 percent.

And then conservatives


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