Why do we need the program?
Michigan competes against other states (and nations) for jobs and investment. Most of these states have business and tax climates as good or better than Michigan’s, but offer more generous economic incentives than we do. For example, Michigan’s competitor states spend as much as seven times more annually than we do on economic incentives and we are one of only two states – the other being Alaska – with a corporate income tax that doesn’t offer businesses tax credits (Nevada, South Dakota, and Wyoming offer no tax credits, but they have no corporate income tax). Michigan has done well with the tools it has – averaging 133 jobs per project – but lacks the ability to attract larger projects that have a greater potential to diversify the economy and accelerate growth.
Isn’t this recreating the old MEGA program?
No. Unlike the MEGA program, the proposed program is not a refundable tax credit and does not incentivize job retention. The Good Jobs for Michigan program allows qualifying businesses to capture a portion of the Personal Income Tax attributable to the new jobs being created. The program would be limited to only 15 projects each year and the total value of incentives awarded could not exceed $250 million at any one time. Finally, details of each project agreement would be required to be publicly disclosed. It’s simpler, performance-based, transparent, and predictable.
Aren’t the Business Development Program’s (BDP) cash awards sufficient to compete against other states?
The MEDC’s BDP program has allowed Michigan to successfully compete for small and medium-sized investments, but it would be fiscally unrealistic and unwise to scale the program to compete for large investments. For example, General Electric’s corporate headquarters relocation secured incentives from the State of Massachusetts that are over twice the size of Michigan’s entire BDP budget for one year. In addition, it is better to award such large projects tax incentives that have to be earned each year rather than award large amounts of up-front cash. This is standard practice in nearly all states.
How does the proposed incentive compare to those offered by other states?
It helps level the playing field. Today, Michigan is one of only two states with a corporate income tax that offers no state job creation tax credit or incentive programs and our biggest competitors offer up to seven times more incentives. The proposal comes close to matching similar programs in states like Indiana and Ohio that use the personal incomes taxes generated from new job creation as an incentive.
What happens when businesses don’t live up to the jobs they promised to deliver?
Incentives will only begin after verification that the company created the jobs promised, and the jobs must be maintained annually for the incentives to continue for the life of the contract.
Isn’t this picking winners and losers by taxing some companies differently than others?
This incentive is not favoring one type of industry over another or one type of technology over another. This is about bringing even more high-paying jobs to Michigan.
But what about small businesses – how does this help them?
Michigan has taken important steps to improve the small business climate in the state, including eliminating the Michigan Business Tax and enacting Personal Property Tax reform. In addition, the state has existing tools to help small business compete, including the current cash incentives that are available. What the state lacks is a tool for larger projects, and that is what this proposal is intended to address. It’s not a question of providing one over the other – we need both.
Won’t this program reduce the amount of revenue the state has to dedicate to other important priorities such as education and public safety?
No, the program will generate net new revenue to the state, schools, and local communities. Incentives will only be awarded for new jobs that wouldn’t have located in Michigan but for the incentive – the incentive will come from revenue that Michigan would not have otherwise received. While the state will forego some personal income tax revenue from these investments in the short-term, these revenues will accrue to the state over the long-term. In addition, the state, our local schools, and communities will benefit from increased property tax and sales tax revenues from increased economic activity.
Estimated incremental state revenue from a project adding 500 new jobs at an average annual wage of $50,000
Source: Anderson Economic Group, 2017.