Landmark study finds some highly-touted
Michigan tax incentive programs ineffective
EAST LANSING, Mich., March 4, 2010 — An independent study of the effectiveness of Michigan’s key business tax incentives being released today provides, for the first time, an objective comparison of existing programs that taxpayers and policymakers can use to assess whether specific incentives are worth the tax dollars devoted to them.
“This is a landmark study that shows which tax incentive programs work, and which ones don’t," said Patrick L. Anderson, principal and CEO of the Anderson Economic Group, which conducted the study. "For the first time, we have an independent estimate of the jobs and tax revenue that are gained or lost as a result of these specific programs.
“The results clearly indicate that eliminating ineffective tax incentives would result in more jobs for Michigan workers and more revenue available to state and local governments. Moreover, tax incentives cannot be the cornerstone of our economic recovery plan,” he added.
The study analyzes eight specific tax incentive programs – including the well-known MEGA credits, film credits, and PA 198 industrial property tax abatements – and provides quantitative estimates of the costs and benefits of the programs to the taxpayers. It found that two of the programs had generally positive results, yielding more jobs and tax revenue for Michigan. Three had mixed or small returns on the state’s investment. However, three programs showed significant negative results. The study's authors estimate that, after three years of operation, these three programs cost the state almost 25,000 jobs and $85 million in tax revenue per year when compared with an alternative policy of a small change in tax rates.
“We need balanced solutions in Michigan that look at the full impact of our public policy choices, instead of sacrificing our future for short-term fixes,” said Iris K. Salters, president of the Michigan Education Association, which commissioned the study in partnership with the National Education Association. “This research finally provides a tool to measure the effectiveness of tax incentives so we continue with those that work – and stop spending money on those that don’t.
“Instead, those dollars would have a far greater impact if they were invested in public education and the preparation of a high-tech workforce that is essential for job growth,” she added.
The study provides a blueprint for taxpayers and policymakers to use in examining the effectiveness of incentive programs, and it emphasizes the fact that tax incentives are effective only if they deliver more jobs and tax revenue to the state than they divert from the taxpayers and employers that support them.
“It’s important for taxpayers to know that their tax dollars are being invested wisely,” Salters said. “This research provides a basis to make those judgments. Legislators should require an annual, full accounting of business tax incentives that clearly shows the effectiveness of these programs.”
To provide a sound, social science research base for this study, the various economic effects of each incentive program were compared to those of an alternative policy – the elimination of the incentive in question in favor of a reduction in the applicable tax rate. It is important to note that the study does not advocate for this alternate policy position – it merely uses it as the standard base from which to measure tax incentive effectiveness.
The report puts the eight incentives studied into three general categories:
The study is the second phase of a three-phase research plan. The phase I report was released in May 2009, providing an inventory of tax incentives and uncovering the troubling lack of transparency and data about incentives. The third phase will be an annual report that will include updated information about tax incentives, their effectiveness and other relevant information. Read the full 61-page report, including data tables and a methodology description (along with the phase I report from last year).
# # #
About Anderson Economic Group, LLC (www.AndersonEconomicGroup.com)
About the Michigan Education Association (www.mea.org)
Contact:Patrick Anderson (Principal and CEO), Ted Bolema, or Alex Rosaen, Anderson Economic Group, 517-333-6984
Doug Pratt, Director of Communications, Michigan Education Association, 517-337-5508
Updated: March 4, 2010