Study: Some targeted Michigan tax breaks not as effective as possible broader alternatives

Study: Some Michigan tax breaks not very effective

LANSING, Mich. — Some of Michigan’s targeted business tax incentives aren’t effective when compared to possible broader tax-relief alternatives, according to a study released Thursday.

The report from the East Lansing-based Anderson Economic Group was commissioned by the Michigan Education Association, the state’s largest teachers union. The MEA says eliminating ineffective tax incentives could free up resources for education and other programs aimed at improving the state’s economy.

“Michigan is struggling economically,” said Patrick Anderson, CEO of the Anderson Economic Group. “We can only afford to pursue the most effective tax-abatement programs.”

The Michigan Economic Development Corp. defended the state’s tax-incentive programs Thursday. The economic development agency, which helps coordinate many of the incentive programs, noted Michigan finished third in Site Selection magazine’s ranking of states with the most major new corporate facilities and expansions in 2009, trailing only Ohio and Texas.

Anderson’s study reviewed eight of more than 30 Michigan tax-incentive programs. The effects of each program were compared to what might happen if a broader tax cut of equal value was made available.

The report said some of Michigan’s tax incentives are comparatively effective at creating jobs and boosting tax revenue, including industrial property tax abatements and a program that helps rehabilitate obsolete property. The tax breaks target broad classes of businesses across the state.

Some other state tax-incentive programs showed mixed results or have relatively small economic benefit. Those include a brownfield redevelopment incentive and a commercial property rehabilitation tax abatement.

Others are counterproductive, according to the report, because they subsidize businesses that aren’t likely to be long-term.

Michigan’s film industry credit refunds 40 percent to 42 percent of a company’s qualified expenditures, one of the nation’s most generous giveaways. The program has brought business and attention to the state, but critics contend most of the jobs are temporary and last no longer than it takes to film a particular movie. Anderson said the program, which could cost Michigan more than $150 million in incentives this year, leaves little to show for the investment.

“We may have no more than one or two buildings and a whole lot of ‘Clint Eastwood slept here’ signs,” Anderson said.

The state’s economic development corporation counters that the film credits have been “broadly successful” and will pay more dividends as the industry continues to build in Michigan.

The report also questioned the overall effectiveness of low-tax or tax-free “renaissance zones” and some Michigan Economic Growth Authority tax credits, which target specific businesses that have expanded significantly in recent years. Requirements for businesses to earn the tax breaks have been lowered in some cases.

Lawmakers keep expanding the credits to new types of businesses in the hopes of keeping more jobs in the state, which has had the nation’s highest unemployment rate for nearly four consecutive years. Some of the most recent types of tax breaks, including those for advanced battery production, aren’t included in the new study because they haven’t existed long enough to measure results.