Friday, September 3, 2004

A Blow to Corporate Welfare

In an interesting federal appeals court decision yesterday, many state programs which offer tax breaks and other incentives for business to stay in Michigan may be unconstitutional.

The 6th US Court of Appeals, which covers Michigan, Ohio, and several other states, ruled that a $300 million incentive package that the state of Ohio offered to DaimlerChrylser to keep a plant in Toledo is unconstitutional. Basically, the decision said that such tax breaks and incentives interfere with interstate commerce, which only the federal government can regulate.

It's an interesting and difficult argument, but apparently it worked. This means that similar programs in Michigan will come under the legal microscope.

Why does GR Pundit care about this? Because the state of Michigan, through such programs as the Michigan Economic Development Corporation, is regularly in the business of providing special tax breaks and other corporate welfare programs to keep business here. It makes it an uneven playing field for everyone else. Some businesses get to pay lower taxes by threatening to leave the state, while the rest (and us regular people too) then have to pay higher taxes to make up the difference. They say that such incentive programs "create jobs," when in fact they don't. A great real-world example of the harm of such programs can be found here.

Instead, the Michigan business environment should be made friendly for all business, not just a select few big companies that basically extort more concessions out of the government under threat of closure. Lower taxes for all, looser labor regulation, and less state bureaucracy would help all businesses in Michigan and create far more jobs than "targeted" special treatment for a few companies.

We'll keep an eye on this one...

For a longer explanation of this case, see this article.

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