The New York Times reported Dec. 3 that U.S. auto manufacturers posted sales had risen 15 percent in November. This year there has been plenty of positive news to report on the American auto industry. In January, it was reported that General Motors, which is headquartered in Detroit, repositioned itself as the top auto manufacturer in the world.
But it was another report by The Times that raised my ire and turned my enthusiasm for a local industry into frustration and dismay. In its series “The United States of Subsidies” The Times explored the use of various tax exemptions and special offers by states and municipalities to attract businesses. Michigan should issue a moratorium on municipalities’ ability to offer these perverse incentives.
The business incentives include loans, exemptions from sales tax, income tax credits, free services and property tax abatements. All of the incentives offered in the country total $80.3 billion each year. Michigan offers at least $6.65 billion in business incentives a year. Of that $6.65 billion, $1.26 billion flows to GM.
Giveaways to businesses are commonplace, especially by local officials desperate to claim their economic policies created jobs. However, in its first sentence, The Times report noted, “In the end, the money that towns across America gave General Motors did not matter.”
In 2009, as GM, Chrysler and Ford Motor Co. were in financial distress they started to sell off assets and close auto plants across the country. The deals they previously made with communities were broken – a symptom of multinational companies that have no loyalties.
For their bankruptcies, GM and Chrysler were assisted with bailout funds from the federal government. The funds totaled $85 billion and the U.S. Department of the Treasury estimated the bailout will cost taxpayers $24.3 billion.
The bailout was successful and necessary, but if supporters of President Barack Obama, me included, are able to say “GM is alive, and Osama bin Laden is dead,” then Republicans and those honestly concerned about market principles are able to correctly claim “GM screwed us.”
Business incentives are tax expenditures since they represent revenues lost from special exemptions, and are labeled by the Tax Foundation, a non-partisan tax research group, as an ineffective way to spur economic activity. Most economists view education as a better investment.
States cut services and raised taxes by $156 billion in 2011, reported the Center on Budget and Policy Priorities. Even under fiscal strain localities continue to offer these unnecessary business incentives. For example, Oliver Stone was offered $10 million in tax credits by New York to film “Wall Street: Money Never Sleeps,” a film that would have been shot in New York anyway.
Ypsilanti, The Times reported, offered GM $200 million in incentives for two auto plants. The plants were later shut down in the bankruptcy process, and the city has been forced to sue GM for its broken promises.
Michigan Republican Gov. Rick Snyder has worked hard to eliminate most of the business tax credits in the state’s tax code. He should be lauded for these efforts.
State and localities spend $672 per capita to fund these business incentives. And that is how much more we have to pay in tuition to attend school, state income taxes, sales taxes and property taxes. Is it worth it?
