So far this year, Ford Motor has earned an astounding $6.3 billion. That’s a pretty remarkable turnaround in a slow economy from the auto maker’s $14.8 billion loss in 2008.
More profit means more tax revenue, right? Maybe not. The Michigan Economic Growth Authority (MEGA) is seeking tax cuts for the auto giant, as well as its counterparts, GM and Chrysler. Michigan Governor Jennifer Granholm announced the tax cuts, noting the intent of the cuts was to create and retain jobs in the state:
Today really seals that Michigan will remain the center of automotive manufacturing in the United States and around the globe. This is a day that commits General Motors, Chrysler and Ford to continuing to thrive in Michigan.
How many jobs are we talking? The Governor’s office claims that the incentives are expected to create 6,182 total new jobs, retain 216,420 jobs and generate $2.1 billion in new investment. Ford is expected to retain and create the most jobs; in return, it will receive a state tax credit valued at $909 million over 15 years. The tax credit was an effort to encourage the company to expand its operations in Michigan as opposed to sites in locations like India and South Africa.
GM and its subsidiaries will also benefit from additional tax credits. An existing tax credit was expanded to include a new hybrid-electric vehicle battery center, said to create an additional 900 jobs. All totaled, GM is set to receive nearly 3/4 of a billion dollars in tax credits.
Chrysler will receive a tax credit worth $1.3 billion over 20 years. The credit is intended to encourage the company to expand in Michigan rather than move to a competing site in Ohio.
The MEGA Board was created in 1995 with the official task of promoting “economic growth and job creation.” In real speak, their job is to make Michigan more competitive. The state’s economy has struggled as the automotive industry has declined since its heyday in the 1980s. One of the criticisms levied at the state is that it has been slow to offer tax incentives that would be conducive to keeping existing businesses and attracting new businesses. In fact, the 2011 State Business Tax Climate Index (SBTCI) published by the Tax Foundation ranked Michigan a paltry 45th – just a handful of states away from being the worst in the country.
Are tax credits enough to turn things around? Michigan sure hopes so. With a nearly 13% unemployment rate (down from 15%), far above the national average, it’s clear that something needs to happen.
It seems that welfare for the auto industry in Michigan has no end in sight. These companies need to stand on their own feet. It seems like the taxpayers of Michigan will have to pay and pay. The moment they stop paying then these industries will move to Ohio or elsewhere. The government is being used as a mechanism to distort market forces in Michigan and for that matter around the country. Everyone, businesses and individuals should pay some tax, or no one should pay any. That’s the only way to do this in a fair manner and preferably the smaller the tax the better.
“The Governor’s office claims” means “in another govt lie, the Governor’s office ridiculously claims . . . .”
The state of MI has been making these claims about job creation and business growth for years (possibly decades) while constantly creating a hazardous environment for wealth creation and human flourishing. The high unemployment (much higher than the official 13% due to the number of people no longer collecting unemployment yet still unemployed) isn’t due to a decline in automotive jobs. It’s due to an atrocious business environment created by the govt of the state of MI.
Sooner or later (but not much later!) companies will start to come back to manufacturing in the US. It won’t be long before increases in wages, contributions, materials, taxes, fees, services, etc., etc. in overseas locations begin to rise to the point that after financing, shipping, duty, dock fees, etc., the true landed cost of goods made in these overseas locations will make it more advantageous to manufacture in the US again. Assuming Michigan sees this coming already today and is trying to help it along now rather than wait, I say go for it. One of the PRIMARY FUNDAMENTAL problems we face is the lack of manufacturing here in the US.
Maybe MEGA should take on the Unions that have a stranglehold on that state (or try to raise money for the Lions lol)