Will the end of the Sandisk deal bring Michigan back to basics? – Mackinac Center

The abrupt cancelation of Sandisk’s planned $63 billion semiconductor manufacturing plant near Flint is another failure to be filed under “corporate welfare.” State officials offered more than $6 billion in subsidies, $5.5 billion of that money in cash. Taxpayers have already spent at least $260 million. Gov. Whitmer attributed the company’s decision to “national economic turmoil.”

But there’s a dog that didn’t bark, to borrow Sherlock Holmes’s line. Sandisk itself has not publicly stated why it abandoned a project that only months ago was the darling of the state’s corporate welfare empire.

Whitmer may hope citizens associate Sandisk’s decision with President Trump’s policies, and we may find out that she’s right. Legacy media have repeated Whitmer’s speculation, but so far Sandisk hasn’t detailed its own reasons. Shareholders deserve to hear from company leaders and so do the taxpayers who were forced to underwrite the deal that promised to create about 9,400 jobs at a public cost of $590,000 in cash for each.

After this story fades, another temptation to amp up corporate welfare will come along, and we should be ready for it. I reviewed some of my colleagues’ research over the years and found these fundamental reasons that corporate welfare is a very poor policy choice with almost no chance of making a state more competitive or prosperous.

1. No significant impact on job creation. The empirical evidence is overwhelmingly weighted against successful outcomes. This finding is replicated across the nation, and my institute, the Mackinac Center for Public Policy, is not the only research organization in Michigan that reaches this conclusion. Over 20 years, the programs created only nine percent of the jobs promised.
2. Discrimination against small and retail businesses. Only larger businesses — especially the ones most able to field sophisticated lobbying, political, and legal corps — tend to get the favors. The smaller ones, especially retail, have no chance. The typical startup entrepreneur — the kind of person politicians say they want to attract to Michigan — is entirely out of luck.
3. Unfair advantage to hand-picked firms. A firm chosen for special favors — by merit or political or personal connections — gets to use tax money (or special tax forgiveness) to compete against its competitors. It can use the money to lure away employees from longstanding companies that are never subsidized while paying their competitors’ subsidies. This violates the idea of fairness and equal treatment under law.
4. Broad-based tax (and regulatory) reforms are more effective. Michigan just offered 2.5 times more in corporate welfare than the state collects in the Corporate Income Tax in a year. What policy would create more jobs and attract more people – eliminate the Corporate Income Tax entirely, or billions of dollars’ worth of handouts to a few big firms through programs with a 9 percent job creation rate?
5. Political discretion and potential for abuse. Michigan’s programs have featured subsidy decisions by small groups of political appointees who effectively make tax policy for large companies. Attorney General Nessel is currently investigating the Michigan Economic Development Corporation regarding a $20 million subsidy to a business incubator led by a former MEDC board member and Whitmer fundraiser.
6. Race to the bottom. Subsidies must continually increase to exceed the ostensible competitiveness of other states’ subsidies. We can help far more people by lowering taxes for all in competition with other states.
7. Hinders broad-based tax reform. Diverting tax revenue (or breaks) to a select few makes it harder to lower taxes for everyone. Subsidized companies have little incentive to support lower taxes for their competitors.
8. Difficult to end the programs. Political pressure and lobbying and campaign support from beneficiaries make it extremely difficult to cut or eliminate the subsidies. The beneficiaries include local economic development organizations, translating even to community based social pressure to perpetuate the programs.
9. Increases the cost and complexity of government. Administrative burdens grow. New departments are established, and they grow (see MEDC). Companies spend resources to play the subsidy game that could have improved their core products and services.
10. Political uncertainty equals economic uncertainty. The size and type and targets of subsidies will always vary according to the politics of the moment. Parties change, politicians change, and therefore policies will change. It’s much better to make business plans around a reasonably predictable overall tax policy than it is to build plans around the vagaries of subsidy policies that officials won’t hesitate to change to advance their political goals.
11. Lack of transparency and accountability. Lawmakers set up the subsidy machine so they don’t have to vote up or down on individual subsidies. Lawmakers have signed secrecy agreements regarding the subsidies. The MEDC is notoriously slow to fill or is simply noncompliant with open records requests. The amounts of many of the subsidies and their recipients are not disclosed publicly. (My organization has had to hire lawyers again to get basic, public information from the MEDC. See FOIA Fight: Detroit Free Press, Mackinac Center Sue Treasury Over Subsidy Secrecy – Mackinac Center)
12. Primarily political benefits, not economic benefits. The core function of corporate subsidy programs is to provide politicians opportunities for positive headlines and to favor special interests, rather than truly grow the economy or deliver lasting community-wide benefits. Announcement of new deals gets political credit, but rarely are these revisited for effectiveness.

“Economic development” is a misnomer for corporate welfare, as I hope the 12 items above persuade the reader. But whatever the name, the idea is this: Some companies get special favors, and those favors come from a political process. Corporate welfare can be labeled “economic development” just as easily as a gargantuan bill containing some unbeautiful policies can be called “One Big Beautiful Bill.”

Lastly, there are many forms of corporate welfare, and they have important differences. But saying that some forms of corporate welfare are not as bad as others is akin to saying some forms of cancer are not as bad as others. That’s true, but you’re better off avoiding the dreadful thing altogether, to say nothing of never actively pursuing it.

The Sandisk experience is disappointing, costly, and embarrassing for Michigan. If it gets us back to real economic development — a fair field with no favors — it will be a win.

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