MICHIGAN ECONOMIC DEVELOPMENT – TAXES DO MATTER

2010 TAX FOUNDATION BEST STATES REPORT

The Tax Foundation 2010 State Business Tax Climate Index ranks Michigan’s business tax climate 17 overall (up from 21 in 2009), ahead of almost all Midwest states except Indiana.  GOOD NEWS – however, closer study revels Michigan’s noncompetitiveness.

As every economic developer knows, taxes matter to business.  This is especially true for economic developers who compete for business investment especially with Indiana and Illinois communities perceived to have tax advantages over Michigan.

We all hear the cry,“it’s more expensive and harder to do business in Michigan.”  The 2010 Tax Foundation data may lend truth to this statement.

Let’s look at individual rankings, especially for the three complaints we hear most as economic developers compared to our Midwest competition – business taxes, unemployment insurance and property taxes. Michigan ranks 48 in corporate taxes, 45 in unemployment taxes and 33 in property taxes giving  credence to the three major complaints that we routinely hear about in efforts to create jobs in Michigan.

This is an unpleasant reality. 

 State

Overall Rank

Corporate Tax Index Rank

Individual Income Tax Index Rank

Sales Tax Index Rank

Unemployment Insurance Tax Index Rank

 Property Tax Index Rank

Michigan 

17

48

15

9

45

33

Illinois

30

27

10

41

16

39

Indiana

12

21

11

20

11

12

Ohio

47

38

46

37

10

49

Wisconsin

42

29

43

19

23

25

There is considerable evidence published by academics and various “think-tanks” offering strong arguments that “taxes do matter” influencing business decision-making and population growth and migration.

(See:  RICH STATES POOR STATES 09  where authors Arthur Laffer, Stephen Moore and Jonathan Williams provide an in-depth analysis of policies, some of which foster economic growth and prosperity in states like Utah, Arizona and Texas, others of which cause economic malaise in states like California, New York and Michigan.)

Overall, Michigan compares favorably in the Tax Foundation Index  – “even getting better from a year ago.”

However, near bottom index rankings for corporate income taxes, unemployment insurance and property taxes surely focus attention where other Midwestern states have distinct competitive advantages.

The Tax Foundation report states that “many states offer lucrative incentives and subsidies under the banner of job creation and economic development, but the truth is, if a state cannot attract employers without these types of packages it is often because tax laws have created an unfavorable environment“.

To mask Michigan’s unfavorable noncompetativeness we have enacted property tax abatements, provide tax credits for new employment for “specially chosen” new businesses that locate in Michigan. 

But lets face the hard realities. Picking and choosing which new businesses get financial incentives isn’t good policy. It leaves out many existing business, especially small young businesses that Michigan is “counting-on” to revive the state’s economy (see blog entry 2/3’s OF ALL JOBS ARE CREATED BY YOUNG SMALL BUSINESSES).

Even more troublesome is the effectiveness and the need for these programs now being called into question with serious criticism levied again them by research sponsored by the Michigan Education Association, Citizen Research Council and the Mackinaw Center.

While Michigan’s sales tax rank is good for the consumer, likewise for individual income taxes, businesses taxes add to the cost of products made in Michigan.

We all know these higher businesses costs are added to the sales price of goods and services by businesses, in reality becoming a phantom tax paid each time we buy something in Michigan that is produced by a Michigan business.

The reality is that taxes do matter both to business and residents.  

The Land Policy Institute at Michigan State University in its recently released report “The Economic Impacts of County Population Changes in Michigan” states the “need to give strong consideration to important population retention and attraction strategies.”

Tax policy changes that equalizes competitive disadvantages or adds to Michigan’s competitive advantages would be a good beginning.

 

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