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A couple of weeks ago, I wrote about how a bipartisan coalition helped sink Texas’ Chapter 313 program, once of the worst corporate subsidy programs in the nation. At the opposite end of the country, more evidence that strange political marriages can result in positive change was provided last week by 29 Michigan lawmakers.
What happened? Well, 20 members of the Michigan House (13 Republicans and seven Democrats), as well as nine members of the Michigan Senate (five Democrats and four Republicans) introduced legislation to form an interstate compact against corporate tax giveaways among Midwestern states.
That brings the total number of states where compact bills have been introduced this year to 15, up from five just a couple of years ago. Michigan’s 29 co-sponsors is easily the most across-the-board political support any of those measures has received. It’s an impressive display from the lawmakers there, and the advocates who pushed them to make it happen.
For those who need a quick refresher, an instate compact against corporate tax giveaways would form a binding legal agreement between states not to use subsidies to steal corporations from each other by enticing them across state lines. Every state in the compact would swear off poaching firms from other compact states, while non-compact states would still be fair game.
By allowing states to multi-laterally disarm in the subsidy wars — rather than any one state going it alone — the compact aims to get around the political problem posed by company-specific tax breaks: They’re politically advantageous, even while terrible for local economies and local democracies. (If you want more information on this, you can read my earlier coverage of the compact here, as well as a longer explainer I published here.)
There are a couple of points worth making about Michigan’s effort. First, it reinforces that there is significant potential for lawmakers who don’t agree on much else to make progress on this particular policy area. Michigan ranks fourth in the nation in terms of total dollars it has dumped on corporations, trailing only New York, Louisiana, and Washington State, so there should be plenty of lawmakers on both sides of the aisle who have their own ideas for what to do with those funds.
Second, an interesting aspect of Michigan’s bill is that it limits participation to the Midwest (with no definition of what that geographic area actually is, so let the debate rage). That may sound limiting at first blush, but for those of us who want a truly national prohibition on corporate tax handouts, regional compacts are likely the best place to start. They already have the groundwork in place to be created quickly, and then extended later.
If Michigan were to go first, for instance, Illinois and Iowa already have bills written, with sponsors in place, to join a compact. Were the three of them to come to an agreement, pressure would then be on Indiana, Ohio, and Wisconsin to join up.
The Northeast (or Mid-Atlantic, depending on where you want to draw those lines) is even more striking: Bills to form a compact were introduced this year in New York, Connecticut, Delaware, Rhode Island, Pennsylvania, and Massachusetts. Were those six to create a regional pact, New Jersey — one of the worst purveyors of corporate largesse around, where a massive new handout program was recently authorized — would be surrounded and isolated, with Maryland, New Hampshire and Vermont also right on the bloc’s borders, along with West Virginia, where a compact bil already exists.
Plus, if Pennsylvania joined with the Northeast cohort and Ohio could be dragged along by Michigan, suddenly the Northeastern compact and the Midwestern ones would be connected, with West Virginia sandwiched between. And we’d have the foundation of a national agreement.
I know I’m dreaming pretty big here, and drawing out a scenario where many, many dominoes fall into place perfectly when there’s no real sense of if Michigan’s bill will even pass. But Kansas and Missouri finally got it together to form a compact for Kansas City — and if Texas’ recent experience proved anything, it’s that hopeless can turn into progress very quickly. The politics around corporate power are changing in plenty of states, so I choose to be optimistic.
Michigan is also a good state for compact talks to get underway because Democratic Gov. Gretchen Whitmer is a bit too enamored with using corporate subsidies, and is pitching them as key to recovery from the pandemic. Her public press release archive is awash with celebratory proclamations that this firm or that one received public money in return for job creation. Her proclivity for championing this stuff goes back to her days in the statehouse and her gubernatorial campaign.
She’s a pretty good case study for the empirical fact that governors use corporate handouts to boost their political profiles and build political capital. Only the legislature can step in and say that state dollars won’t be used on these follies anymore. Sure, I guess she could veto it, but I’ll take the fight over this specific bill.
So if you happen to live in Michigan, write or call your state legislators and tell them you support the Midwestern compact. It’s time we started somewhere.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle newsletter, and the director of state and local policy at the American Economic Liberties Project.
One thought on “Michigan’s Midwestern Pact”
Ernest Sternberg wrote, in a 1996 journal article, that “The inefficacy of subsidies to lure firms elsewhere has been evident to many economic development professionals since the late 1970s.” He also pointed out that people confuse firm-specific subsidies with generic tax reductions that apply to all firms. Given the data we already have since the late 70s, the continued use of firm-specific subsidies points to the growing influence of technology in the evolution of the relationships among private business, the public sector and labor. While I agree with Sternberg’s solutions at that time, they no longer apply to our vastly different situation. I suspect that regional compacts are trying to catch up with the reality that business operates within no borders at all and moving the policy borders to regional compacts are already dead in the water.