Governor Granholm likes to quote a trendy, corporate cliché that encourages managers to approach problem solving by “thinking outside the box.” But her proposals to improve our state’s business climate put one in mind of a different metaphor: “rearranging deck furniture on the Titanic.”
A few months ago she recommended a revenue-neutral tweaking of the much despised Single Business Tax.
Whenever a politician uses the phrase “revenue-neutral” taxpayers should have two, immediate reactions.
First, recognize that the plan that follows is not even intended to address the systemic problem, but merely rejigger the list of tax system cash cows.
Second, hide your wallet. Such schemes are invariably sold to the public by being revenue-neutral in the near term, but with an eye towards extending the taxman’s reach down the road.
Then, in her State of the State address the Governor also proposed to bond $2 billion in subsidies to entice high-tech research to locate here.
This approach is founded on what economist Friedrich Hayek dubbed “the fatal conceit,” i.e., that central planners can better allocate resources than the aggregate, independent decisions of myriad individual consumers and businesses competing freely in the marketplace.
Neither of her proposals is exactly groundbreaking.
If Governor Granholm is genuinely interested in taking a peek at the world beyond our mitten-box, she should cast an eye in the direction of Ireland.
It was just 20 years ago that the government of that tiny country – long among the most impoverished in Europe – came up with a genuinely radical idea for improving their business climate and, thereby, increasing investment and reducing unemployment. They slashed the tax on corporate profits in half, giving Ireland the lowest business tax burden of any country in Western Europe.
The result? This bucolic, little land has become home to the European headquarters of numerous, wealthy, job-creating, multi-national companies.
Today you will, for instance, find the Microsoft Corporation’s third largest operation (behind only those in the U.S. and Japan) located in Dublin – and employing 1600.
And you’ll also find Pfizer Pharmaceutical in Ringaskiddy, manufacturing Viagra for worldwide distribution. That company has in fact invested nearly half a billion dollars in facilities located in Ireland, where it now contributes over $150 million annually to the Irish economy.
The lesson here is obvious. All that new green in the Emerald Isle has nothing to do with Irish luck.
We need not reconfigure application of the convoluted Single Business Tax, nor borrow enormous sums to bestow on companies with political connections.
If the governor and legislature insist on playing fortuneteller, they should at least acknowledge the obvious fact that greater prosperity inevitably reduces the demand for all government programs and simply choose a growth industry for tax and regulatory relief.
Grant businesses in the chosen field a 100% exemption from the SBT. Then add in corresponding, full exemptions from the intrusive (and deceptively named) Personal Property Tax on business tools and equipment. The chosen industry would rocket to prosperity. And take Michigan’s economy along for the ride.
This, of course, raises the question: Which industry?
There are too many other suitors for us to compete effectively for the attention of biotech. California alone has already earmarked $1 billion more for bribes to this industry than Governor Granholm’s entire subsidy proposal.
Alternative energy research would be better – both a more logical choice for the automotive capital of the world and less in vogue elsewhere.
My own choice, however, would be to move our state to the frontiers of cyberspace.
The prospects for everything connected with the Internet are as boundless as the World Wide Web. Why not exempt the entire industry from all state taxation? Announce to the world that Michigan is officially declaring cyberspace a free trade zone and our state would immediately become a virtual Hong Kong.
Of course, in a sense it probably wouldn’t matter too much which industry was selected. Since companies, unlike individuals, have no emotional or familial bonds tying them to a particular location any industry with reasonable prospects would work.
Whether we removed the tax burden from advertising, banking or computers, in very short order all the industry leaders in the entire country would relocate here. Along with their resources and jobs.
State business tax revenues would, of course, fall. But, then, borrowing $2 billion is hardly a cost-free alternative. And employment would increase dramatically – adding revenue and simultaneously reducing demand for state services.
Ask the Irish about the net benefits.
Unfortunately, the thinking of our political leaders is far too boxed-in to even consider the idea. Iceberg dead ahead.
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More on economic regulation:
- Throwing our money down a rabbit hole
- Government as venture capitalist
- Wholesale whining
- Time to give workers the right
- Downtown disaster areas
- Prescription for controlling drug costs
- Brave new diversity
