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Research Sheds Light On Corporate Welfare In The States

Although state governments tend to be less than forthcoming on the matter, researchers are beginning to shed light on the extent to which states subsidize private businesses.

The Mackinac Center published research by Jack McHugh analyzing corporate welfare costs in Michigan between 1995 and 2011, a process made challenging, McHugh said, by “frequent changes in programs and goals, a lack of transparency, and an abundance of spin and puffery in the information that is released.”

In 1995, Republican Gov. John Engler launched the Michigan Economic Growth Authority (MEGA), which became “the state’s flagship economic development program in the 2000s.” As McHugh puts it, MEGA was created to “[grant] ‘refundable’ tax credits to particular firms selected by political appointees on the entity’s board.” (RELATED: Coburn Blasts Tax Credit as Subsidy for Large Corporations)

The program experience moderate growth for the duration of Engler’s tenure, and continued to do so in the first term of his successor, Democrat Jennifer Granholm, but stayed below $400 million through 2007.

However, “the volume of MEGA activity rose sharply…, both in the quantity of deals and their size” starting in 2008, during Granholm’s second term, when they surpassed $600 million. MEGA subsidies grew to more than $1.2 billion the following year before falling back to around $600 million in 2010—still significantly higher than at any point in the past. (RELATED: ‘Oz’ Film Cost Michigan Taxpayers $40 Million)

In 2011, the first year of Republican Gov. Rick Snyder’s term in office, “MEGA was replaced…by a direct subsidy program, with amounts appropriated annually by the Legislature.” As a result of the increased oversight, MEGA spending that year dropped to its lowest level since 2003.

Yet while Michigan is among the most generous states in handing out corporate subsidies, it spends less than half as much as the top offender, New York, according to research by Veronique de Rugy of the Mercatus Center.

De Rugy, like McHugh, laments the dearth of comprehensive data on state aid to corporations, asserting that, “the relevant information has been inconsistently scattered among various government reports and websites.”

Such difficulties are gradually being overcome, however; in de Rugy’s case through such tools as the Subsidy Tracker 2.0 dataset compiled by Good Jobs First, a group that advocates for corporate and government accountability.

Although the Subsidy Tracker is still a work-in-progress and “does not yet contain every single state subsidy,” de Rugy calls it “one of the most comprehensive sources of state subsidies assembled so far.”

She does take some issue, though, with its identification of “sales tax exemptions on business purchases of inputs,” as a subsidy, pointing out that, “some economists argue that applying sales taxes to input purchases would inefficiently favor vertically integrated firms over firms that purchase inputs from other businesses.”

Phillip Mattera, research director for Good Jobs First, told The Daily Caller News Foundation that the group has actually accounted for that concern, leaving out the “provisions applicable to all firms that are written into tax codes to avoid the sort of issues de Rugy mentions.”

Mattera explained that the only type of sales tax exemptions the Tracker includes “involve awards to specific companies to offset costs of constructing and equipping new facilities,” and added, “We believe it is appropriate to treat these awards as economic development subsidies.”

In a series of charts, de Rugy shows that just nine states, including New York and Michigan, account for 58 percent of the $152.9 billion in known corporate subsidies handed out at the state level.

Of those, four states — New York, Washington, Louisiana, and Michigan — handed out more than $10 billion in corporate subsidies, while another five—Kentucky, Oregon, Indiana, Texas, and Missouri—provided at least $5 billion.

“All states but two dispersed at least over $5 million each,” de Rugy notes, but as the aforementioned statistics demonstrate, “the top offenders are major offenders.”

She found a similar pattern among the corporate recipients of state largesse, determining that, “established corporations, not small businesses or startups, are the overwhelming recipients of state benefits.”

Of the 20 corporations that received the greatest amount of state subsidies, nearly all are household names; and several, such as Boeing and General Motors, are well known for receiving generous assistance from the federal government, as well.

“Targeted state subsidies,” de Rugy claims, “misallocate scarce public resources while encouraging rent-seeking, regulatory capture, and cronyism.” In place of policies favoring specific firms, she advocates “policies that create a general environment in which all can flourish.” (RELATED: Europe’s Green Energy Industry Faces Collapse as Subsidies Are Cut)

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