Michigan's Midwestern Pact
A bipartisan compact bill with lots of sponsors!
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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.
SHAMELESS SELF-PROMOTION: Me and Michael LaFaive, senior director of the Morey Fiscal Policy Initiative at the Mackinac Center in Michigan, had a piece in The Wall Street Journal last weekend on why states need to stop throwing subsidies at film and TV production. You can read it here (paywalled).
I also had a piece in the New York Daily News last week arguing for New York’s State Assembly to pass the 21st Century Antitrust Act, which passed the State Senate earlier in the week. You can read it here. Alas, the Assembly didn’t get it done, but we’ll be back at it next session.
ONE MORE THING: Speaking of film subsidies, California lawmakers are considering going buck wild with throwing more money at movie producers. Gov. Gavin Newsom has proposed adding $30 million to the Golden State’s film/TV subsidy program, but members of the legislature have countered with a suggestion to crank that up to $180 million instead.
That would be on top of the $330 million the state has already budgeted for the program annually — a cap its current commitments will cause it to blow through. And again, this is for film production in California, the literal home of Hollywood, with all the advantages that entails.
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— Pat Garofalo