Taxpayers in Michigan and across America are finally getting fed up with corporate welfare.
Taxpayers in Michigan and across America are finally getting fed up with corporate welfare.
C orporate welfare has reached a new low. In a deal that’s drawn nationwide attention, Michigan is handing over more than $700 million in taxpayer-funded fiscal favors to a battery company. While the debate mainly centers on the company’s apparent ties to the Chinese Communist Party, the spending has Michigan taxpayers in a bipartisan uproar. This deal isn’t even the largest one Michigan is underwriting this year, nor is it the first time the Great Lakes State has given money to companies with connections to the Chinese government. But it has the potential to spark a broader revolt against taxpayer handouts to politically favored businesses.
The company in question is Gotion, which is partially owned by Chinese interests. Its parent company operates under bylaws that state it must “perform its duties in accordance with the Constitution of the Communist Party of China and other Party Regulations.” This didn’t stop lawmakers from falling over themselves to offer Gotion taxpayer funding, which a state senate committee approved by a 10–9 vote in late April. Local backlash caused the company to halt plans to build in one township near the city of Big Rapids and settle on a different site. But protests continue more than a month later.
People are right to criticize this blatant act of corporate welfare, but the issues with the deal run far deeper than Gotion’s supposed ties to the Chinese Communist Party. Michigan lawmakers are doing what they’ve done for decades, and what virtually all their peers in other states do: wasting taxpayer money on corporate handouts unlikely to produce any real benefits for the state. Gotion will likely do what nearly every company does after receiving such state-funded largesse: not deliver on its promises.
The Gotion deal was sold in the same way that every corporate handout is, with claims it will create good-paying jobs and benefit the community. The company is supposed to create some 2,350 jobs, yet if history is any guide, it won’t. A Mackinac Center study I co-authored analyzed nine different Michigan corporate-welfare programs or program areas, all of which dole out taxpayer money on the promise of job creation. Across 2,300 deals going back to 1983, only three of the nine were shown to create jobs. And even in those cases, the costs exceeded the benefits.
Michigan’s experience is far from unique. A 2018 study looked at similar deals across 35 states, concluding that subsidizing large businesses had “starkly negative” effects. Not only do such handouts fail to create jobs, they hinder economic growth. It turns out that politicians, in their infinite wisdom, aren’t skilled at picking the economy’s winners and losers. But they are good at throwing taxpayer dollars down the drain.
Why do politicians, in Michigan and every other state, keep up the charade? It’s in their interest. They get praise and plaudits for announcing plans to build new factories, with the promises of creating jobs and strengthening communities. It usually takes years before it’s clear that such benefits won’t materialize. By then, voters may have forgotten the promises that were made, even though they’re still paying for the handouts through their taxes. The politicians, meanwhile, have moved on to bigger and better things, including more handouts.
The Gotion fiasco will surely prove these truths again, as taxpayers foot the massive bill without getting much, if anything, in return. One small benefit is that people are now more aware than ever of the reality of such corporate welfare. Lawmakers on both sides of the aisle are wondering why the state is wasting money, not just on a company with ties to the Chinese Communist Party, but on thousands of other businesses, too. Taxpayers in Michigan and beyond are wondering the same thing. The Gotion deal may be specific to one state, but the dubious system that made it possible exists in all 50 states.
Michigan has appropriated $2.9 billion for corporate welfare in the first quarter of 2023. Taxpayers are funding countless companies, almost always without knowing it and almost always with nothing to show for it. If there’s a silver lining to the Gotion deal, it’s that taxpayers in Michigan and across America are finally waking up to the corporate-welfare farce.