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Moral of Michigan's Stimulus Story: Don't Give Subsidies to Hollywood Fat-Cats

Shikha Dalmia
September 4, 2009, 11:16am

The Wall Street Journal recalls this morning that Jennifer Granholm, the governor of Michigan, where I live, crowed earlier this year about the similarities between her and President Obama's strategy to stimulate the economy through subsidies and tax breaks. "President Obama's priorities are identical to ours," she declared.

So how is it working out in Michigan? Not too well, a study this week by the Michigan-based Mackinac Center for Public Policy revealed. In the last 14 years, Lansing has handed out $4.9 billion in business tax breaks and subsidies. But the state's unemployment rate now is over 15.5%, the highest in the country. (In Detroit, the big Michigan city, it has reached depression levels of 29%). Wages are falling, home foreclosure rates are soaring and people who can sell their houses are fleeing the state.

Why have these subsidies/tax breaks not worked? Because they simply take money out of taxpayers' pockets and hands them to businesses, leaving taxpayers less money to spend on other stuff. Hence whatever growth is generated in one sector is nullified by declines in others.

But that's not even the worst of it in Michigan. The subsidies are not going from rich taxpayers to poor, struggling upstarts. Rather, one of Granholm's brain-children is the Michigan Film Office that, in the name of diversifying the state's auto-dominated economy, offers Hollywood producers a 42% tax break for filming in Michigan. However, as the WSJ points out:

Because the credits are "refundable," they are mostly cash subsidies to the film industry to make movies. The Michigan Senate Fiscal Agency recently found that "if a film production company spent $10.0 million in Michigan, the State will gain less than $700,000 in income and sales tax revenues but will pay out about $4 million to the production company." So in a state with the highest unemployment rate in the nation at 15%, taxpayers last year gave out $48 million in subsidies to Hollywood millionaires.

Meanwhile, the latest job numbers suggest that things are not working out too well for President Obama's promise to use his $ 1 trillion-plus stimulus package to create new jobs. National unemployment this month rose to 9.7% from 9.4% the previous month.

Forbes notes this morning:

Since the job losses started in December 2007, the economy has now shed 6.9 million jobs. That's a total of 14.9 million people unemployed, and about 5 million of those people have been unemployed for more than six months.

If Michigan held any lesson for the president, it was about what not to do. Too bad for the country that he ignored it.

Whole WSJ column here.

Mackinac Center study here.


Shikha Dalmia is Senior Analyst


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