In response to your peers, state whether you agree or disagree with their conclusion regarding Michigan’s tax credit program. Be sure to justify your response. Do you agree with your peer’s assessment regarding the ethics of accepting government aid? Why or why not?
In responding to your peers, compare their views with your own in terms of what information is most important. Are there elements your peers have omitted? Provide reasoning to support your views.
Reply to the classmates post below. There are two posts listed below that you will respond to separately.
Must have more depth and thought than simply “I agree” or “You are wrong.”
Adds substantive information, asks meaningful questions to peers, and provides substantive responses.
There are two post listed below. Please respond to both Students post.
Classmate Post #1
7-1 Discussion
Alissa Ferguson
James Madison, the primary author of the US Constitution, described the role of state government this way: “The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.” If the state believes that enticing large corporations to come to their state to create tax revenue and jobs through tax incentives and breaks is the best means of improving the state, it is within its constitutional rights to do so. The problem lies in how the state decides to offer the benefits, and to whom.
Michigan’s decision to give businesses the opportunity to collect the credits whenever they chose, whether it was right away or twenty years later was a poor one for several reasons. Allowing the credits to be collected with no expiration date places a heavy burden on a state’s ability to forecast “the total value of [the credits], the magnitude of payments, and when the credits will be paid” (Jeffries, 2015). Businesses should receive incentives right away to maximize the value both for the business and for taxpayers. The concept of “time value of money” states that it is always better to have money now than it is to wait for ten or twenty years to collect on it. Economist Jeffrey Dorfman explained it this way: In tax credits, a state government may give away credits equal to $100,000 per job gained for the state. If the job only pays $50,000 a year, the government is only going to generate $2500 a year in tax revenue from each worker. It would thus take twenty years of tax revenue to gain that $100,000 investment back. Time value of money takes into account inflation, loss of valuation of the money, and loss of investment interest. At this rate, adjusting the tax revenue with a discount rate of 4%, it would take 42 years to gain the value of that money back per worker. Since almost no one would stay in that one job for forty years, the government will never actually recoup that value in tax revenue (Dorfman, 2017).
As of 2014, Fortune 500 companies received $63 billion in government subsidies, mostly as tax breaks (Brunori, 2014). Is it ethical for a company worth $500 billion to receive another billion dollars in tax benefits? Certainly not, as they can clearly afford to fund their own capital investments rather than take money away from state services like schools or roads or hospitals. But it’s hard to find fault with a company that takes the money as anything other than corporate greed. If a company sees an opportunity to snatch up benefits being offered by the state, no matter the company’s size, it would be silly for them not to take advantage of it. The blame should lie with the state agencies tasked with attracting companies and not with the corporations who are looking for ways to maximize their profits for the benefit of their stakeholders and shareholders who have invested in them.
Alissa
References:
Brunori, D. (2014.) “Where Is The Outrage Over Corporate Welfare?” Forbes. https://www.forbes.com/sites/taxanalysts/2014/03/14/where-is-the-outrage-over-corporate-welfare/.
Dorfman, J. (2017.) “Government Incentives To Attract Jobs Are Terrible Deals For Taxpayers.” Forbes, https://www.forbes.com/sites/jeffreydorfman/2017/09/06/government-incentives-to-attract-jobs-are-terrible-deals-for-taxpayers/?sh=54f6e8306eff.
Jeffries, E. (2015.) “State Notes: Topics of Legislative Interest. A Primer on Certificated Credits under the Michigan Business Tax.” Michigan Senate. https://www.senate.michigan.gov/sfa/publications/notes/2015notes/noteswin15lpcsdz.pdf.
Classmate Post #2
7-1 Discussion: Government Incentives
William Bourassa
Hello class,
The role of the government is to provide incentives to business. The reason being is to attract investment opportunities to the area and jobs. The issues with doing this is that tax incentives create distortion to local residents which make things more difficult due to inflation. At the end of the day politicians reap the reward of bring jobs and work to the community without facing much of the risk themselves.
I do not fully agree with Michigan’s decision to extend tax credit in the manner that they did. The reason behind this is I find it blindly unethical to the people. Though the people earn jobs out of this they incur the taxes for an unidentified amount of year. This amount is at $500 million a year. Though this only fraction of the state revenue this is still something the people of Michigan need to agree with as the only people reaping reward is the corporations’ making profits from the governments doing.
The ethical considerations are does the business need government incentives. The corporations each need to weigh in on this. A lot of small businesses in my views would need this. This is primarily due to needing funds to open a business. So yes, I do at some minimal believe that corporations need proof and reasoning for need of the incentive. Then if funds are not needed then funds should be filtered amongst the community. A standard need to be met if the community is being forced to meet standards as well.
These corporation that are accepting government incentives are essentially open to admitting they are struggling. Though this is not similar the money has to come from somewhere. When Tom Brady’s TB12 accepted government assistance back in 2020 his business received $960,855 through the Paycheck Protection Program. As we are all well aware Tom Brady makes more than 10 million a year. 52% of business that applied for Paycheck Protection Program did not receive. So why Tim Brady? “Congress and President Donald Trump passed and signed a $2 trillion relief package in March that was focused on combating job loss and supporting small businesses struggling because of the COVID-19 pandemic. PPP loans aimed to provide financial relief to small businesses negatively impacted by the global spread of COVID-19” (Coleman, 2020). Tom Brady’s business just happen to fit the criteria, but he did get some criticism from the media for it, and this was primarily due to how much he makes.
Resources:
Brunori, D. (2015, March 10). Michigan tax incentives — corporate welfare? Forbes. https://www.forbes.com/sites/taxanalysts/2015/03/10/michigan-tax-incentives-corporate-welfare/?sh=592f46f775ba.
Coleman, M. (2020, December 4). Tom Brady’s Company, Tb12, RECEIVED $960k FROM PPP Loans. Sports Illustrated. https://www.si.com/nfl/2020/12/04/tom-brady-company-tb12-ppp-loan.
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