On Friday and Saturday, the Detroit Free Press published two conflicting articles about Michigan’s future. Saturday’s article discussed the $2 billion in capital the federal government recently announced it will give to Michigan communities (Biden announces $2B bond program for Michigan public, private sectors, 06/13/2009). But Friday’s was concerned with quite the opposite — the lack of capital available to Michigan businesses (Michigan venture capital is in short supply, 06/12/2009). These articles paint a good picture of the state of Michigan’s economy: failing to attract growth while keeping afloat on government lifelines. But this kind of economy can’t be sustained. Relying on government aid will keep our state’s economy stagnant, destroying job opportunities for all of the state’s residents — including its college graduates.
The Saturday article discussed a new federal program announced by Vice President Joe Biden in Kalamazoo on Friday. It would back $2 billion in bonds for local communities in Michigan, adding to the billions in federal financial aid the state has already received since the economic crisis began. Michigan received $7 billion in federal stimulus money this year. Two of its biggest companies — General Motors and Chrysler — were recently bailed out by the feds.
But with all of this federal money pouring into the state, firms are somehow still having trouble getting venture-capital money. The Friday article quotes the Michigan Venture Capital Association as saying that over 300 companies in the state are short on their venture-capital needs — by about $1.3 billion in all.
The state’s focus is clearly in the wrong place.
There are many Michigan residents who have realized this and attempted to make the state more attractive to businesses. After at least 10 years of effort, Michigan’s Single Business Tax was finally repealed by the state legislature in 2007 — only to be replaced by another business tax that same year. Later in 2007, the legislature added an additional 22-percent surcharge to this new business tax.
Michigan’s leaders haven’t yet gotten the message that businesses are failing to invest in Michigan. They continue to be obsessed with the very aid that is preventing business investment and growth in the state.
Government aid isn’t helping Michigan residents in the first place. Yes, many residents rely on government aid for income through unemployment benefits. But they can only last so long. And though the government increased the length of the benefits, this requires more taxes, creating an even worse business climate in the state.
Keeping the unemployed on government aid so they’ll be able to feed themselves is a noble goal. But it’s also one that breeds more unemployment. The unemployed do not make any significant investments. They do not buy new houses or cars. Meanwhile, Detroit’s automakers’ sales have nearly dropped in half — resulting in more layoffs in Michigan. And unemployment aid doesn’t do anything for recent college graduates. Without having ever had a full-time job, college graduates are unable to receive a temporary unemployment income or join a health insurance plan for laid-off workers.
Michigan needs a more business-friendly environment so those people can get jobs, not more government aid. And the best way to create this is to reduce the taxation businesses face.
Without such a tax burden, Michigan would be better able to keep its businesses from moving out of state and would look more attractive to businesses that may want to move here. It would allow businesses here to keep more of their own money and invest it in their own expansion — contributing to Michigan’s economy and job growth.
Michigan workers whose unemployment benefits have run out and those who never held a full-time job would all benefit from policies that encourage Michigan businesses to grow. And with the new job opportunities, many of the unemployed wouldn’t need the government aid provided to them.
As the economy continues to weaken, Michigan lawmakers will continue to face tough decisions on the state’s budget. Michigan voters, too, will have to make tough decisions as they choose public policies to endorse. Hopefully they’ll choose the path that leads to economic growth in the state, instead of one that keeps Michigan residents out of work.
Patrick Zabawa can be reached at pzabawa@umich.edu.