by Doug Rothwell
July 16, 2009

Lou Glazer’s current column in Dome states that business costs have little impact on economic growth and, since Michigan is just an average tax state, we shouldn’t cut business taxes. Mr. Glazer implies we should embrace investments that would require raising taxes and that just increasing the number of college graduates with four-year degrees will attract jobs.

But that’s not the way the economy works.

• Costs Matter: The states that grew the most private-sector jobs over the past 10 years ranked at least two times lower on business costs than the 10 states that grew the least.
• Our Competition Is More Competitive: Michigan is between 27th and 35th worst on state business tax burden rankings. This is a higher tax burden than most of the states we compete with for both manufacturing and “knowledge” jobs — states that far outpaced Michigan in job growth for the past 10 years.
• Wealth Is A Relative Thing: When adjusted for cost of living, people living in the 10 states with the highest per capita income make less than $2/day more than the U.S. average, and these states are gaining per capita income at the same or slower rates than the states we most often compete with for jobs.

Business pays, on average, 3 percent more of their profits on taxes in Michigan than in our competitor states. Ask any business in today’s global marketplace and they’ll tell you a 3-percent hit on their profits can make or break their business plan. That’s on top of generally higher wage, benefit, utility and regulatory compliance costs.

Business would pay higher costs if they could be justified by getting better talent, outstanding transportation infrastructure, better services or greater proximity to customers and suppliers. But for most businesses, the opposite is true — they can get more value for their dollar in places like North Carolina. Unless we reverse this situation, we will continue to under-perform the nation in economic growth.

Mr. Glazer is correct that taxes aren’t the only or even the most important factor that drives business investment. But costs do matter and Michigan doesn’t have enough relative advantages to justify our above-average cost burden. It’s a major reason why Michigan isn’t growing enough jobs to use all the college graduates we produce.

A holistic approach is needed to accelerate Michigan’s economic growth, an approach that includes making structural budget reforms, prioritizing spending on things that grow the economy — like higher education and transportation — and refocusing our economic development strategy to grow all businesses rather than picking a few favorites. It also means we have to “price” our product relative to the competition, and that requires us to reduce Michigan’s business tax burden.

Doug Rothwell is president of Detroit Renaissance. He previously served as the state’s economic development director for10 years. To hear Rothwell and Detroit Renaissance’s board provide insider perspectives on what’s what for economic development and progress in the state, visit the Road to Renaissance on WJR page at www.detroitrenaissance.com, or listen to WJR on the third Tuesday of each month at 7 pm.