Michigan Economic Development Chief Defends Governor’s Tax Proposals

3/7/11Follow @xconomy

Republican Gov. Rick Snyder’s top economic development official defended a controversial plan to eliminate certain tax credits in favor of a flat corporate tax rate, arguing the state’s economy would better benefit from broad tax reform than tax breaks aimed at specific industries.

The best way to lower the state’s 11 percent unemployment rate is to “position Michigan in the minds of people as a place to do business,” Michigan Economic Development Corp. (MEDC) CEO Mike Finney told Xconomy.

“Business people want [ to operate] in a stable business environment,” Finney says. “They see that as the top priority.”

Snyder’s budget calls for a flat six percent corporate tax rate while eliminating a litany of tax credits meant to spur development in specific industries like medical devices, biotechnology, batteries, and clean energy.

Eliminating tax breaks can be politically dicey, as Snyder discovered when Michigan’s prominent film industry loudly decried the potential loss of the state’s generous film credit. The program allows companies to claim up to 42 percent of expenditures of movies, television shows, digital media, and video games produced in Michigan.

Finney admits the administration was a bit surprised by the blowback from the industry but insists Snyder will not waver on his budget proposals. Under Snyder’s budget proposal, the state can spend up to $25 million a year on film incentives—a perfectly “reasonable” figure, according to Finney. But if the industry wants more, they will have to petition the legislature to raise the cap, he says.

Though Snyder is a former venture capitalist who invested in new startups, he believes that any economic recovery depends on “helping existing businesses grow,” Finney says.

“If we had more of that growth in the state, we would be much more effective,” he says.

Tax credits, on the other hand, often fail to promote long- term economic development, Finney says.

He thinks Michigan boasts several promising high tech industries, including medical devices, IT and software. So instead of blindly doling out tax credits to specific industries, Michigan needs to be smarter about where to invest its limited economic development dollars, Finney says.

“Michigan has a lot of upside potential and we need to take advantage of it,” Finney says. “We want to be opportunistic, look at opportunities and go after them as they make sense to Michigan.”

One of Finney’s top priorities at MEDC is to boost Michigan’s exports. Currently, less than one percent of America’s 30 million companies sell their products overseas, according to International Trade Administration, a unit of the U.S. Commerce Department.

“Imagine what could happen if [Michigan can] double or triple that,” Finney says.

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