The Governor Almost Gets It.

The Manufacturing & Technology eJournal yesterday ran an article highlighting some job news in Ohio:

Governor Ted Strickland and Lisa Patt-McDaniel, Director of the Ohio Department of Development, have announced that the Ohio Tax Credit Authority has approved Job Creation Tax Credits for 15 businesses involved in projects that, if located in Ohio, are expected to create 1,412 positions and retain 2,613 jobs for Ohioans.

These kind of tax credits sound good, right?

Not so much.

Unfortunately, the Governor is going about it all wrong, and we just have to look to a study conducted on our enemies up north to see why:

The authors inspected credits awarded from 1995 to the end of 2004 and found that while MEGA deals were expected to produce 61,043 jobs, only 17,971 were ultimately created. Hence, the actual job count was just 29 percent of the expected total - less than one-third.

And why was this?

Michigan has a terrible business tax system. Rather than fix that, their focus has been on giving select businesses exemptions from it. So rather than welcoming all investment and job creation, the state's politicians and their MEGA officials pick and choose what gets special treatment at the expense of everyone else. Given Michigan's seemingly perpetual recession, that strategy doesn't seem to be working out.

Sounds awfully familiar, eh?

Ok, so how do we fix it?

Unfortunately, a lot of other states seem to be heading down that path, lured by the hopes of easy "job creation." What should matter is wealth creation: capital flowing into the state and creating meaningful jobs that contribute to long-term economic growth. The MEGA strategy of handing out cash and goodies to the politically connected probably won't ever achieve that.

Michigan should get rid of its politically-motivated picking winners-and-losers stuff. Offer a simple, neutral, transparent, stable tax system-apply it to everyone equally at a low rate-and junk all the targeted credits and special giveaways.

Strickland almost gets how it works. With lower taxes come incentive for businesses to come to Ohio. Unfortunately, we're going down the same road as Michigan.

And we all know how well that has worked out.