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Is it all just a "pyramid" scheme?

Tax policy is a tricky instrument. While everyone would like to pay less in taxes, a problem develops when revenue to the state or municipality develops shortfalls. The issue with Michigan's deteriorating roads is in part due to years of insufficient tax revenue from the gas tax to support maintenance and repair work.

And problems like this must be dealt with because as politicians endlessly debate whether taxes help or harm the business climate, Old Man Winter works with a difference sense of the word climate and relentlessly dismantles road surfaces.

Creating jobs are similarly an important issue. Sometimes, rather than changing taxes for everyone, politicians will employ specific changes to tax laws, creating tax-free zones or offering tax increment financing or absolving some entities of the need to pay any taxes for years or decades.

This is done in an effort to spur economic development and attract new businesses. The potential for a $5 billion data center in western Michigan has politicians in the area moving to make changes to the state's tax law that the data company Switch is demanding.

The tax breaks would be necessary in order for the company to consider taking over the former Steelcase "pyramid" building in Grand Rapids. The data center could result in 1,000 new jobs and other intangible benefits for the area.

However, some other politicians are concerned that the jobs promised are hardly a sure thing, and that such distortions of tax policy often turn out badly. A concerning element of the proposal is that the company is demanding the changes from the legislature before the end of the year.

Tax benefits offered to one company may mean eventually higher taxes for other existing Michigan companies. The legislature must carefully consider their actions to ensure that they do not wind up punishing companies already here to benefit what are largely speculative assertions of an out-of-state business.

Source: freep.com, "Should Michigan change tax law to lure $5B data center?" Matthew Dolan, November 16, 2015

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