The MC: The Mackinac Center Blog

Job Churn Shows Futility of Corporate Welfare

Cutting income taxes a better way to spur growth

(Image via Paul Keheler at Wikicommons)

Monthly job reports on payroll employment and the unemployment rate hide the massive job creation and job loss that occurs in the economy. This turnover challenges the state’s ability to influence job creation by offering tax money to select businesses to locate their business in Michigan.

According to the Bureau of Labor Statistics, Michigan’s private sector created 193,208 jobs in the first quarter of 2014 and lost 179,299 jobs in the same period.

The job creation was caused by 40,862 existing businesses adding to their payroll plus the opening of 11,150 new business establishments. The losses were caused by 41,565 businesses decreasing their payroll and 5,571 business establishments closing. While these numbers are preliminary, this was the lowest number of business closings recorded in this data series, which goes back to 1992.

Over the same period the state’s primary business attraction and retention program, the Michigan Business Development Program, offered subsidies to 15 companies to create 1,931 jobs. The subsidies will cost taxpayers up to $24 million, depending on how many of the recipients meet their milestones. The program’s annual report shows that since it was launched only 48 percent of the promised jobs have materialized, although that may improve given time lags between when the grants are offered and when firms hire workers.

Even if the jobs are created as expected and during the period that they were announced, it would account for less than 1 percent of the actual job creation. And these incentivized jobs would replace just 1.1 percent of the jobs that disappeared over those months.

Subsidizing particular firms is a poor way to foster broad-based economic growth. Policies that improve a state’s the business climate, like a personal income tax rate reduction, are a proven way to generate sustainable growth in the economy.

Voters have Diminished Clout in Lame Duck

How much, if any, will gas taxes increase?

Lame duck sessions in the Michigan Legislature provide a no holds barred setting for Lansing lobbyists and special interests. Many lawmakers will be leaving the Legislature at the end of the year or the end of their next term; others who were just elected to new terms know they won’t have to face the voters again until two or four years from now.

The political environment is ripe for deal cutting. Some lawmakers who have measures they want to see enacted will gladly support unrelated legislation in order to get “their own bills” passed. Trying to predict what will happen during a lame duck session is risky. A line from the Kenny Rogers song “The Gambler,” describes the situation. “There’ll be time enough for countin’ when the dealing’s done.”

This year’s lame duck session started shortly after the election. It will resume again after the two-week Thanksgiving/deer hunting break and could run up to Christmas week. The headline-making big item on the agenda is road funding. Gov. Rick Snyder has made it clear that his No. 1 priority is securing a new revenue stream (pegged at between $1.2 billion and $1.5 billion) before year’s end.

To most Lansing special interest groups and lobbyists, the simplest means of getting the money would be hiking the state’s fuel tax and registration fees. Others, including some lawmakers, argue that all or much of the road funding dollars could — and should — come out of the $52 billion state budget. Still others question whether $1.2 billion is needed immediately and assert that the revenue stream could be secured in smaller bites over the course of the next few years.

When the collective will of Lansing’s special interests is weighed against that of ordinary voters, the special interests win out more than their share of the time. In a lame duck session, such as this year’s, the deck is stacked even more to their advantage than usual.

Last week the Senate passed House Bill 5477, which would double the state’s fuel tax. In past years the fact that the bill moved so quickly could have been interpreted as assurance of its eventual passage in the House. That dynamic, however, has changed since Gov. Snyder came to office. Legislation that is bound to be unpopular with voters now frequently moves from one chamber to the other only to ultimately wither on the vine.

Gov. Snyder and Senate leadership tried to pass the fuel tax hike in June. Attempting this only six months prior to an election seemed like a fool’s errand, and predictably it failed. But a key question now may be: How many lawmakers promised in June that they would vote for the tax hike after the election was over?

It seems likely that House Bill 5477 moved before the two-week break to allow lobbyists, special interests and the administration additional time to try to line up enough “yes” votes for the fuel tax hike to pass in the House. That task might not be easy. There are indications that the House is reluctant to pass the fuel tax increase; but indications are not guarantees.

If it was left up to House Republicans alone, the legislation would seem to be doomed, but there are 51 House Democrats who are part of the equation. Some Democrats probably see supporting the fuel tax hike as an opportunity to cut deals on legislation that is important to them.

One indication that there currently aren’t enough “yes” votes in the House to pass the fuel tax hike is the recent posturing of the Michigan Chamber of Commerce. The Chamber has supported the fuel tax hike, but it is now threatening to back a ballot proposal in 2016 that would require all of the taxes collected at the pump to go toward fixing and maintaining roads. At present a portion of taxes drivers pay for gas goes to the School Aid Fund and local governments. Changing that so all the money is dedicated to roads would likely force lawmakers to adjust the budget to make-up the lost education and local government funding by eliminating or trimming other programs.

No doubt, the Chamber’s threatened proposal would ruffle the feathers of Lansing special interests; but is the threat of this sort of proposal enough to make House members, especially Democrats, vote for the fuel tax hike? That could depend on how seriously the Democrats take the threat, how they think it would impact the 2016 election, and whether they see the road funding issue as a hot potato they are in no hurry to help remove from the laps of the Republicans.

Last spring House Republicans forwarded legislation that would produce roughly $500 million for road funding, while barely nicking drivers’ wallets. That approach could still be part of the mix. One possible outcome might be a hybrid solution that includes the House GOP plan coupled with a smaller fuel tax hike.

A theory often repeated in the lobbies of the Capitol is that: “Voters will be just as upset over a small tax hike as they would be over a larger one; therefore, just go ahead and pass a larger one.” We can bet lawmakers will be hearing that self-serving special interest wisdom uttered again and again as this lame duck session unfolds.

Media Reporting on H.S. Report Card

Rankings available for all public high schools

The Dearborn Press and Guide is reporting that Star International Academy in Dearborn Heights has again been ranked as the top-performing high school in the state according to the Mackinac Center’s “Michigan Public High School Context and Performance Report Card.”

The Battle Creek Enquirer, Kalamazoo Gazette, The Macomb Daily and The Oakland Press also reported on how high schools in their readership areas scored.

WSJM-FM94.9 also interviewed Audrey Spalding, director of education policy and author of the study, about the results.

November 21, 2014, MichiganVotes Weekly Vote Report

Constitutional amendment proposals

While the legislature is in a two week recess with no voting, the Roll Call Report examines recent constitutional amendment proposals of interest.

Note: There will be no Roll Call Report during Thanksgiving week. The Report will return on Dec. 5.

House Joint Resolution KK: Replace House and Senate with unicameral legislature

Introduced by Rep. Martin Howrylak (R), to place before voters in the next general election a Constitutional amendment to establish a nonpartisan unicameral legislature (instead of a separate House and Senate) with 110 districts apportioned on the basis of formulas specified in the resolution. Legislators would have four year terms and term limits would be repealed. Referred to committee, no further action at this time.

HJRs B and MM, SJR Z: Repeal constitutional prohibition on graduated state income tax

Introduced by Rep. Jeff Irwin (D), Rep. Jim Townsend (D) and Sen. Rebekah Warren (D), respectively, to place before voters in the next general election a constitutional amendment to repeal an existing prohibition on a graduated income tax (as opposed to Michigan's current flat tax). The measures do not specify a rate structure, which would be left to future legislatures. Referred to committee, no further action at this time.

House Joint Resolution BB: Call for restrictions on corporation and nonprofit political spending

Introduced by Rep. Jeff Irwin (D), to submit an application to Congress calling for a “convention to propose amendments to the U.S. Constitution,” limited to proposing an amendment to “address concerns such as those raised by the decision of the United States Supreme Court in Citizens United v Federal Election Commission,” which affirmed that unions and “corporations” (including non-profit groups motivated by ideological or political concerns) possess the same right already recognized for individuals to spend however much they want on independent political expenditures. Referred to committee, no further action at this time.

House Joint Resolution NN: Call for congressional term limits convention

Introduced by Rep. Tom McMillin (R), to submit an application to Congress calling for a “convention to propose amendments to the U.S. Constitution,” limited to proposing an amendment that prohibits members of congress from being in office for more than 12 years (combined House and Senate terms). Referred to committee, no further action at this time.

House Joint Resolution OO: Require congress approve large-impact rules

Introduced by Rep. Tom McMillin (R), to submit an application to Congress calling for a “convention to propose amendments to the U.S. Constitution,” limited to proposing an amendment establishing three year sunsets on all federal departments without congressional re-authorization, and requiring congressional approval of all major administrative regulations that impose an economic burden exceeding $100 million. Referred to committee, no further action at this time.

House Joint Resolution PP: Call for limits on federal interstate commerce regulation

Introduced by Rep. Tom McMillin (R), to submit an application to Congress calling for a “convention to propose amendments to the U.S. Constitution,” limited to proposing an amendment clarifying that Congress's power to regulate commerce does not extend to activity within a state, whether or not it affects interstate commerce, or extend to compelling an individual or entity to participate in commerce or trade. Referred to committee, no further action at this time.

Senate Joint Resolution DD: Revise allowable School Aid Fund uses

Introduced by Sen. Bruce Caswell (R), to place before voters in the next general election a constitutional amendment to replace state constitutional language allowing tax revenue earmarked to the state “School Aid Fund” to be used for “higher education,” with new language limiting this to community colleges. In other words, tax dollars earmarked to this fund could only be spent on K-12 public schools and on community colleges. See also SJRs H, U and AA, and HJR Z, which would restrict School Aid Fund use to K-12 schools only. Referred to committee, no further action at this time.

Senate Joint Resolution EE: Make state constitution “gender neutral”

Introduced by Sen. Steve Bieda (D), to place before voters in the next general election a constitutional amendment to edit the document to make it “gender neutral.” For example, the current constitution adopted in 1963 establishes that “Every person has a right to keep and bear arms for the defense of himself and the state.” Under the proposal, that would become “for the defense of himself or herself.” Referred to committee, no further action at this time.

 

SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

Issues & Ideas Forum Dec. 4 in Lansing

Our growing occupational licensing regime

On Dec. 4, the Mackinac Center will host Dr. Morris Kleiner of the University of Minnesota to speak about occupational licensing. On this issue, Dr. Kleiner is one of the leading experts in the nation. (For information about the event, go here. Free lunch!)

In a just-published piece in the Cato Online Forum, Dr. Kleiner makes the case for why occupational licensing laws are harmful. Specifically, licensure laws raise costs, limit consumer choices and impede social mobility. These harms fall disproportionately on people with below-average incomes, because licensing laws limit the opportunities for people to earn income.

But that’s not all. Occupational licensing also creates a “reverse Robin Hood effect.” When these laws are introduced, newly licensed providers disproportionately flock to serve the high-quality end of the market. This creates competition and reduces prices in that segment of the market, but this comes at the direct expense of consumers on the other end of the market — those consuming lower quality services. In other words, those who can afford the higher quality services reap the benefits, while those who cannot are stuck with higher prices or nothing at all.

Considering these harms, one might wonder why licensing has grown in recent decades. In the early 1950s, only 5 percent of jobs required licensing. It’s about 30 percent now. Dr. Kleiner provides an answer:

From the time of medieval guilds, service providers have had strong incentives to create barriers to entry for their professions in order to raise wages. In contrast, consumers who will be affected by the higher costs due to licensure are unorganized and arguably underrepresented in the political process. The willingness of a legislature to pass licensure laws without rigorous analysis of its benefits relative to costs creates the opportunity for well-organized producer groups to lobby for laws that bring them personal gain.

Michigan policymakers have made some progress rolling back our anticompetitive licensure laws. But they should go further. The state should reduce the costs of obtaining a job, give residents a better chance to improve their lives and generally just get out of the way of people who want to offer all the rest of us their skills and talents.

Senate Should Take Up HB4001

Center expert's op-ed on MLive today

Executive Vice President Michael J. Reitz, who also serves on the board of directors for the Michigan Coalition for Open Government, writes in at op-ed at MLive today that the Michigan Senate should give consideration to House Bill 4001, which would strengthen the state’s Freedom of Information Act.

HB4001 has been languishing in the Senate since March. It passed the House with overwhelming bipartisan support on a 102-8 vote.

A panel last March at the Milken Institute in California featured several film incentive boosters who admitted Michigan’s subsidy program was a bad call.

The panel was centered on what California should do with its incentive program. There were four pro-subsidy representatives: Fred Baron of 20th Century Fox; Rajiv Dalal with the Los Angeles mayor’s office; Kathy Garmezy of the Directors Guild of America; and Kevin Klowden of the Milken Institute. Joe Henchman of the Tax Foundation was the lone opposition.

Henchman pointed out that film incentive programs are a “race to the bottom” and don’t create permanent jobs because other states will match or raise the subsidies. He noted that Michigan’s original 40 percent subsidy was “unsustainable” and that production companies sold loyalty to the state but when it was cut back, “There was a cartoon-sized hole in the wall where they ran out of the state.”

During the discussion, Michigan’s subsidy program came up several times.

Klowden said, “[U]nder the circumstances, [the subsidies] might not have been the right call for Michigan.” He noted that Michigan was offering “extremely aggressive incentives” and implied the state was “engag[ing] in that race to the bottom.”

Garmezy, who is the head of a union that lobbies for subsidies in many states, said “nothing has ever been proposed in California that is in any way is an effort to race to where Michigan is. … We’ve never raced to the bottom in this state to try to meet Michigan…”

Dalal said Michigan was a state that "did not have proper infrastructure."

Michigan passed its program in 2008 and has appropriated almost $500 million. The state has fewer jobs today than it did prior to the subsidies.

The Michigan Senate recently passed a bill that would continue the subsidies indefinitely. The bill is now being considered by the Michigan House.

~~~~~

Here is the debate:

Vernuccio Op-Ed in Detroit News

Restore democracy to the workplace

Labor Policy Director F. Vincent Vernuccio recently wrote in The Detroit News that union members should enjoy the same democratic process voters enjoy on Election Day by getting to vote not just on union contracts and officials, but whether or not they want to be represented by their current union.

No, the GOP Did Not Win Because of Gerrymandering

House, Senate seats the result of where people choose to live

The Illinois 4th congressional district is one of the most gerrymandered in the country.

In his recent Dome Magazine article, Rich Robinson of the Michigan Campaign Finance Network writes that Republicans won the state House and Senate because of “the power of the gerrymander”:

As old Joe Stalin observed, it’s less important who votes than who counts the votes. Or, in our contemporary situation, how the votes are grouped to be counted.

...Through the magic of drawing advantageous district lines, a pure toss-up state has been turned into a locked-down Red State government. I guess you have to take your hat off to the mechanics in the back room that pulled that off. But this rigged election outcome bears no resemblance to democracy. The principle of one person, one vote has been used for toilet paper.

But that does not actually appear to be the case in this most recent election. Gerrymandering certainly had some effect, but a careful look at election results shows that was not the reason the Republicans control the House and Senate.

Zach Gorchow at Gongwer lays this out:

[H]ere’s the problem with the argument that redistricting gerrymandered Democrats into an impossible task to win the majority. Most of the key House and Senate battles did not take place in these seats. In fact, many of them took place in seats whose boundaries have been largely stable or, in some cases, were made friendlier to Democrats than they were in the 2001 reapportionment plan.

Gorchow points out that Republican “gerrymandering” actually made the toss-up Senate seats more favorable to Democrats – but they still lost them. And regarding the State House, he writes:

[I]n looking at the House, of the four seats Democrats now hold that they lost on Election Day, none – I repeat, none – were designed in a way to tilt the playing field to the GOP. The 62nd District, with Battle Creek and environs, is a seat with a majority Democratic base. Republicans actually made the 71st, lost by Rep. Theresa Abed (D-Grand Ledge), a bit more Democratic when they redrew it, as was the case with the 91st, lost by Rep. Collene Lamonte (D-Montague). The 84th (Huron and Tuscola counties) has had the same boundaries since at least 1992.

So why did the GOP win so big at the legislative level while winning the gubernatorial race by only a few points and losing most “down ticket” statewide elections? Mostly because of where people choose to live.

Voters who tend to prefer Democrats are packed more closely together, often in urban areas. Republicans are spread out, more likely to live in suburban and rural areas. No matter how the lines are drawn in Michigan, Democrats will have the vast majority of the districts where 70 percent or more of voters choose them. There are many more districts that have a 50-60 percent Republican base than districts with strong Democratic support. Therefore, Republicans have better chances to win more districts than Democrats just based on where people choose to live.

That’s the simple math of our current electoral system.

Editor’s Note: I reached out to Rich Robinson with some of these points and this is what he said. “I believe the big sort is important, but not enough for 50 percent of votes to win 72 percent of Senate seats and 47 percent of votes to win 64 percent of U.S. House seats. The lowest winning vote percentage for a D[emocrat] for U.S. House was 60 percent. It took a lot of reaching around to achieve that.”

November 14, 2014, MichiganVotes Weekly Vote Report

Big gas tax hike, property forfeitures and more

House Bill 5477, Increase gas tax: Passed 23 to 14 in the Senate

To replace the current 19 cents per gallon gas tax and 15 cents diesel tax with a 9.5 percent wholesale fuel tax, gradually increasing to 15.5 percent in 2018. When fully phased-in this would represent a tax hike of around $1.0 billion at current wholesale fuel prices.

Who Voted “Yes” and Who Voted “No”

Senate Bill 841, Increase penalties, authorize property forfeiture for food stamp fraud: Passed 26 to 10 in the Senate

To revise a law that bans having or using a false or doctored food stamp debit card (“bridge card”), reducing the threshold for criminal penalties from getting $250 worth of merchandise to $100, and increasing the penalties. The bill also authorizes the seizure and forfeiture of the proceeds from this crime, and any property, including real estate, used to “facilitate” it.

Who Voted “Yes” and Who Voted “No”

Senate Bill 1100, Impose cash register fraud detector device mandate on merchants: Passed 31 to 5 in the Senate

To give the state Department of Treasury the authority to mandate that, for purposes of collecting sales tax, up to 1,000 merchants statewide must install software or detectors to expose the use an “automated sales suppression device” for falsifying the records of electronic cash registers (also called “zappers” or “phantom-ware”).

Who Voted “Yes” and Who Voted “No”

Senate Bill 843, Authorize welfare agency police force: Passed 25 to 11 in the Senate

To give the Department of Human Services, the state welfare agency, the authority to appoint agents with the same powers as peace (police) officers and limited arrest powers.

Who Voted “Yes” and Who Voted “No”

House Bill 4482, Convert “economic development” programs from rule-based to discretionary subsidies: Passed 77 to 30 in the House

To consolidate within the Michigan Strategic Fund agency the decision-making powers currently vested in various other government “economic development” and job training programs created over the years. In general, this and related bills have the effect of converting programs that give selective corporate and developer tax breaks and subsidies from (putatively) rule-based programs to ones in which the benefits are granted at the discretion of political appointees on the Michigan Strategic Fund board. The bill also expand this agency’s authority over “brownfield” and “historic district” tax breaks and subsidies, and government job training subsidies for particular companies.

Who Voted “Yes” and Who Voted “No”

House Bill 5513, Expand mobile home court regulation: Passed 106 to 0 in the House

To expand the jurisdiction of the Department of Environmental Quality over mobile home parks; impose new licensure conditions; require the state “Manufactured Housing Commission“ to notify local governments of any complaints from residents; impose a performance bond mandate on mobile home park owners; impose an annual inspection mandate; authorize placing a park under court-ordered receivership if conditions threaten residents’ health and safety; and more.

Who Voted “Yes” and Who Voted “No”

House Bill 4157, Lend IT project money to local governments: Passed 90 to 17 in the House

To create a government fund to make loans to state agencies, local governments, colleges and universities, school districts, and nonprofits that provide public services, for information technology projects that meet various criteria specified in the bill, and which would be selected by a board of state officials and political appointees.

Who Voted “Yes” and Who Voted “No”

House Bill 4401, Exempt some excavation and mining from permit mandate: Passed 68 to 39 in the House on

To exempt from state dredging and related permit requirements excavation or mining activities associated with an active mining operation, unless they create an inland lake with a surface area of five acres or greater.

Who Voted “Yes” and Who Voted “No”

House Bill 5230, Expand government’s power to seize and sell property deemed a “nuisance”: Passed 77 to 33 in the House

To expand the power of government to seize and sell an owner’s property, so that it applies to the contents of a building deemed a “nuisance” because they are connected with unlawful gun violence or human trafficking. Under this power the property owner does not need to be charged or convicted of a crime, and most of the proceeds from the taking go to the law enforcement agencies involved.

Who Voted “Yes” and Who Voted “No”

SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.