Setting the record straight
The Mackinac Center’s focus is policy, not politics. But since all policy moves through a political process, even a policy institute must exhibit sensitivity to important political developments.
On Monday, Jan. 5, shortly after Michigan Republican National Committeeman Dave Agema posted offensive material to his Facebook page, the Mackinac Center withdrew from a Jan. 9-10 activist event headlined by Mr. Agema. We had intended our withdrawal to speak for itself. But instead of letting our action speak louder than words, we granted interviews that produced reports that confused, rather than clarified, our apparent position.
This statement is to set the record straight. The reason the Mackinac Center withdrew from the event was Mr. Agema’s prominent role there.
Discussed migration, legislative priorities and roads
Michael LaFaive, director of the Morey Fiscal Policy Initiative, was a guest live in-studio this morning on “The Wayne Powers Show” on WKZO AM590 in Kalamazoo, discussing a wide range of topics including migration data, legislators’ priorities and road funding.
Had been accepted to several top universities
Last April, Michigan Capitol Confidential published “From Detroit to the Ivy League: One Student’s Journey,” about Cesar Chavez Academy student Daniel Felix, who comes from a poor community but achieved high academic scores and letters of acceptance from many of the top universities in the country.
The best research shows that students in charter public schools in Michigan gain an academic advantage over their conventional school counterparts. According to a study from the Center for Research on Education Outcomes (CREDO), charter students in Detroit gain three months of additional learning compared to students of similar backgrounds in Detroit Public Schools.
Many readers responded positively to Daniel’s story. Daniel now attends Stanford University and recently finished his first trimester. According to his former principal, Juan Martinez, he is doing well. Martinez reports that Cesar Chavez, which ranked fourth in the state on the Mackinac Center’s recently released “High School Context and Performance Report Card,” also recently had a student accepted to the United States Military Academy at West Point.
A video of Daniel's story:
How did your legislator do?
Politicians often focus on less important matters
Reports from the state Capitol late last year were filled with stories of a $1.9 billion tax hike the previous Legislature wants Michigan taxpayers to impose on themselves come May 5. But hours before that vote it appeared all the state's problems had been solved, because time had been found to introduce the following bill, as described by MichiganVotes.org:
Introduced by Rep. Phil Cavanagh, D-Redford, on Dec. 18, 2014, to establish that henceforth, as a matter of law and statute, the monarch butterfly, and no other butterfly or bug, shall be the official insect of the great state of Michigan.
We jest, of course. Rep. Cavanagh would surely and correctly note that legislators are capable of multitasking. Still, the bill provides another opportunity to explore why career politicians so frequently introduce such puffery.
The answer of course is to curry favor with certain special interests or segments of the population they believe may be helpful for keeping their current jobs, or finding their next elected or appointed government position.
It’s a common Lansing pastime. Other recent examples include:
- In 2014 Rep. Bruce Rendon, R-Lake City, introduced a bill to create an Official State Poem.
- In 2012 then-Sen. John Moolenar, R-Midland, introduced a bill to declare that Iosco County was the official “birding capital” of Michigan.
- In 2014 then-Rep. Fred Durhal, D-Detroit, introduced a bill to mandate that the state give a state flag to some survivor of current or former state lawmakers who die.
Alas for term limits and the uncompleted agendas they leave in their wake. As he was heading for the exits last month, Rep. Durhal gave a tearful farewell speech in which he reiterated his desire to see he and his now-former colleagues honored with those funeral flags. This was actually a scaled down effort; his first attempt would have required a state police escort at the funerals of former legislators.
Sometimes the contrast between the puffery and grim reality can be too much though. For example, during the darkest days of Michigan’s lost decade of the 2000s, I covered a debate over which Scottish tartan should be the State of Michigan’s official Scotch tartan. Watch video testimony on the tartan here.
Previous examples of these “Acts of Officialdom” include proposals for an official state song, bird, bird-of-peace, amphibian, nickname, cookie, beverage, dialect and fruit. A Senate Resolution recognizing “Talk Like a Pirate Day” was an annual event the past few years, with the sponsor sporting an eye patch on the Senate floor and — you guessed it — talking like a pirate.
United Van Lines National Movers Study a good gauge of where opportunity lies
For years Mackinac Center analysts have written about the subject of interstate migration. We view it is as arguably the best metric for measuring quality of life issues among many important tradeoffs.
Each year, one source of data Mackinac Center scholars look to for insight is the annual United Van Lines (UVL) National Movers Study. This study tracks relatively closely with actual census data that won’t be released for nearly a year, making UVL data something of a leading migration indicator. This year’s survey reports good and bad news for Michigan. Policymakers in Lansing should do more to improve the state’s prospects.
The 2014 UVL study examines where the company moves its clients to and from in the continental United States, including Washington, D.C. It was just released this morning (Jan. 2, 2015) and it indicates that Michigan is back in the study’s “high outbound” column, a position the state held for more than a decade.
Last year UVL specifically noted that “… after 16 years at or near the top of the outbound list, Michigan appeared in the balanced category for 2013.” Between 2006 and 2009 Michigan was number one for outbound moves. That is, of all UVL Michigan-related client traffic the percentage of customers leaving their state was highest in the nation.
In 2014, 55.4 percent of all the Wolverine State moves handled by UVL were outbound. That is not good news because, year-over-year, we moved in the wrong direction, ever so slightly, from the “balanced” column (53.8 percent outbound) back into the high outbound one.
There is a silver lining, however. Since 2009, Michigan improved in comparison to other states. We have been moving down the state rankings, from first in outbound traffic that year to 14th. In other words, despite higher outbound traffic Michigan still did better relative to some sister states.
As an aside, UVL has published this research every year going back to 1977. In 2009 Michigan hit a record high in outbound traffic with 68 percent of UVL’s Michigan moves being outbound.
Before critics dismiss UVL data as an unrepresentative sample, consider that the Mackinac Center has done a statistical analysis comparing years of the company data to actual migration statistics published by the United States Census Bureau and found the two to be highly correlated.
Migration is important because people move to places where there is opportunity. Ball State University Business Economist and Mackinac Center Adjunct Scholar Michael Hicks in 2010 used a model to find out what may be driving people between states. His conclusion was that people were moving to states with more flexible labor climates, more days of sunshine and lower taxes.
Specifically, Hicks found that for every 10 percent increase in personal taxes, Michigan loses 4,900 people each year afterward. In other words, the 11.5 percent personal income tax increase imposed on the Great Lake State in 2007 may have already chased away more than 35,000 of our fellow residents.
Michigan also isn’t helped by its cold and long winters. Scholar Jordan Rappaport found that an increase of average January temperatures from 29 degrees to 59 degrees “is associated with faster [population] growth of 1.3 percent a year." He attributed population growth in Michigan’s climate from between -1.5 percent to 0.0 percent from 1970 to 2000.
Since we can’t compete with our southern sister states on weather, we must swamp their natural advantage with other policy levers that are within our control. That means much lower tax burdens, continued labor reforms and a willingness to rein in the expensive and unnecessary parts of the state’s regulatory apparatus.
What exactly does that mean?
First and foremost, Michigan residents need and are owed a tax cut. We were promised that the 2007 personal income tax hike would be only temporary, but most of it remains intact. At a minimum it should be rolled back to 3.9 percent, if not to further to say, 3.75 percent in 2015.
Second, the state should repeal its archaic and expensive Prevailing Wage law which mandates higher than necessary wages on government financed construction projects. Doing so might save $224 million per year on school construction costs alone.
Lastly, the state — which has made some progress on the unnecessary regulation front—needs to cut its regulatory red tape. At a minimum it should look to eliminate some of its occupational licensing requirements.
Michigan remains a high outbound state despite solid reforms in areas of business taxes and labor reform but there is much work to be done. The new legislature should start with solid cuts to the personal income tax. That will make Michigan more attractive to those who have long paid full freight and those considering a move to the Great Lake State.
Film incentive programs take from everyone to give to a few
In a recent interview with Michigan Capitol Confidential, Brandeis University economist Bob Tannenwald remarked that film incentives were a bad deal for taxpayers.
"Another way to look at that would be that a state might be getting only 50 cents or 75 cents value for each dollar per dollar of personal income created by the program for the state’s residents. A state might be better off just sending the checks out directly to its residents rather than creating the program."
With roughly $500 million offered in incentives from the start of the program to present, the state could have sent $130 checks to every household in Michigan. Add another $13 for each year state policymakers put $50 million of tax money in the film incentive budget.
Economic growth starts with the individual, not the state
MLive columnist Rick Haglund is skeptical about the state’s choices of favored industries, noting that much of the Michigan Business Development Program subsidies go to manufacturers. “[D]eluded by the recent resurgence of manufacturing jobs, state policymakers are doubling down on promoting Michigan as a state that makes things,” he writes.
However, everyone should be skeptical of the idea that the state can lead economic growth at all.
Michigan’s industrial mix is not the result of decisions made in Lansing. It is the result of millions of people using their skills and knowledge in the most effective way they know how to better serve each other and themselves.
This is not a new idea. In “The Use of Knowledge In Society,” Nobel laureate Friedrich Hayek explains that economic planning does not happen at the top, but rather by each person in the economy. A person’s own knowledge of time and place forms the economy more than a government’s industrial policies.
High school students in the marching band know that the movie theater openings offer flexible hours, and this changes the state’s industrial mix. (Try asking what instrument a youthful ticket taker plays. You may be surprised.)
A grocer’s knowledge of how many fresh cherries he or she can purchase that will sell before they spoil influences the state’s industrial mix.
Believing that there’s a market for a new makerspace, and investing in the equipment necessary to do it will change the state’s industrial mix.
Multiply these examples by several million and the net product is the state economy.
Public policy would have a hard time keeping up with the pace of change these decisions cause in the economy. Yet the state has programs that have spent billions attempting to lead the economy. Michigan’s private sector created 193,208 jobs in the first quarter of 2014 and lost 179,299 jobs. The state government’s flagship incentive program subsidized at-most 1,931 jobs over the same period and offered $24 million of taxpayer money for those jobs. Thus, the state’s attempts would influence less than one percent of the job creation and none of the losses, even if it all worked according to plan. (It rarely does.)
State government can do some things to change the makeup of the state but these are as likely to generate as many net losses as gains. Those wind farms in the Thumb were not built by investors and entrepreneurs believing that this was an efficient way to generate electricity, but rather by policymakers in Lansing to mandate renewable power. This is done at great expense, and every step of the process from engineering the wind turbines to building them to operating them is done with taxpayer support, whether locally, nationally or internationally.
Unfortunately, the number of jobs in wind electric power generation is not disclosable in the economic statistics yet, typically because there aren’t enough jobs or the jobs that exist are too concentrated in select companies. While wind’s job impact is unknown, its costs are as well. The state’s annual reports on the program lack a proper accounting of the costs.
The state’s film subsidies are an even more dramatic example of politicians’ impotence in guiding the economy. Despite $500 million in taxpayer expenditures, there are fewer film jobs now than when the program began in 2008.
The future looks different than what politicians can expect. The millions of participants in Michigan’s economy make their decisions in unpredictable ways.
For example, Michigan’s manufacturing growth is unexpected. Few people thought manufacturing jobs would disappear from the state after the recession, but the use of automation and a sluggish track record was believed to hinder the ability of manufacturing to increase employment. Yet the net number of manufacturing jobs in Michigan increased by 219,000 jobs since it bottomed out in 2009, roughly a 50 percent gain.
This is not to say that the trend will continue, just that the pace of the recovery is unexpected.
It is not clear that this recovery is caused by the state targeting manufacturers for favors. As the job churn numbers show, employment gains from the handful of firms granted special treatment are a drop in the Great Lakes.
The most constructive thing the state can do to encourage growth is to get out of the way and let residents create the future based on their own knowledge and skills. The policies that matter for growth and prosperity are things like lower tax burdens and fewer licensing barriers that allow people to use their knowledge to better their own lives and the lives of others.
The perfect time for tax cuts
With the new calendar year upon us it is time to remind lawmakers about sound public policies. One overlooked area the new Legislature needs to take up is large, across-the-board tax cuts. Center analysts have recommended a personal income tax cut from 4.25 percent to at least 3.75 percent.
There are four major reasons why a tax cut is necessary. First, the money legally confiscated from Michigan residents belongs to them, not Lansing politicians or their hangers-on. Second, the Legislature has owed us a tax cut since its members hiked personal income taxes by 11.5 percent in 2007. Third, other taxes and fees at federal and state levels have been biting taxpayers more in recent years. It’s time to reverse the damage. Lastly, taxes matter. Reducing them can encourage growth, which is no small matter for Michigan.
Too many (though not all) politicians seem to view taxpayers as cash machines from whom they can withdraw ever higher amounts of revenue via taxes and fees. Need $1 billion more for roads? “No problem,” responds Lansing. “Rather than reforming state spending to better live within our current means we will simply take more from the people who earned it.”
There are plenty of areas to cut in the state’s $52 billion-plus budget to offset revenue losses. I recently published a list of 35 ideas for $2.1 billion in spending reforms. Surely thoughtful legislators concerned with preservation of taxpayer resources could adopt or adapt at least one or two of them.
Even if lawmakers believe our money is their money, we are owed a large personal income tax cut. Recall that the state income tax rate was hiked from 3.9 percent to 4.35 percent in 2007. We were promised this was only temporary and would be rolled back starting in 2011. Ultimately that rollback was delayed and then scrapped altogether after a puny 0.1 percent cut to 4.25 percent. It is time for Lansing to keep its tax cut promise.
Don’t forget that fees have been piled high on Michigan residents, too. The Fiscal 2014 budget alone contained $82.6 million in new and higher fees on businesses and families. And these are just at the state level. Other tax and cost increases have been imposed from Washington.
Congress permitted President Bush’s tax cuts to expire and taxes and fees also went up under Obamacare, and that was in addition to the spiraling cost of existing health care plans.
I can’t be the only person tired of being nickeled-and-dimed and “dollared” to death by all levels of government.
Michigan was only one of two states in the union to experience negative economic growth from 2000 through 2009 as measured by real state Gross Domestic Product. We need a tax cut because tax policy matters to growth and the Great Lake State needs a lot more of it.
Last February the John Locke Foundation published its review of 528 academic papers and professional journals published between 1992 and 2013. Of the more than 100 that zeroed in on local or state tax burdens, 64 percent showed a negative link between burden and economic growth. In 67 percent of studies reviewed on narrower topics a negative link was found between higher personal income taxes and economic growth.
Some of the individual studies referenced in this review aren’t just interesting for the results but for the methodology. A 2004 paper in Public Finance Review looked at border counties in adjoining states. After examining 30 years of data the authors concluded — as explained by JLF — “states that raised their income tax rates more than their neighbors had significantly slower growth rates in per-capita income.”
The entire JLF review should be required reading for Michigan lawmakers, but it need not be the only one. The papers “What is the Evidence on Taxes and Growth,” published by the Washington D.C.-based Tax Foundation and “Tax Myths Debunked” by the American Legislative Exchange Council are both worth legislators’ time.
The bottom line is that the state’s bottom line carries more revenue than is needed. Paring back both state spending and state personal income taxes are ideas whose time has long since come.
Former Center board member passes away
The Hon. Paul Gadola, who served on the Mackinac Center’s Board of Directors from 1992 to 2008, passed away today at the age of 85.
“Judge Gadola was an early board member of the Center who lent us his good name, as well as his guidance and wisdom, beginning at a time when we had no reputation to lose,” said Mackinac Center President Joseph G. Lehman. “As he served for nearly two decades, the Mackinac Center became the nation’s largest and most effective state-based think tank. We will always be grateful to Paul and we extend our heartfelt sympathy to the Gadola family.”
Gadola was a trial lawyer in Flint for 25 years before being named a federal judge by President Ronald Reagan in 1988. A founding member of the Flint ACLU chapter, he received that group’s lifetime achievement award. He also served as a board member for the Urban League of Greater Flint and the Genesee County chapter of the NAACP.