The MC: The Mackinac Center Blog

Hohman in Wall Street Journal

Right-to-work states enjoy higher per capita income

Research conducted by Assistant Director of Fiscal Policy James Hohman appeared in the Wall Street Journal this week. The article, titled "The Right-to-Work Advantage," discusses the economic advantages and freedom-based benefits that lead states to adopt right-to-work policies. Hohman’s research found that “right-to-work states have 4.1 percent higher per-capita personal incomes than non-right-to-work states” once cost of living is factored in.

Wisconsin is currently considering legislation that would give public and private sector workers the freedom to choose whether they wish to financially support their union. The Wisconsin Senate has already passed the bill and it is now in the state House.

House Committee Votes to End Michigan Film Incentives

$500 million spent with no overall increase in jobs

The House Tax Policy Committee voted 8-3 to end Michigan’s $50 million per year film incentive program. The vote passed House Bill 4122 out of committee and it is on to the full House.

The bill was supported by Rep. Jeff Farrington (R-Utica), Rep. David Maturen (R-Brady Twp.), Rep. Patrick Sommerville (R-New Boston), Rep. Ken Yonker (R-Caledonia), Rep. Martin Howrylak (R-Troy), Rep. Lee Chatfield (R-Levering), Rep. Gary Glenn (R-Midland), and Rep. Brandt Iden (R-Portage). It was opposed by Rep. Jim Townsend (D-Royal Oak), Rep. Bill LaVoy (D-Monroe), and Rep. Wendell Byrd (D-Detroit).

Rep. Michael Webber (R-Rochester Hills) and Rep. Paul Clemente (D-Lincoln Park) abstained from voting.

“It’s on track to be taken up soon, but there is no firm timeline,” said Gideon D'Assandro, spokesman for House Speaker Kevin Cotter, R-Mt. Pleasant.

Passage in the House is the most immediate hurdle the legislation needs to clear, but the general view in Lansing is that if House Bill 4122 is destined to run into obstacles, it will most likely happen after it reaches the Senate.

The vote taken on House Bill 4122 in the House Tax Policy Committee took place as soon as the hearing opened. There was no discussion other than Committee Chair Rep. Jeff Farrington, R-Utica, pointing out that the bill had already received a full hearing a week earlier.

Last week, Assistant Director of Fiscal Policy James Hohman testified in front of the committee, saying film incentives are a poor use of public money.

Taxpayers in Michigan have spent about $500 million on the film subsidy program since it began in 2008. According to the Bureau of Labor Statistics, there has been no overall increase in film jobs in the state. Film incentive programs are widely seen by economists across the spectrum as one of the worst “economic development” programs governments are involved in.

Wright on the Beckman Show

MEA president earning taxpayer-funded pension.

Vice President for Legal Affairs Patrick Wright was a guest on the “The Frank Beckman Show” of WJR Radio to discuss the Mackinac Center’s investigation of the MEA President Steve Cook’s pension. Steve Cook appears to be earning a taxpayer-funded pension as an “employee” of the Lansing School District, despite not performing any duties under the school district.

 

Vernuccio in Washington Times

Wisconsin at work on right-to-work

Director of Labor Policy Vincent Vernuccio and Brett Healy, president of the John K. Maclver Institute in Wisconsin, coauthored an opinion piece that appeared in The Washington Times. The authors discuss the effects stemming from right-to-work passage in Michigan and Indiana.

Wisconsin is poised to follow Michigan as the nation’s 25th right-to-work state. Earlier this week on Feb. 24, Vernuccio testified before the Wisconsin Senate labor committee in support of right-to-work legislation.

February 27, 2015, MichiganVotes Weekly Roll Call

BB guns (‘Ralphie’s Law’), more corporate subsidies, and more...

Senate Bill 71, Extend, expand job training subsidies to some employers: Passed 37 to 0 in the Senate

To eliminate the $50 million debt cap in a 2008 law that authorized state job training subsidies for particular employers, provided through community colleges. Other bills in the package would make this program permanent, and prohibit companies granted subsidies under a different program (see next bill) from “double dipping” by taking subsidies from both programs.

Who Voted “Yes” and Who Voted “No”

House Bill 4110, Revise school aid budget: Passed 23 to 14 in the Senate

To shift funding sources in the current year school budget to compensate for lower than expected balances in the state general fund. This is due to higher than expected payouts to corporations granted selective “tax credit” deals (often cash subsidies) by the previous administration. The unexpected draw-down of some state accounts comes despite revenue collections actually rising faster than spending this year. The bill also reduces spending to reflect lower than expected school enrollment, and suspends payments intended to “catch up” on underfunding of the school pension system.

Who Voted “Yes” and Who Voted “No”

Senate Bill 34, Revise concealed pistol license procedures: Passed 76 to 34 in the House

To eliminate county concealed pistol licensing boards, and transfer their duties to the State Police and county clerks. Personal protection order provisions that triggered a Governor’s veto of a similar bill last year have been removed.

Who Voted “Yes” and Who Voted “No”

House Bill 4160, Revise firearms “brandishing” law: Passed 95 to 15 in the House

To establish that the crime of illegally “brandishing” a firearm requires it be done “willfully.” Also, that using a firearm to defend one’s home or property under a 2006 law repealing a legal “duty to retreat” requirement is not brandishing. House Bill 4161 clarifies the definition of “brandishing” and passed with just two “no” votes.

Who Voted “Yes” and Who Voted “No”

House Bill 4151, Repeal criminal sanctions for minor with BB gun: Passed 80 to 29 in the House

To repeal a law that makes it a misdemeanor for a minor unaccompanied by an adult to possess a BB gun except in his or her own home or yard.

Who Voted “Yes” and Who Voted “No”

House Bill 4155, Revise firearms definition: Passed 88 to 21 in the House

To revise the definition of “firearm” in the state penal code so it longer applies to BB, pellet, paint ball or “air-soft” guns. The new definition would be a gun that “expels a projectile by action of an explosive.” However, using a non-firearm to commit a crime would still be subject to criminal penalties.

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.

Hohman on Film Incentives

Price tag of $500 million for no industry growth

Assistant Director of Fiscal Policy James Hohman is quoted by the Detroit Free Press, Grand Rapids Press, Lansing State Journal, Livingston Daily, WLNS, and HometownLife.com on the ineffectiveness of Michigan’s film incentive program. The House Tax Policy committee continues to debate a bill that would repeal the film incentive program.

The state has spent $500 million on the film subsidies and is authorized to spend another $50 million in the current fiscal year. Over the seven years of the program’s existence, the state has gained no permanent film industry jobs.

LaFaive's Minnesota Senate Tax Committee Testimony

Fiscal policy expert shows analysis of cigarette taxes and smuggling

(The following is a transcript of the testimony given by Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, on February 26, 2015, in front of a Minnesota Senate Tax Committee.)

Good morning. My name is Michael LaFaive and I am director of fiscal policy for the Michigan-based think tank, Mackinac Center for Public Policy. I was invited to speak today by the Minnesota Wholesale Marketers, Grocers and Retailers Associations, respectively.

I am the co-author of national studies on cigarette taxes and smuggling. My colleague, Dr. Todd Nesbit and I, first published a study on this subject in 2008, though our interest in cross-border economic activities pre-dates this work.

Our peer-reviewed statistical study is designed to estimate the degree to which cigarettes are smuggled in the United States. It does so by comparing published smoking rates with legal paid sales per-capita. If smoking rates tell us how much should be smoked but legal paid sales are much lower, the difference must be explained somehow. We believe it is explained by smuggling.

Through calendar year 2013 we estimated that Minnesota’s total smuggling rate was almost 18 percent. Minnesota currently has the 16th highest smuggling rate in our most recent study.

I stress, however, that our most recent study does not yet include the influence of the July 2013 excise tax hike. Our estimate is based on an excise tax rate of $1.60, not the higher cigarette tax rate of $2.83 per pack enacted July 1 2013, nor the automatic increase of another 7 cents per pack on January 1, 2015.  When the higher rate gets factored in next year we expect our estimate for Minnesota’s overall smuggling rate to leap, and dramatically.

To get an idea for the type of smuggling changes that may be reflected in next year’s model update (which would include the 2013 tax hike data) we used our statistical model to run “what if” scenarios for $2.83 and then again for $2.90. Our model told us that:

  • Cigarette smuggling would leap to 32.9 percent of the total market.

That is, of all the cigarettes consumed in Minnesota nearly one-third are illicit. This figure would be higher if we did not subtract out exports to Canada.

I realize this is just an estimate, but if confirmed next year, it would give Minnesota the 5th highest smuggling rate in the nation, displacing Rhode Island in our rankings.

  • When we re-ran the model at the higher excise tax rate of $2.90 the model told us smuggling would increase to 33.7 percent of the market.

That represents a 0.8 percentage point increase year-over-year. If such a figure becomes an annual average increase due to the automatic accelerator Minnesota will easily remain a top five smuggling state.

I know supporters of this hike are very well intentioned. They believe people will quit with higher taxes. They’re right. Theory and evidence show this, too. But not as many will quit as they believe.

Dr. Nesbit and I have pointed to studies that suggests as much as 85 percent of the legal paid sales response to cigarette excise tax increases is a result of tax avoidance and not of quitting. More people are simply getting their nicotine through other — and sometimes more dangerous — sources than are kicking the habit.

Maintaining the automatic accelerator all but guarantees that smuggling and other intended consequences will continue to rise.

Thank you for your time.

How Occupational Licensing Redistributes Income

No benefits to consumers to be found.

The Mercatus Center at George Mason University has a new working paper looking at the effects of occupational licensure in the area of opticians. The results show the problems of state licensing in a variety of areas.

From 1950 to today, it is estimated that the percent of occupations now requiring a license has risen from five percent to 30 percent. In other words, the percent of occupations which require people to pay a fee to the state or take mandated classes has risen six-fold. According to Dr. Morris Kleiner of the University of Minnesota, most of this licensing drives up costs for consumers but does not lead to better health and safety results.

The Mercatus paper, authored by Dr. Edward Timmons and Anna Mills, compares the 21 states which require a license for an optician and those which do not. Opticians are eye care specialists who fit glasses and lenses to correct vision. They do not require a license in Michigan.

The paper finds that licensing causes a redistribution of wealth from consumers to opticians with no observable benefit in health or quality of services. Specifically, the authors write:

“The results suggest that opticians earn 0.3-0.5 percent more for each year that a licensing statute is in effect. In addition, tougher licensing provisions (in the form of more exams or longer education requirements) increase optician earnings by 2-3 percent. In an examination of vision insurance and malpractice insurance premiums, we find little evidence that optician licensing has enhanced the quality of services delivered to consumers. By and large, optician licensing appears to be reducing consumer welfare by raising the earnings of opticians without enhancing the quality of services delivered to consumers.”

This is a fairly common finding, backed up by research from scholars at many different organizations. Licensing should only be required if the public’s health and safety is at risk — otherwise, it simply redistributes wealth from consumers to select special interests.

Vernuccio's Wisconsin Senate Committee Testimony Video

Why right-to-work is right for Wisconsin

On Feb. 24, 2015, Director of Labor Policy F. Vincent Vernuccio testified before the Wisconsin Senate labor committee. Wisconsin is currently considering right-to-work for the public and private sectors. You can watch his testimony below or read his prepared testimony here.

Why Worker Freedom is Right for Wisconsin

Vernuccio testimony before Wisconsin Senate committee

(The following is a transcript of the testimony by F. Vincent Vernuccio, director of labor policy, on Feb. 24, prepared for the Wisconsin Senate Committee on Labor and Government Reform.)

Chairman Nass, members of the Senate Committee on Labor and Government Reform, I am F. Vincent Vernuccio, director of labor policy for the Mackinac Center for Public Policy, a nonpartisan research and educational institute based in Midland, Mich.

Thank you for giving me the opportunity to testify here today on right-to-work. This policy will give workers the freedom to choose whether to support a union or not, and help improve Wisconsin’s economy.

Wisconsin governor Scott Walker has been fielding a number of questions about this policy lately. He was asked if he considered the state Legislature’s right-to-work proposal to be anti-union.

Gov. Walker rejected that characterization. He said right-to-work laws are not anti-union; all they do is give workers the right to choose. My testimony will underscore that fundamentally sound judgment.

Gov. Walker and the Wisconsin Legislature have put limits on government-union collective bargaining privileges in the past, through legislation such as Act 10 of 2011.

This bill is different. It is not about limiting the ability of unions to bargain. It is about worker freedom.

Right-to-work laws prohibit labor contracts that force employers to fire workers who do not wish to financially support a union. Outside of this, right-to-work does not affect collective bargaining in any way. In Wisconsin, private sector unions will still be able to bargain over wages, hours, working conditions, or anything else they could bargain for before right-to-work.

The difference is worker freedom.

A significant number of employees will always want some form of representation. Unions — strong unions — still exist in right-to-work states. They simply behave differently because they have to earn the support of workers rather than rely on compulsion.

In right-to-work states, unions can’t take worker support for granted. Therefore, they must earn dues by providing value to members.

Despite claims to the contrary, states can improve union representation and give workers this fundamental freedom without necessarily harming unions or workers.

The data are mixed on unionization rates in right-to-work states, but it isn’t a guarantee that when a state goes right-to-work it is going to have any less unionization than before. Some years, forced-unionization states do better; other years, right-to-work states put up better unionization numbers.

In 2014, Indiana managed to add, on net, more than 50,000 union members.

Though unions as a whole take a dim view of right-to-work, Gary Casteel, an organizer in the South for the United Auto Workers, was quoted by the Washington Post after he made a striking observation:

I’ve never understood [why] people think right to work hurts unions. ... To me, it helps them. You don’t have to belong if you don’t want to. So if I go to an organizing drive, I can tell these workers, ‘If you don’t like this arrangement, you don’t have to belong.’ Versus, ’If we get 50 percent of you, then all of you have to belong, whether you like to or not.’ I don’t even like the way that sounds, because it’s a voluntary system, and if you don’t think the system’s earning its keep, then you don’t have to pay.

What Casteel doesn’t seem to understand is that union leaders may have a self-interested reason for opposing right-to-work.

According to a report by labor economist James Sherk, states with compulsory unionism charge their members about 10 percent more than their right-to-work rank-and-file brothers in other states. He also found that top union officials in those non-right-to-work states take home about $20,000 more in salary, each, per year.

Unions can charge these premiums because there is no competition. Workers are compelled to pay dues or fees on the pain of losing their jobs.

The reason more states are embracing right-to-work is that such laws make states more economically competitive. Right-to-work states tend to have more job growth. This is true both in the short and long term.

For the short term benefits, a good example comes from Site Selection Magazine, a trade publication for corporate real estate and economic development. After Michigan went right-to-work in 2013, the magazine quoted a real estate manager from a Chicago-based firm as saying: “Where [right-to-work] will have an effect is when there are companies who are looking for locations. ... [T]here should be a significant increase in the number of projects Michigan receives because they are no longer being eliminated in the early stages of searches.”

The developer’s prediction proved correct. Michigan’s economy is greatly improving. According to the Bureau of Labor Statistics’ household survey, from March 2013, when Michigan’s right-to-work law took effect, to December 2014, Michigan’s employment levels increased by 141,990 people. This is a 3.3 percent growth rate, giving Michigan the 15th-highest in the country.

Among those states in the Midwest, only Indiana, another right-to-work state, outpaced Michigan, growing by 5.1 percent. Only Colorado and North Dakota surpassed Indiana over this period.

The Wall Street Journal has noticed this trend as well. In January, it reported that between March of 2013 and November last, Michigan had seen “four percent payroll manufacturing growth, beating an average of 2.8 percent in right-to-work states and 0.9 percent in non-right-to-work states.”

States that go right-to-work typically experience job growth, but even after those initial good years, their economies are fundamentally restructured. Costs are held down, wages are boosted, and there are more jobs.

According to statistics derived from the U.S. Bureau of Economic Analysis, between 2003 and 2013, right-to-work states experienced 21.5 percent growth in inflation-adjusted GDP versus 14.7 percent in non-right-to-work states. In manufacturing, the spread was even more pronounced. There was 26.1 percent growth in manufacturing GDP, versus only 13.8 percent growth in non-right-to-work states.

States with growing GDPs are adding jobs, and lots of them. According to research of Bureau of Labor Statistics data by my colleague James Hohman, from 2003 to 2013, right-to-work states added 4.3 million jobs while non-right-to-work states added only 2.4 million. Add to this the fact that the average right-to-work state has a smaller population than the average non-right-to-work state, and this contrast is quite remarkable and telling.

Finally, another myth worth dispelling is that wages in right-to-work states are low. In fact, if you factor in cost of living and purchasing power – if you actually look not just at the raw numbers but what those wages can buy in terms of food, clothing and shelter – workers in right-to-work states actually enjoy higher incomes than folks in non-right-to-work states on average.

More jobs, more wage growth, growing economies, and last but not least, more freedom and choice for individual workers in Wisconsin. That is what right-to-work is all about.