(Note: The following essay was updated Jan. 4, 2008, to reflect new migration data from United Van Lines, LLC the largest household moving company in the nation. According to UVL, a record 67.8 percent of all their Michigan client traffic was outbound. The previous record was set in 1981 when the state unemployment rate averaged 12.5 percent.)
Michigan residents continue to
flee the Great Lake State and are doing so at a record rate, according to
one vital measure. The implications of this diaspora — or dispersion — of our
residents across America are staggering.
People are the basis of all
economic development. It is people who create, produce, employ, work and
generate wealth. Nothing is more important to Michigan than stanching the flow
of its people to "opportunity states" by making itself relatively more
attractive to people and job providers alike.
In recent years, Michigan
policymakers have done little to slow this outbound migration. Indeed, both
political parties in Lansing have done the opposite by catering to special
interests that benefit from higher taxes or advocate for the imposition of
additional regulatory burdens. Such policies raise the relative cost of living
and working in Michigan. Lansing’s most recent policy mistake — a nearly $1.4
billion tax hike — has not gone unnoticed by political and business leaders
alike.
Since the Legislature and
governor approved the tax hike, the state of Indiana erected billboards near the border encouraging Michiganians to, "Come on IN for
Lower Taxes, Business and Housing Costs." (They’ve also taunted Illinois,
another neighbor on a tax-hike spree.) Indiana is also running radio ads with
the same message on Lansing’s WJIM (listen to the advertisement here). As
an aside, none of this Hoosier activity is funded with tax dollars.
The highly respected Tax
Foundation, whose data has been cited prominently by both the Mackinac Center
and Gov. Jennifer Granholm’s administration, ranks Indiana at 25 among the 50
states in overall tax burden. Before the recent tax hikes, Michigan was ranked
as having the 14th highest tax burden, but the increased levies have likely
moved us into the 12th worst slot. (Note: On Aug. 7, 2008, the Washington, D.C.-based Tax Foundation released its newest State-Local Tax Burden Ranking of the 50 states. This report included a change in the methodology used to compute and rank tax burdens which led to a significant drop in the position Michigan held in Tax Foundation rankings — from 14th to 27th among the 50 states.)
Of course, while taxes do
impact a state’s economic well being, they aren’t the only variable that
matters. Economists Stephen Moore and Arthur Laffer recently completed a study
for the American Legislative Exchange Council titled, "Rich States, Poor States:
ALEC-Laffer Competitiveness Index." It contains competitiveness indices ranking
the states on 16 variables, including taxes, regulation and right-to-work
status, among others.
Describing the findings in a
Dec. 10 Wall Street Journal column, Moore and Laffer report that over the past
10 years, "… the 10 states with the highest taxes and spending, and the most
intrusive regulations, have half the population and job growth, and one-third
slower growth in incomes, than the 10 most economically free states."
The authors add that, of the
16 variables examined, the two that stood out were taxation and right-to-work
laws. It’s probably not a coincidence that right-to-work states also have faster
population growth. For example, from summer 2005 to summer 2006, nine of the top
10 states in estimated population growth were also right-to-work states. A
number of economic studies demonstrate that the absence of a right-to-work law
acts as a deterrent to business investment. It is no surprise that states that
welcome employers also turn out to be places that attract employees.
Among those top 10 states is
Florida, which not only has a lower state and local tax burden than Michigan,
but also has no individual income tax and a right-to-work law. This may help
explain why it is the number one destination state of Michigan’s outbound
migrants. According to Internal Revenue Service data, 14 percent of all 2004
Michigan moves were to the Sunshine State, double that of the second and third
choices of Ohio and Illinois. It is worth pointing out that Florida is such a
dominant draw for Michigan residents that there is probably more than
retirement-inspired migration occurring here.
A leading indicator for that census data comes from United Van Lines, LLC, which annually releases its household moving data for the calendar year. In January 2006, Michigan was tied with North Dakota for number one among the 48 contiguous states for outbound client traffic at 66 percent. The full-year 2007 UVL data indicate that Michigan now stands alone among the 48 contiguous states for outbound client traffic at record 67.8. This eclipses Michigan’s 1981 record of 66.9 percent when the state’s unemployment rate averaged 12.5 percent.
Saginaw-based Stevens
Worldwide Van Lines reports numbers similar to those posted by UVL. Morrie
Stevens, chairman and CEO of the 102-year-old company, told the Mackinac Center that in
calendar year 2007 his company’s shipments have been running 2-1 in favor of
leaving Michigan. He believes the outbound traffic is "a function of the weak
economy as displaced workers and young people leave to find better opportunities
elsewhere."
Today Michigan has the worst
unemployment rate in the nation at 7.4 percent, but even that figure is masked
by the state’s ability to export its unemployed. Over the past four years the
nation has enjoyed significant economic growth. Consider just one state: North
Carolina, with an unemployment rate of just 4.8 percent, is ranked number one by
UVL for its highest inbound traffic rate at 62.1 percent. From 2002
through 2006, North Carolina enjoyed annual average real state Gross Domestic
Product growth of 3.4 percent. By contrast, Michigan’s real annual average rate of growth was
0.1 percent. State GDP is one of the primary metrics used by economists to
measure a state’s economic health.
Some may be tempted to dismiss
UVL data as not being a leading indicator for emigration patterns because the
people hiring the moving company may not be representative of the population at
large. But last year the Mackinac Center did several statistical analyses of UVL
data and census data and found the two to be very highly correlated.[1]
The impact of Michigan’s
diaspora may be starting to sink in with lawmakers. On Jan. 11, State
Demographer Kenneth Darga is scheduled to speak at the state’s annual Consensus
Revenue Estimating Conference, which prepares the revenue projections that
lawmakers use in formulating the next state budget. This is the first time a
demographer has been invited to testify at this conference since at least 1980.
(It may be the first time ever.)
Adding to the pain, as more
people leave the state, housing prices may drop further, and with them
assessments and property tax revenues, reducing revenue to schools and local
governments. Michigan is already dead last in home price appreciation (-3.7
percent), according to the Office of Federal Housing Enterprise Oversight, and
sixth in property foreclosures, according to RealtyTrac.
Nationwide, housing prices fell 6.7 percent from October 2006 through October 2007, a record drop according to the Standard & Poor’s/Case-Schiller Home Price Indices. The 10-city price index has been published since 1987. Detroit, which is included in the index, saw one of the biggest declines. A further nationwide decline in housing prices was predicted through early 2009 by Moody’s Economy.com. It’s easy to imagine Michigan pacing that decline, and further drops in home values may mean less money for every unit of government, including schools. Such trends will not be reversed unless people discover sound economic reasons to stay in or move to the Great Lakes State.
Remember, too, that much of
this bad economic news was recorded before state legislators voted to take
another $1.4 billion from the private sector with a massive tax hike. The new
Michigan Business Tax was effectively raised before it even took effect.
Michigan didn’t really need to convey additional messages that it was hostile to
commerce — but it did so anyway.
Indeed, if the state’s
economic landscape doesn’t change soon we may need to change its official motto
from "If you seek a pleasant peninsula, look about you" to "If you seek a
pleasant peninsula, move to Florida."
It seems inconceivable that
any serious person can believe Michigan’s economic performance and outbound
migration rate will improve as a result of Lansing’s latest reach into taxpayer
pockets. Rather, the tax hikes have all the signs of being motivated by a desire
to protect the big government status quo in Lansing.
Let there be no mistake:
Michigan’s current economic troubles have no precedent. Customarily, the state
has done better than other states when the national economy is growing and
relatively worse when it contracts. This time it’s different: Michigan’s
relative economic performance as measured by its rank among the states in
per-capita state Gross Domestic Product has plummeted — during a period of
economic growth nationally.
The numbers drive this home:
State GDP is simply the value of all the goods and services produced within our
geographical borders. In 1999 we ranked 16th in the nation in nominal state GDP
per capita. By 2006 our rank had fallen to 39th place, and it is likely to drop
further.
So, how can the Michigan
malaise be reversed? For starters, we recommend that the state adopt many of the
hundreds of policies the Mackinac Center has already proposed. Below are four
categories on which the Center has written exhaustively; each contains links to
other Mackinac Center papers that better detail such ideas.
1.
Tax Reform.
Repeal the new Michigan Business Tax (which replaced the Single Business
Tax) and replace it with nothing
2. Budget Reform. Adopt the more than $2 billion in recommended spending
reductions made by the Mackinac Center in
major budget studies,
commentaries, and
special Policy Briefs.
3. Regulatory Reform. Reverse the rapid growth of business regulations,
especially in the areas of
environmental permitting and property rights infringements.
4. Labor Reform. Adopt labor reforms, such as enacting a
right-to-work statute and repealing
Michigan’s prevailing wage law.
State policymakers may also
wish to reference the Mackinac Center’s 2002 paper,
"Keeping Michigan on Track: A Blueprint for a Freer, More Prosperous State,"
which details 77 different ideas for making Michigan a better place to live,
work and invest.
Economic history over the
centuries and from around the world makes it clear that only these types of
policies will restore Michigan’s status as a magnet for people and commerce.
History also shows what happens to places that fail to attract these.
#####
Michael D.
LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center
for Public Policy, a research and educational institute headquartered in
Midland, Mich. Michael Hicks, PhD, is an adjunct
scholar with the Center and director of the bureau of business research for the
Miller College of Business at Ball State University in Indiana. He is also an
associate professor of economics with the university.
Permission
to reprint in whole or in part is hereby granted, provided that the author and
the Center are properly cited.
[1]
In statistics, achieving an "R-square" value of 1 indicates perfect
correlation. One of our analyses produced a value as high as .935, which
suggests UVL data is an exceptional leading migration indicator.
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