Lower peninsula in hour glass

The Great Lakes State is on the path to losing its status as a "great" state — at least in terms of population. According to projections from the U.S. Census Bureau, by 2030 Michigan will no longer be one of America’s 10 most populous states. Not only is Michigan growing more slowly than other states; it is expected to peak at a population of 10,713,730 in 2025 before falling to 10,694,172 in 2030. Michigan will then be the nation’s 11th largest state, down from eighth in 2000.

In political terms, this means that Michigan’s congressional delegation, which has dropped from 19 House seats in 1960 to 15 today, may decline even more. That shrinkage has implications for state residents in everything from federal spending to tax policy.

So what should state policy-makers do?

While they do have choices, not all of them are good ones. Gov. Jennifer Granholm, for example, has latched onto a "Cool Cities" project, a recent fad in urban planning that just doesn’t work. Meanwhile, the industrial-policy planners at the Michigan Economic Growth Authority have, in the words of a recent Mackinac Center report, "been unsuccessful in improving per-capita income, employment and the unemployment rate at either the state or county level in Michigan."

The migration from the Midwest and Northeast to the Sunbelt is a decades-long phenomenon. Michigan’s policy-makers can’t do much about some things — such as the weather — that affect people’s choice of residence. But they certainly have a say in how large Michigan’s government is, which in turn affects the size of the state’s tax burden.

State tax burden, as it turns out, is a significant factor in population shifts. To see this in rough terms, compare the states that had the greatest population percentage gains during the 1990s with those that had the lowest gains. The states with the top 10 gains — Nevada, Arizona, Colorado, Utah, Idaho, Georgia, Florida, Texas, North Carolina and Washington — tended to impose a lower burden on their citizens in terms of state and local taxes. Figures from the Washington, D.C.-based Tax Foundation show that when the states are ranked from 1 (the highest state-and-local tax burden) to 50 (the lowest state-and-local tax burden), the top population-gainers had an average ranking that indicated lower tax burdens.

In contrast, the states with the weakest percentage gains in population — Massachusetts, New York, Iowa, Ohio, Rhode Island, Maine, Connecticut, Pennsylvania, West Virginia and North Dakota — had an average ranking that indicated higher tax burdens. The averages for the top 10 and bottom 10 population-gainers are provided in the nearby chart for the years 1990, 1995 and 2000. Though the two groups begin fairly close together, the tax burden rankings diverged noticeably as the decade wore on, with lower average tax burden rankings for the states that gained population more quickly.

Average Ranking in State-and-Local Tax Burden

States

1990

1995

2000

10 Quickest Population-Gainers From 1990 to 2000

23.6

27.1

29.7

10 Slowest Population-Gainers From 1990 to 2000

22.1

14.6

15.8

Note: Calculations are based on population data from the U.S. Census Bureau and tax data from the Tax Foundation.

Admittedly, these findings aren’t conclusive, but in 2003, Dr. Richard Vedder, a member of the Mackinac Center’s Board of Scholars, conducted a more rigorous analysis that showed that high taxes do negatively affect migration. He began by noting that during the 1990s, the top 25 high-tax states experienced a relative decline in population, while the 25 lower-tax states saw a relative gain in population. The pattern continued through 2002 (the last year for which data were available).

Dr. Vedder calculated the tax burden imposed by each of the states on its citizens. In comparing the states, he found that a 1 percent increase in state-and-local tax burdens leads to an out-migration from a state of more than 150,000 people during a decade. When looking at why migration totals varied across states, he found that 46 percent — nearly half — of that variation was due to the tax burden.

So why aren’t tax cuts used more often as economic development tools? After all, it’s not hard to understand that people might move away from high-tax states.

The most obvious answer is that some politicians actively seek a larger role for government. If by law the budget must be balanced, a larger role for government can be sustained only through tax increases, not tax cuts.

Another reason is that tax cuts, despite being popular in political rhetoric, aren’t visible. A politician can attend ribbon-cutting ceremonies at a new taxpayer-funded building and get credit for delivering an important "community service." Press conferences announcing government efforts to develop "new jobs," such as those staged for big MEGA projects, draw attention, too. But low tax rates are abstract and make it hard for public officials to create the appearance that they’re doing something.

A related and final reason is that while low tax rates are good for an economy as a whole, their benefits are dispersed across the population, creating fewer incentives for permanent interest groups to form and to lobby for them. In contrast, an "iron triangle" of legislators, bureaucrats and recipients of government benefits (including the nonprofit groups that carry out government programs) have a strong interest in loudly decrying any spending cuts or even spending reforms that could produce cost savings.

This suggests that if Michigan wants to get off the path to a smaller population, it has to embark on a new course. Taxes make a difference, and they can’t be cut substantially unless the size and scope of state government is dramatically reduced. It’s time to begin the hard work of taking on the iron triangle, thereby strengthening civil society and giving average citizens a reason to come to, and stay in, Michigan.

#####

John R. LaPlante is an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.