Gross State Product

Questions continually arise about state government’s ability to help or hinder the economy. Adjusting the tax and regulatory environment of a state can have direct consequences on its economy. While businesses are subject to the changing tastes of the people they serve, and the markets of their suppliers, those are ultimately outside the scope of state government control.

Michigan’s competitor states also have felt the same economic forces. How do their results compare to Michigan’s?

Great Lakes neighbors Ohio, Indiana and Illinois, like Michigan, are heavily reliant on manufacturing and face similar union pressures. Michigan’s performance, however, has declined drastically over the last nine years relative to these states.

In 1997, Michigan had the 18th highest per capita gross state product in the nation. Averaged together, Ohio, Indiana and Illinois equaled roughly 21st. Since then, as the accompanying chart shows, Michigan has sunk to 37th, while its competitors fell only five places.

To get Michigan’s competitive edge back, the state needs to reform the way it does business.

Its tax policies are set to change shortly; the Single Business Tax is history. Policymakers need not replace it. Savings can be found simply through a number of efficiency-improving moves that the Mackinac Center has advocated.

The state should also investigate its labor situation, arguably the largest deterrent to business expansion in Michigan. In fact, the high cost of employing people in Michigan is the most frequent complaint of companies being awarded MEGA tax credits.

Reform is needed before Michigan slips further.

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James M. Hohman is a research assistant 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.