Center experts made suggestion 20 years ago
Senate Majority Leader Arlan Meekhof, R-West Olive, said today that the Michigan Legislature will seek to repeal the state’s costly prevailing wage law.
Here is more information on why such a policy change would benefit Michigan.
There are allegations that Michigan lawmakers are suffering a bout of “tax cut fever” and have slashed taxes over the past decade. These accusations are a way of denigrating the desire of people who would rather keep more of their money than be forced to give it to Lansing. Considering the state’s financial situation, there is more of an outbreak of tax cut phobia than fever.
The state is on its fifth year of an economic recovery that drove up tax revenue. Income tax revenues are up $3 billion more than just four years ago. Preliminary revenue estimates show another $1.6 billion in tax revenue for the upcoming fiscal year above fiscal year 2014.
Moreover, to say that policymakers have been cutting taxes like it’s going out of style relies on a bad definition over what constitutes a tax cut. Not everything that results in less money in the state treasury is a reduction in taxes.
Consider former state official Doug Drake’s list of “tax cuts.” These include subsidies to selected businesses in the form of refundable tax credits. On the treasury’s financial records, they will note that the government has less net revenue because of this. But in order to give out money in these tax credits, government must raise tax money elsewhere.
By increasing a tax credit somewhere, the state would still be extracting just as much revenue from the general taxpayer. Giving out subsidies through film credits, for instance, may mean less revenue for Lansing, but that matters little to taxpayers who still have to finance those expenditures.
The most extreme example is in the Michigan Business Tax. This “tax” is only filed by companies that have received special tax credits. Thus, it does not raise any revenue — it pays it out. The state expects that it will have paid out $734 million to those tax filers in fiscal year 2014. In order to pay out these credits, this money has to come from other taxpayers.
The difference will be important in the upcoming sales tax ballot proposal. The Earned Income Tax Credit will be increased and this is pitched as tax relief. The credit will deliver cash from general taxpayers to those filers who have low incomes and children, regardless of their tax burdens. Often, this involves more credits that are more than tax liabilities. This is taxpayer-financed assistance and qualitatively different from easing tax burdens.
Moreover, Michigan taxpayers have been faced with tax increases over the past decade. The state increased its personal income taxes in 2007 from 3.9 percent to 4.35 percent. This was initially a temporary tax increase that was made perpetual in 2012 after phasing down to 4.25 percent.
The state also increased its business taxes by 22 percent in 2007.
When it comes to easing the burden of taxation, only the move from the Michigan Business Tax to the corporate income tax applies.
So over the decade, it’s 2-1 in favor of tax rate hikes. It is strange to say that Michigan legislators have been suffering from a tax cut fever.
But the state has also changed some of its broad-based exemptions over the period as well that some may consider tax cuts and tax hikes.
The 2011 tax reforms took away exemptions for pension income and reduced and eliminated a number of smaller exemptions.
Proposal 1 of 2014 eliminated personal property taxes on small business establishments and will phase out these taxes on industrial businesses. These taxes will still remain for larger commercial entities and utility providers, and even industrial businesses benefiting from these reductions will still pay some taxes on their business equipment.
Even including these changes for exemptions, the story of Michigan’s past decade is one of tax increases, not “tax cut fever.”
Yet calling it an illness denigrates the intentions of the people who support lower taxes. Finding ways for governments to spend less and let people keep more of their earnings is a noble cause. The people who want this ought not have their intentions written off as pathological. Especially when reducing the state’s tax rate is an affordable option.
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.