Special interests battle Rep. Camp's plan
The best tax systems include low rates, a wide base and limited exemptions which minimizes the distortions caused by policy while easing the burdens of paying the tax.
But many of the provisions that make the tax code so complicated are advocated for and relied upon by a variety of special interest groups, meaning changing the system is extremely difficult. But that’s what Congressman Dave Camp, R-Michigan, is trying to do. The chair of the House Ways and Means Committee has introduced a plan which would overhaul the tax system.
While I have not fully reviewed Congressman Camp’s reform, it appears to generally lower rates and expand the base of filers while eliminating or limiting many credits, like deductions for education and housing loans, breaks for state and local taxes, subsidies for ethanol, and write-offs related to oil and gas fuels. The number of individual tax rates is dropped to just three: 10 percent, 25 percent and 35 percent (for a very small number of people). A fuller description can be found here.
But eliminating exemptions means interest groups that receive those special deals are working hard to retain them. An article in the Associated Press features a series of quotes from those who want to keep their tax breaks:
American Fuel & Petrochemical Manufacturers President Charles T. Drevna also thought the proposal needed revising. “Although Chairman Camp’s intent was to make the tax code tax simpler and fairer and to level the playing field, he unfortunately missed the mark. To date, the tax reform debate has been fixated on a one-size-fits-all approach of lowering the corporate rate to a certain percentage across the board, while eliminating various existing deductions. We urge Congress to take a comprehensive look at how different tax structures impact different sectors of the economy and use such analysis to develop a comprehensive tax reform.”
Ray Gaesser, Iowa farmer and American Soybean Association president, issued the following statement: “The farmers of the American Soybean Association commend Chairman Camp for his willingness to tackle the difficult task of tax reform. ... We are significantly concerned, however, in the proposal’s elimination of the biodiesel tax credit. … ASA believes the biodiesel tax credit is worthy of extension given the many benefits it provides, including support for jobs, economic development in rural communities, diversity in our energy sources, and reduction in greenhouse gas emissions, among others.”
"Any proposal that eliminates the deduction for state and local taxes, as the Republican plan would do, is dead on arrival," said Sen. Chuck Schumer, D-N.Y.
The National Association of Realtors issued a statement saying it "supports reforms promoting economic growth, but we strongly oppose altering the rules that govern ownership and investment." That particular embrace of the general and rejection of the specific was a reaction to Camp calling for a reduction in the home mortgage tax deduction, part of his overall plan to reduce or eliminate some breaks in exchange for lowering rates for all.
Clarence Anthony, executive director of the National League of Cities, said Camp's work was well-intentioned, but added: "It will reduce cities' ability to promote construction jobs and build the foundations for future growth. Municipal and private activity bonds are used to build schools, roads, bridges, hospitals, and develop blighted areas of the community."
Part of the economic theory of public choice explains how interest groups have an oversized influence on the political process. In sum, as I have noted in the past, “When a small segment stands to benefit greatly from some policy, they will fight much harder for it than the larger segment that is harmed will lobby against it since the harm is either hidden or so small that it is not rational for the individuals making up the larger segment to spend a lot of time fighting the policy.”
A few years ago, the state of Michigan passed a significant change to its tax system. As in Washington, D.C., the incentive is to begin chipping away at the simplicity by adding more special deductions rather than lowering rates further, which is what the fight is about right now. Principled citizens who want the best overall government should work to hold the line or further simplify the tax system.
MEA sued over more teacher bullying
The Detroit News and Detroit Free Press are both reporting on a lawsuit filed by the Mackinac Center Legal Foundation on behalf of Susan Bank, a 39-year teaching veteran who is being threatened by the Michigan Education Association because she chose to stop paying union dues under Michigan’s right-to-work law.
Patrick Wright, director of the MCLF, also discussed the case on "The Frank Beckmann Show" on WJR AM760.
House Bill 4168, Repeal mandate for sheriffs to kill unlicensed dogs: Passed 36 to 0 in the Senate
To repeal a 1919 law that requires county sheriffs to locate and kill all unlicensed dogs, and which defines failure to do so as nonfeasance in office.
Senate Bill 631, Revise carrier pigeon licensure mandate: Passed 34 to 0 in the Senate
To prohibit a person from getting a state-mandated carrier pigeon license if his or her facilities do not meet regulations imposed by the local government, but preempt locals from banning carrier pigeons outright.
House Bill 4855, Expand lottery winner government debt garnishment: Passed 107 to 1 in the House
To revise a law that requires the state lottery bureau to deduct any unemployment benefit overpayments, child support arrearages or debts to the state from the winnings of a person who wins $1,000 or more. The bill would also require any debt or liability to the state welfare agency to be deducted from the winnings.
Senate Bill 630, Let Lansing TIFA extend debt duration: Passed 110 to 0 in the House
To let a “tax increment finance authority” in the city of Lansing refinance debt with new loans that have maturities beyond what is currently allowed, and exempt these new loans from a 2001 law that restricts refinancing loans if there is no overall benefit to the municipality. Lansing wants to stretch out its loan repayments for cash flow purposes, because the extra tax revenue it presumed would result from projects funded by the debt (garage structures) has not been forthcoming. This would be the second time the legislature has allowed Lansing to extend debt in a manner not permitted by that 2001 municipal debt reform.
House Bill 5108, Repeal ban on ticket scalping: Passed 66 to 42 in the House
To repeal a state law that bans ticket “scalping” at sports and entertainment events, or reselling tickets at a higher price through some service or agency.
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.
Smith on IRS scandal and media failure
Bradley A. Smith, a member of the Mackinac Center’s Board of Scholars and former chairman of the Federal Election Commission appointed by President Clinton, writes in a Wall Street Journal commentary that the media’s lack of coverage of the IRS scandal “betrays a remarkable, if not willful, failure to understand abuse of power.”
A view from a union contract
One could hear several varieties of apocalyptical claims while Michigan was in the process of becoming the 24th “right-to-work” state in the nation.
Rep. Sander Levin called it “frightful ... for the people of the state of Michigan and for the middle class.” The Associated Press said it was a “devastating and once-unthinkable defeat to organized labor.” And one union in Michigan claimed it “a violation of the prohibitions against involuntary servitude.” In other words, a form of slavery.
Now that the law is in effect, however, and one can see what right-to-work actually does in practice, these claims seem way out of line. Right-to-work is actually quite simple: It prohibits employers from forcing employees to join or pay a fee to a union in order to keep their job.
The teachers union contract from the Spring Lake school district demonstrates this change. Here’s what its pre-right-to-work contract stipulated: “The [school board] agrees that it shall be a condition of employment that all teachers” do one of the following: 1) “[J]oin the Association and pay the periodic dues ... or; 2) not ... join the Association but ... pay it a representation fee in an amount established in accordance with Union procedures.” If teachers still failed to pay this fee, however, the school board agreed to “deduct [it] from the [teacher’s] wages and remit same to the Association.”
Essentially, the option was join or not join, but either way, pay the union. And if you can’t do that on your own, we’ll do it for you.
The new Spring Lake contract language regarding union membership is very different, but not nearly as radical or detrimental as some critics of right-to-work made this policy out to be. It simply states: “Teachers shall either elect to join the Association and pay the periodic dues, or teachers may elect not to join the Association and not pay dues.”
As this contract demonstrates, right-to-work primarily impacts the relationship between employees and their unions. It gives individuals an opportunity to refuse to financially support an organization they do not feel compelled to support. In other words, it establishes unions as voluntary associations, instead of forced associations.
As Vinnie Vernuccio, the Mackinac Center’s director of labor policy, put it: “Right-to-work does not affect collective bargaining in any way except to take away unions’ ability to fire workers for not paying them. It makes unions accountable to their members.”
Spalding and Skorup in The Detroit News
Audrey Spalding, director of education policy, and Jarrett Skorup, research associate, explain in a Detroit News commentary today why proposed legislation that would create what backers are calling a “pay it forward” program for college tuition would end up costing students and taxpayers potentially billions of dollars and drive up college costs.
People know better how to spend their own money
With a projected $971 million surplus for next fiscal year, Michigan’s Legislature is considering cutting the state’s income tax rate from 4.25 to 3.9 percent.
The cut would be phased in over time and would be contingent upon the budget remaining in surplus. When fully phased in, this would result in a $170 annual tax cut for the typical Michigan family.
Will such a small tax cut have a major effect on Michigan's economic growth? Recognize first that this is a very small marginal tax cut, so thoughts that this policy alone will bring a new era of prosperity is just wishful thinking.
Still, the vast majority of economic studies confirm that lower tax rates result in faster growth — a result that holds for both countries and individual states (see my recent paper in the Cato Journal). Importantly, reducing the tax rate to under 4 percent would make Michigan more competitive in comparison to nearby states, such as Indiana (3.4 percent) and Pennsylvania (3.1 percent), that currently have flat income tax rates well below Michigan's. When labor and capital are mobile, tax competitiveness matters.
But promoting faster economic growth is not necessarily the most important reason to favor the proposed tax cut.
When governments run large surpluses, they have two options: take less from taxpayers or increase spending. While either might seem as good as the other at first glance, the problem is that expansions in government spending are almost never temporary. History shows that government expansions — often undertaken during times of supposed crisis — almost never return to their prior levels even after the conditions that brought about the expansion are long gone.
Instead, as Robert Higgs documented in his 1987 book, "Crisis and Leviathan," the ratcheted up government becomes the new normal. And in the long run, the economy is worse off since the increase in government spending crowds out spending in the private sector, which is generally more efficient at allocating society's scarce resources.
Returning Michigan's surplus to the taxpayers, rather than boosting government spending, will give the state far more flexibility to address fiscal challenges down the road. Furthermore, the more competitive economic environment that lower tax rates will create will make those future challenges less arduous.
Jason E. Taylor is a professor of economics at Central Michigan University. He received his Ph.D. from the University of Georgia in 1998.
Ballot backers don't think jobs will be lost
According to MIRS News, the backers of the ballot proposal that would increase the minimum wage to $10.10 per hour, "said the change would raise wages for about 940,000 people in Michigan, or 24 percent of workers."
That number is reached by looking at the number of workers currently making less than $10.10 per hour, adding in hundreds of thousands of other employees, assuming they will also get a raise and pretending that mandating a 36 percent increase in labor costs would have no effect on employment.
If that's the kind of economics minimum wage backers believe in, they are cruel to ask for only $10.10 per hour. Raising the minimum wage to $20 per hour would "affect" even more employees; $100 per hour would "raise wages" for virtually all Michigan workers.
The reason those amounts aren't called for is that it is well understood that there would be mass unemployment, skyrocketing prices and tremendous economic harm. Though not as bad, there are negative economic effects when the government institutes wage mandates at lower levels, like the $10.10 per hour, as well.
Specifically, this harms younger and lower-skilled workers. As economist Thomas Sowell has noted, before a federal minimum wage, the labor force participation for African-Americans was equal to whites. In the 1930s, just before the federal government set a minimum wage for the first time, African-Americans actually had a lower unemployment rate than whites. Today, the rate is twice as high, and even worse for young people.
Instead of sending their money to Hollywood
Proponents of the Michigan film subsidy program, which like all corporate welfare programs takes money from taxpayers and gives it to large companies in the name of "job creation," often say the incentives are temporary and needed to diversify the state economy.
Most of them say the programs eventually will be rolled back. This isn't true.
Like all groups, businesses work to get as much money from the government as possible, regardless of the economic effects or evidence. Consider what's happening in Maryland.
The state has generous subsidies and its most notable project is the Netflix show, "House of Cards." Last year, the governor of Maryland and other politicians got to hang out with stars and tout the alleged benefits the show brought to the state. Maryland spends $40 million on film subsidies, most of which goes to that one show.
But apparently it's not enough, as the Washington Post reported:
A few weeks before Season 2 of "House of Cards" debuted online, the show's production company sent Maryland Gov. Martin O'Malley a letter with this warning: Give us millions more dollars in tax credits, or we will 'break down our stage, sets and offices and set up in another state.'
A similar letter went to the speaker of the House of Delegates, Michael E. Busch (D-Anne Arundel), whose wife, Cynthia, briefly appeared in an episode of the Netflix series about an unscrupulous politician — played by Kevin Spacey — who manipulates, threatens and kills to achieve revenge and power.
This shouldn't be surprising. Movie studios have pulled the same stunt in other states to try to secure more perks.
What would be a true Hollywood ending in Michigan, which spends $50 million per year on film subsidies, is if politicians would finally stand up for taxpayers.
Emergency manager's plan filed in bankruptcy court
The city of Detroit published its plan of adjustment detailing how it intends to solve the city’s financial and other problems. It contains important references to privatization of certain services, though it doesn’t go far enough.
A bolder vision might spare city retirees and creditors from as deep of cuts.
Page 116 of the Disclosure document makes it clear that Emergency Manager Kevyn Orr is prepared to contract out for some if not all the operations now provided by the Detroit Department of Transportation. This was a recommendation made by the Mackinac Center for Public Policy in late 2000. At the time, we estimated that the city could save $60 million a year by doing so. If it had saved just half of that since 2000, Detroit would have accrued $360 million in savings by now.
Additionally, the emergency manager's report alludes to the possibility of outsourcing city airport work and redeploying city parking assets.
On balance the reforms laid out by Orr "give short shrift to outsourcing and asset sales," said Leonard Gilroy of the Reason Foundation, a national expert in privatization, although the city did recently sign a contract for refuse collection.
"While it's encouraging to see proposals for sensible privatization initiatives in transit operations, parking, payroll administration and airport operations, these are drops in the city’s fiscal bucket," Gilroy said. "There's still a lot of low-hanging fruit left untouched in terms of cost-savings opportunities through privatization, particularly in areas like public works, fleet operations and various administrative support functions."
There is much more that could be done by the city that would maximize revenue to the city: Sell more properties and other assets, aggressively contract out more services and end them where possible.
Pontiac cut its general fund spending by 43.5 percent with such an aggressive program and its employment rolls from 495 to a proposed 20 in just 5 years.
Cutting 43.5 percent out of Detroit's general fund would mean a nearly $480 million decline in spending — revenue that would go a long way toward reducing the cuts that may be imposed on the city's retirees and creditors.