Wyoming Lights Up a Tax Hike

Op-ed published in Casper Star Tribune

Editor's Note: This op-ed was originally published in the Casper Star Tribune on December 2, 2017.

Cheyenne politicians have a problem getting enough revenue. They’re as addicted to it as some people are to tobacco. And in order to shore up state coffers with the first, it seems that legislators are willing to hike taxes on the second.

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However, excise taxes on tobacco lead to a host of illicit (and often dangerous) activities that undermine two of their advocates’ key goals: bringing in more money for the state and making residents healthier.

Why? Cross-state smuggling. It’s more common than you think.

Wyoming’s revenue committee will take up a proposed $1 excise tax hike on cigarettes in December. Adopting the increase would raise cigarette taxes to $1.60 per pack and make smokes more expensive than they are in four of six surrounding states.

Since 2008 I have co-authored studies detailing the degree to which cigarettes are smuggled between U.S. states, imported from Mexico and exported to Canada. In our most recent work—using data through 2015—my colleagues and I estimated that the Cowboy State was a source of smuggled smokes to other states.

For every 100 cigarettes consumed in Wyoming, an additional 17 were smuggled out to other states. The direction of smuggled smokes will reverse itself, however, if Wyoming adopts a 166.7 percent increase in its excise tax.

Consider the following “what if” scenario on the proposed tax increase, which uses a statistical model created by Michigan’s Mackinac Center for Public Policy:

All other things being equal, the $1 increase in the excise tax will turn Wyoming into a net importer of contraband cigarettes. 25 percent of all the smokes consumed within the state would be of the smuggled variety.

And, because smuggled cigarettes cannot be taxed, net revenues to the state would be far less than the $26 million that Wyoming’s revenue estimators are expecting from the tax increase. Our model projects that revenue will still rise, but only by $14.3 million.

It is not hard to see why. It’s simply too easy to buy cigarettes where they are cheap and make a quick profit where they are more expensive. Take North Dakota, just a stone’s throw away from the northeastern corner of the state.

At just 44 cents per pack in North Dakota, the tax differential between the two states would stand at a gaping $1.16 per pack. In addition, North Dakota doesn’t mandate a tax stamp to provide evidence of the product’s origin. This makes affixing a counterfeit Wyoming stamp much easier, should some organized crime cell choose to do so.

Wyoming pols might be tempted to dismiss this estimate. They should not do so.

Last year we summarized the findings of more than 20 other studies from university and think tank scholars and consultants. Most showed cigarette smuggling to be a major issue. One study found that between 8.5 and 21 percent of cigarettes smoked nationwide were linked to “tax avoidance and evasion.” Many individual states had higher rates.

Moreover, smuggling is not the only ill effect we see when some states increase their tobacco tax rate far above that of their neighbors. States with high cigarette taxes have been plagued by theft, violence against property and people (including murder-for-hire), corruption of public officials and other problems.

Indeed, as prices escalate due to taxes, jurisdictions suffer from “prohibition by price.” The product remains legal, but becomes expensive enough to bring about some of the infamous consequences of alcohol prohibition.

Cheyenne pols no doubt mean well, but going to the cigarette tax well to extract more revenue may be more costly than they realize.

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Unions Complicit in Retirement Benefit Crisis

But trying to shift the blame to Lansing anyway

Public sector union members protested at the state capitol this week because lawmakers are considering reforms to post-employment health insurance benefits promised by local governments to their employees. Union officials loudly proclaim that these benefits should not be cut, and it’s not clear that the recently introduced package would cut them.

That said, nothing in state law requires local governments to offer post-retirement health insurance benefits, which are rare in the private sector. Moreover, everyone in both the private and public sectors gets Medicare benefits when they reach age 65.

The problem is that local officials have promised these benefits to their employees but have not set aside enough money to pay for them. This means the cost of today’s government workers is being shifted to tomorrow’s taxpayers.

This is different from government pension benefits, which are required by the Michigan Constitution to be funded in the same year they are earned. Government employers annually contribute money to a pension fund to provide for another year’s worth of pension benefits earned by their employees. The money goes into investments that are eventually used to cover the monthly pension benefit checks sent to retirees.

Prefunding pensions ensures that the costs of today’s government employees are paid by those who receive the services they provide. But with government retiree health insurance, today’s services are paid years later by taxpayers who may not even have been alive when the benefits were pledged.

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Also unlike pensions, government retiree health insurance benefits are not a legally binding obligation – they can be trimmed or even eliminated at any time by government employers.

It’s an atrocious deal for everyone involved: the employees, government managers and taxpayers. Employees can’t trust that benefits will be there when they retire, the cost of providing them stretches government resources thin, and taxpayers get stuck with an unknown financial burden.

If Michigan government employees and their unions really think these benefits are vital they should negotiate with employers to have them prefunded. That may seem like common sense but is in fact rare. Only a few local governments in Michigan have set aside money to pay for the benefits or else never promised them to begin with.

And union officials are complicit in this. They have worked with government managers to kick retiree health insurance costs to future taxpayers. Without legal guarantees, unions should have ensured that money was set aside to pay for these benefits and could have demanded this at the bargaining table. But they didn’t.

If public sector union officials fail to take these benefit promises seriously that does not absolve local government managers from doing so. These costs have caught up with many municipalities and they may have to trim them back.

The state could help by putting a freeze on local government wage increases until these benefits are funded or renegotiated. That would ensure that both managers and employee groups start taking the costs of these benefits seriously.

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December 1, 2017 MichiganVotes weekly roll call report

Senate Bill 478, Ban drivers license renewal if three unpaid parking tickets: Passed 26 to 12 in the Senate

To repeal the Jan. 1, 2018 sunset on a 2014 law that reduced from six to three the number of unpaid parking tickets a person can have before the Secretary of State will not renew a drivers license until the tickets are paid along with a $45 "clearance" fee. The bill would leave the more stringent regime in place permanently.

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Who Voted "Yes" and Who Voted "No"

Senate Bill 275, Ban police sex with prostitutes: Passed 91 to 17 in the House

To repeal an exemption that allows police to have sex with a prostitute as part of an investigation.

Who Voted "Yes" and Who Voted "No"

House Bill 4332, Increase animal cruelty penalties: Passed 92 to 15 in the House

To authorize up to seven years in prison for certain “aggravated” animal cruelty crimes, and up to 10 years for killing or torturing an animal with the intent to impose control over or cause mental suffering to a person.

Who Voted "Yes" and Who Voted "No"

House Bill 5071, Require colleges and universities disclose loan details to students: Passed 93 to 14 in the House

To require all colleges and universities in the state to provide students with an annual estimate of their total loan balance, the potential total payoff amount, monthly repayment amounts and more.

Who Voted "Yes" and Who Voted "No"

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 www.MichiganVotes.org.

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Ex-Con Working as Nurse Gets Denied License When Moving to Michigan

Great Lakes State has some of the most stringent laws in the nation

Laurence Reuben is a certified nurse in the state of New York who moved to Michigan. He tried to find work as a nurse in his new state, but Michigan’s licensing agency denied him the opportunity because of a low-level criminal conviction in his past. It did so even though a judge specifically endorsed him for gainful employment and he was legally employed as a nurse in his former state for years after that.

Reuben — who earned a nursing degree decades ago — was convicted of grand larceny in the fourth degree in New York, which is theft of property worth between $1,000 and $3,000. After his conviction, he rehabilitated himself enough that in 2013, a judge granted him a “certificate of relief from disabilities,” removing all legal barriers to employment in New York and allowing him to land a job in nursing.

After moving to Michigan, however, the state refused to accept his New York nursing certificate. That’s because state law requires those seeking an occupational license in health care fields to report any past criminal convictions — which Reuben did — and it can deny a license to anyone with a conviction, no matter the crime.

There is hope for Reuben: The Michigan Court of Claims ordered the state to honor his New York certificate despite his past conviction. But the legal case is not completely settled and he still can’t legally work as a nurse in Michigan. And, of course, Rueben is just one person. There are many others in Michigan with criminal records who are similarly denied the opportunity to find gainful employment due to licensing requirements.

Refusing a license to someone with a criminal record does more harm than good. It denies people the opportunity to work, making it more likely that ex-convicts return to a life of crime. The Legislature should fix state laws to make them more flexible for people who have low-level convictions, want to rehabilitate themselves, land a job and contribute positively to society and the economy.

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Assessing Michigan’s Alleged Teacher Shortage

Over 100,000 qualified teachers are not employed by a public school

It’s a common refrain recently that Michigan is facing a teacher shortage. But is that really true?

Those who say it is typically point to two facts. First, the number of teaching certificates given out annually has fallen by nearly two-thirds in recent years, from 9,665 in 2004 to 3,696 in 2016. On a related note, the number of students enrolled in teacher preparation programs at Michigan colleges has fallen by about 40 percent.

Those numbers aren’t in dispute, but there’s more to the story.

The number of people going to college to obtain a teaching certificate increased significantly before the recent drop-off. So the decline in teacher prep programs may be nothing more than what scholars call a regression to the mean, or a return to a long-term pattern.

The evidence suggests this is the case: The state reports that there are 104,667 people who have an active teaching certificate but are not employed by a public school. That’s a pool of potential teachers that exceeds the number of teachers currently teaching in Michigan’s school districts. So perhaps the decline in certificates is simply the result of people responding to how many educators are already out in the market competing for jobs.

This large pool of potential teachers helps explain why, despite fewer people getting certificates in recent years, districts don’t appear to have many problems filling teacher vacancies.

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Michigan Capitol Confidential submitted open records requests to dozens of school districts to see how many applicants they received for their open teaching positions. Nearly every school got dozens — and in some cases, hundreds — of applicants for every vacancy. Portage averaged 41 applicants per position, Novi got 123 per job, Dearborn, 38, and Grand Rapids received 72 applications for each open position, just to name a few examples.

It is true that some positions are harder to fill than others, such as special education, some foreign languages and math. But the way to deal with this challenge is by paying higher salaries for those positions. Districts generally refuse to do this, however, and instead pay all teachers, no matter what they teach or how hard they are to find, according to the same logic. Only logging more years on the payroll or obtaining extra college credits earns a teacher higher pay under nearly all district pay scales.

Since only a few school districts are willing to pay hard-to-find teachers more, this raises the question of whether they are really experiencing a genuine problem with finding new teachers.

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Mackinac Center Joins Tax Reform Letter

Senate vote for tax reform possible this week

The Mackinac Center for Public Policy today signed onto a letter of support for the Tax Cuts and Jobs Act, which is the latest federal tax reform effort in Washington. While the reform is far from perfect, it will simplify our Byzantine tax code, reduce compliance costs, cut taxes and spur economic growth.

This the second letter we have signed onto regarding tax reform. The first letter encouraged Washington, D.C. lawmakers to simply take up the difficult burden of reforming the system. This second letter is directed at United States senators. The House has already passed a reform bill known as the Tax Cuts and Jobs Act. I have written on major parts of the legislation here and here.

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This is arguably the most comprehensive reform of the federal tax code since 1986 and, in my opinion, is a net positive for the country, Michigan, businesses and people. It should be adopted. Let us hope that the Senate has the good sense to work out an honorable compromise and help make it law.

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Taxpayers Shouldn’t Subsidize High Income Housing

Millions going to build luxury developments

Aerial shot of Detroit, via Robert Thompson at Wikicommons.

Michigan has a number of programs that try to make housing affordable to people that don’t have a lot of income. But stranger, Michigan has a program that subsidizes high-income housing, as well.

The state transfers money from taxpayers to selected developers to build or renovate buildings in the state’s Community Revitalization Program. This program to deliver taxpayer money to projects that include high-dollar housing is in addition to a new subsidy program for developers enacted by state policymakers earlier this year.

The state gave developers of apartments in Detroit that rent between $19,500 and $75,600 per year $3.5 million in taxpayer assistance. The state money includes some direct investment, so maybe there will be a return for taxpayers. Whether it does or does not, however, seems irrelevant to the state administrators when lawmakers pump over $100 million into the program a year.

The state gave $636,680 of taxpayer dollars to developers for luxury waterfront condominiums in Manistee. (Here’s a 2,070-foot three-bedroom unit with a $399,000 asking price.) That would be enough to buy two units for taxpayers, but the money given to the developer was not designed to give taxpayers something in return.

Developers of Grand Rapids lofts that charge up to $23,400 per year in rent got a $3 million loan from taxpayers. That’s in addition to another $2.8 million from city and state property taxpayers in a different program to fix and update this building. The state doesn’t report back on whether companies that get money in this program repay their loans.

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Ostensibly, state assistance is for economic development purposes. That is, state administrators may think these projects would not get off the ground without taxpayer dollars. Yet buildings that get built to serve the wealthy are likely to be built, regardless. Perhaps they won’t be as nice. Or they may get built in different places. The possibility of tapping into high rents makes a lot of investment possible. But it’s also possible that the public financing only bumps up the price of land, too, making the assistance simply a transfer from taxpayers to landowners.

Developers can’t be blamed for taking advantage of programs that our policymakers offer them. But our elected officials should stop this program and stop spending taxpayer money on people that can take care of themselves.

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How to Regulate Vacation Rentals in Michigan

And why property rights need to be secured

The Michigan Legislature is debating how to regulate vacation rental properties in the state. For as long as the “cottage up north” has existed, property owners have allowed others to rent their property and websites like Homeaway, VRBO and Airbnb have made this process easier than ever. But local governments in some Michigan communities are starting to overregulate and even ban short-term rentals like these.

From a free-market perspective, the government should not be preventing people from using their property as they see fit, as long as they aren’t violating the rights of others. Some local government officials and homeowners argue that renters are having loud parties, parking illegally or disrupting the neighborhood in other ways.

Two bills, House Bill 4503 and Senate Bill 329, try to tackle this problem. They prevent local governments from banning short-term rentals, but they explicitly allow them to regulate them in other ways. This is typically done by passing and enforcing ordinances related to noise, traffic, parking, advertising, litter, etc. This has led to opposition from local governments and others.

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An article from Holiday Vacation Rentals, a property management company in northern Michigan, written by Jeremy and Alan Hammond does a good job summarizing some of these issues. The post analyzes private property rights for homeowners and neighbors, the economic impact of vacation rentals and tourism and the impact the bills are likely to have.

In sum:

It is important to find solutions to address communities’ legitimate concerns about vacation rentals and other short-term rentals. However, solutions must be found that are equitable and don’t violate homeowners’ property rights. Municipal officials already have regulatory authority to address concerns arising from some guests’ behavior without resorting to zoning ordinances. Furthermore, restricting vacation rentals is harmful to the economy at both the local and state level. Professional vacation rental management companies are an important part of the solution as they use and can enforce contractual rental agreements that help ensure rental guests remain good neighbors who are respectful toward others within our communities.

One of the most important individual rights is the ability to have ownership and control of your private property. The right to use your property as you see fit can be bothersome to others and governments can create regulations to help manage these issues. But those regulations should be fair and limited. The bills under consideration in the Michigan Legislature successfully navigate these issues and protect property owners’ rights while maintaining local governments’ ability to regulate when necessary.

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How Right-to-Work and the End of the 'Dues Skim' Killed the SEIU in Michigan

Membership, revenue and political spending plummet

In 2012, the Michigan branch of the Service Employees International Union representing home health care workers was riding high. It had 55,000 members, brought in $22 million annually and was able to spend nearly $3.5 million on politics.

Then it all came crashing down. Five years later, the union is a shell of its former self. Membership plunged to under 10,000. Revenue is less than one-third what it was at its peak. Political spending bottomed out at less than 5 percent of what it once was. And the union is in an emergency trusteeship to investigate potential financial malpractice.

What led to such a swift downfall? Well, when health care workers were provided a choice about supporting the SEIU, they responded by opting out of the union in spades. The Michigan Legislature empowered this choice by ending the “dues skim” and then passing right-to-work.

Dues Skim

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In 2005, former Michigan Gov. Jennifer Granholm worked with the SEIU to “organize” home caregivers. This skyrocketed the union’s membership, allowing them to skim “dues” money directly from the Medicaid checks paid out to disabled residents. The vast majority of the people forcefully unionized were friends or relatives of these Medicaid recipients, but were improperly classified as “government employees” so that the SEIU could claim to be representing them and collect dues from them.

In 2012, the Legislature and Gov. Snyder passed a law ending the scheme, which was taking $6 million annually from Medicaid recipients. SEIU Healthcare-Michigan then tried to pass a ballot proposal, which would have enshrined this scheme in the Michigan Constitution. But Proposal 4 of 2012 went down overwhelmingly and the “dues skim” ended officially in 2013.


In the meantime, state legislators passed a right-to-work bill in 2012 which went into effect in 2013. A U.S. Supreme Court decision ultimately overruled similar “dues skim” agreements around the nation, but right-to-work gave these workers the ability to opt out of having to financially support the union if they didn’t want to.

These two bills gave home caregivers a choice. If they believed the SEIU was doing a good job “representing” them, they could freely write them a check. If they did not, they could withhold funding. The results are in:

The union saw a decline in membership of 83 percent from its peak.

This has led to revenue declining by 69 percent from its peak.

Which ultimately means less money for the union to spend on politics. Political spending bottomed out at less than 5 percent of what was spent during the high-water 2012 election and ballot proposal year.

All of this goes to show that this SEIU union existed almost entirely based on its ability to coerce people to financially support it. Once Michigan workers were given the freedom to choose, the union collapsed, suggesting that it never was providing much, if any, benefit for these workers in the first place.

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Unconstitutional? Not If These Resolutions Pass

November 17, 2017 MichiganVotes weekly roll call report

The Legislature is on Thanksgiving break with no sessions scheduled until Nov. 28. Since there were no votes this week, this and next week’s report describe some of the 39 amendments to the state constitution that lawmakers have formally proposed this year. To become law these require a two-thirds vote in the House and Senate and approval by voters.

Senate Joint Resolution K: Lower minimum age for governor

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Introduced by Sen. Ian Conyers (D), to place before voters in the next general election a constitutional amendment to eliminate the current minimum age requirement for governor and lieutenant governor, which is age 30. The bill would leave in place a requirement that a candidate have been a registered voter in the state for at least four years, which implies a minimum age of 22 to be governor. Conyers was age 28 when elected in Nov. 2016. Referred to committee, no further action at this time.

House Joint Resolution Q: Propose a part time legislature:

Introduced by Rep. Tom Barrett (R), to place before voters in the next general election a constitutional amendment that would limit annual legislative sessions to 90 days. Since 2001 more than 20 part time legislature proposals have been introduced. This one would establish weekend sessions once a month plus two-week legislative sessions twice a year. Referred to committee, no further action at this time.

House Joint Resolution R: Replace House and Senate with unicameral legislature

Introduced by Rep. Jeff Yaroch (R), to place before voters in the next general election a Constitutional amendment to establish a nonpartisan unicameral legislature (instead of a separate House and Senate) with 110 districts apportioned on the basis of formulas specified in the resolution. Legislators would have four year terms and term limits would be repealed. Voters would no longer see a party designation after legislative candidates’ names on ballot. Referred to committee, no further action at this time.

House Joint Resolution S: Prevent making controversial bills “referendum-proof”

Introduced by Rep. Robert Wittenberg (D), to place before voters in the next general election a constitutional amendment to revise the current prohibition on citizen referendums challenging bills that contain an appropriation. The measure would establish that the ban only applies to bills that substantially fund one or more state departments, or which are needed to close current state budget shortfalls.

A 2001 Supreme Court ruling interpreted the provision to prohibit referendums on any bill containing an appropriation. In several instances since then, the legislature has deliberately added modest appropriations to controversial bills which, without the appropriation, would likely have been challenged by a referendum. Referred to committee, no further action at this time.

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 www.MichiganVotes.org.

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