The MC: The Mackinac Center Blog

Fewer Opportunity Seekers Flee Michigan

But household mover report also suggests too few moving here

When an individual moves far away from the place where he or she may have grown up or lived for years, it means a lot. It’s also meaningful for economists, because migration may be the single best indicator of quality-of-life differences between states. People only move for important reasons, which can include following job and career opportunities, or just looking for a nicer climate or view.

The good migration news for Michigan is being considered a “balanced” state in the 39th annual United Van Lines Migration Report: The household mover reports that the number of customers heading out of Michigan was largely offset by the number moving into the state.

Specifically, of the 5,331 Michigan moves made by UVL, 52.2 percent (2,785) were people leaving the state, and 47.8 percent (2,546) were people moving in. Michigan was ranked 27th in outbound traffic versus inbound traffic (not counting Hawaii and Alaska).

Statistically balanced migration is not ideal, but it’s a huge turnaround from the 2006-to-2009 period when Michigan had the highest percentage of households moving out of the state compared to the number moving in. (In 2009, the ratio of outbound versus inbound moves was 68 percent to 32 percent.)

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What those who live in Michigan and love it want to see is their state become a migration magnet for opportunity seekers. Among other quality of life factors, this status is a recipe for having children and grandchildren who live nearby rather than half a continent away.

Some of the things that cause people to move are not subject to human control, like the average days of sunshine. Others can be controlled, and perhaps none more than public policy choices. Migration can have a profound impact on these choices going forward, and may itself be an outcome of past choices in government spending, taxes, business regulation, labor law, education and welfare policies.

Since public policies are subject to democratic control, it’s worth asking how much weight something fundamental like income tax rates has on migration decisions. That’s the question the Mackinac Center for Public Policy and economist Michael Hicks worked together to answer in 2008 when they built a statistical model designed to estimate this effect.

This is a challenging question, because while “opportunity” is a constant theme in migration studies, how different individuals define it varies. Job and career are obvious examples, but for some, it’s the opportunity to live in a warmer, sunnier place.

The model Hicks and Mackinac created suggested that every time the state raises income or other taxes on individuals by 10 percent (such as from 3.9 percent to 4.35 percent), 4,900 people move from Michigan every year thereafter.

Not coincidentally, those figures are the income tax rate changes the Legislature and governor enacted in 2007 (the levy actually increased by 11.5 percent). In 2012, the rate was shaved to 4.25 percent, where it remains.

Note that the finding didn’t just project a one-time event, but an additional 4,900 more individuals leaving the state year after year, compared to the number if the taxes were lower. If that projection was on target and has persisted it would mean that 40,000 individuals would have left Michigan since 2007.

It is also probably no coincidence that Michigan’s improvement to “balanced” migration has been accompanied by economically constructive public policy changes in the state. While income tax rates may not have improved much, a burdensome and onerous business tax was replaced by a lower and simpler version.

Michigan’s new right-to-work law may also be helping, since long-term evidence from other states shows this to be a powerful driver of economic opportunity and thus migration: The U.S. Census Bureau recently reported that between July 2014 and July 2015 a net of 480,000 Americans moved from non-right-to-work states to right-to-work states.

Michigan has been moving in the right direction on improving the public policy factors that are important to becoming the opportunity magnet residents would like to see. That the state’s migration is just “balanced” suggests we’re not there yet, and more work is needed. Opportunities to do that work should not be wasted, because they may not always be as attainable.

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MICHIGAN EDUCATION DIGEST August 12, 2014

The Real Problem with Government Pensions

Hint: It's not markets or greedy workers

The high cost of government pension plans are often dismissed by blaming them on either employees abusing the system for plush benefits or poor investment returns due to a temporary market blip.

Neither is correct. The real problem is the assumptions used to prefund future retirement benefits. To keep pension costs from draining resources meant to fund current services, Michigan politicians at all levels should address the pension underfunding crisis in 2016.

The government retirement system for school employees is the largest pension program in Michigan, and it has accumulated $26.5 billion of unfunded benefit promises. The plan for state employees carries another $6.2 billion in unfunded liabilities. Local governments are underfunded by at least another $2.1 billion. And none of these figures include the value of retiree health care benefits.

These enormous debts and taxpayer burdens were never approved by lawmakers or voters, but are rather the result of decades of inadequately funded pension systems. It is yet another demonstration that government pensions don’t get funded — they get underfunded.

Under a pension system, workers provide their services and earn credits towards a pension in addition to their take-home pay. Setting enough money aside ensures that the full cost of these services are paid for as the services are provided. Not setting enough money aside pushes some of these current costs onto future taxpayers (when the time comes for these workers to collect their pension).

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Unfortunately, governments have failed to save enough money to pay the costs of the pensions they promised. Increases to life expectancy rates explain some of the underfunding, but the main culprit has been the failure of investment assumptions. In other words, pension managers have failed to earn as much investment returns as the pension program assumed they would.

Most pension funds’ money is invested in the securities market, where values tend to grow faster than inflation. Making reasonable projections of this growth ensures that sufficient money is set aside now that enough will be available when it comes time to send out monthly pension checks. Assuming more growth than will actually be achieved means that too little gets set aside, which is how funding gaps develop.

This is a recurring problem. In only one out of the past 30 years did Michigan’s school pension system actually have enough money set aside to adequately cover future benefit promises.

So it is odd to see defenders of the system downplay the problem by pointing to a recession that ended six years ago or improper employee “benefit spiking” schemes that are rare in this state. The magnitude of the current underfunding shows that the real problem is more fundamental.

Yet this is a hard problem for government pension managers. If they lower funding assumptions, the stated gap only widens and requires more cash now. That is why recent reform efforts have focused on substituting employee contributions for employer contributions, lowering the generosity of benefits, or, worse, counter-productive early retirement schemes.

Thankfully, there is a way out that will protect taxpayers, current pensioners and future government employees: Give new employees defined-contribution benefit plans that they own and that create no new long-term taxpayer liabilities. The growth of unfunded liabilities in legacy benefits will be contained, which will give some breathing room to catch up on the funding gap. And eventually, the state and local governments will catch up on the promises they made to retirees.

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Weekly Standard Features Mackinac Center Research

Examining government alcohol control across the country

In a recent article about government control of alcohol sales and distribution, the Weekly Standard referenced a 2012 Mackinac Center for Public Policy report that found government control of alcohol sales does not always have the desired effect.

Governments that control the sale and distribution of alcoholic beverages say it's necessary to fulfill their Prohibition-era mandate to restrict alcohol consumption. But a 2012 Mackinac Center report by Michael LaFaive and Antony Davies measured alcohol-related deaths by state and found that lightly regulated "license" states tended to have lower alcohol-related death rates than highly regulated "control" states. Eight of the 10 states with the lowest alcohol-related death rates are license states.

The full article, The Liquor Stores Prohibition Gave Us, can be read online at The Weekly Standard.  

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Vernuccio Quoted on UAW Bullying in The Detroit News

Coverage of intimidation by UAW local

Several news outlets, including The Detroit News, recently covered an instance of union bullying first reported by Michigan Capitol Confidential. Local 412 of the United Auto Workers published in its newsletter the names of employees who have chosen to exercise their right to not belong to a union — as allowed by Michigan’s right-to-work law. In addition to printing nonmembers’ names, the union also urged remaining members not to “share any tools, knowledge or support for any of these employees who choose not to pay their fair share.”

The Detroit News published an article on the issue January 1 and quoted the Mackinac Center for Public Policy’s Director of Labor Policy F. Vincent Vernuccio:

“Pure and simple: It’s intimidation,” said Vincent Vernuccio, director of labor policy for conservative think tank the Mackinac Center for Public Policy.

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“They’re doing it because they want to incite other union members to pressure those who have exercise their right to start paying the union again.

“It’s a bullying tactic. There’s nothing else to it.”

The News also mentioned the Center’s solution to the free/forced rider issue raised by the union.

Prior to Michigan becoming a “right-to-work” state, UAW members were allowed to opt out of the union but still had to pay agency fees to cover the cost of collective bargaining. Now, they can opt out and they continue to receive many of the benefits negotiated by the union.

Vernuccio said the Mackinac Center for Public Policy would like Michigan to adjust the legislation to include what it calls “worker’s choice.” It would free unions from representing those who do not want to pay them and would allow workers to represent themselves. The organization argues it would not change collective bargaining in any other way.

“It would let workers represent themselves,” Vernuccio said. “It’s very simple legislation.”

Other outlets, including ABC 7 in Detroit and the conservative blog Instapundit, also covered the UAW’s most recent instance of bullying.

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Put Parents in the Drivers Seat of Detroit School Reform

Opportunity to include neglected voices in the new year

As Detroit’s public school system spirals toward insolvency and Michigan political leaders talk of bailouts and whether the district should remain under state receivership, one key group remains largely voiceless: parents of the Detroit children whose futures depend on having access to quality schools, regardless of what political entity operates them.

Parents’ voices do occasionally break through, however, with priorities that clash with those of the status quo system’s vested interests.

Exhibit one is an October poll released by the Michigan Association of Public School Academies, which found that seven in 10 Detroit parents want more school choice. Eliminating the competition represented by one of those choices – charter schools – is among the top objectives of the status quo interests.

Evidence of parents’ frustration was also found tucked below the fold of a recent Associated Press story about one proposed bailout plan for the failed school district. The mother of two 10th-graders, Wytrice Harris, was quoted saying that the Detroit school her children attend has failed to provide a full-time English teacher for most of this academic year.

“None of us have local say in our schools,” Harris said.

And no say could be more local than placing greater control of their children’s own school into the hands of parents. When students and their families are freed from being the wards of public school officials, the priority of placing a great English teacher in front of every class will assume its proper place.

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School choice is not a silver bullet, but it more closely aligns with grass roots Detroiters’ own observations and offers a tangible promise of better things to come. Forty-two percent of respondents to that October poll said that public charter schools have bettered the city’s overall education climate, compared to just 24 percent who said charters were making the situation worse.

Research backs up the popular view. The typical Detroit charter student picks up 70 additional days of learning each year in core subjects, according to a 2015 study by Stanford University’s Center for Research on Education Outcomes.

The new year brings with it an opportunity for a fresh look at a stale debate and skewed priorities. Michigan policymakers should welcome more partnerships between quality charter school authorizers and successful school models, and put parents in the driver’s seat when it comes to making decisions about their children’s education.

Reaching lofty goals for Detroit students may seem like an unattainable dream. But success can only come if the conversation includes the most critical “vested interest” of them all — the parents of the children who depend on public education to provide them a brighter future.

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Senate bill 571 looks to curb abuses

The Michigan Legislature recently passed Senate Bill 571, which, among other things, would, “prohibit schools and local governments from sending any communication to residents that mentions an upcoming property tax millage election within 60 days of the vote.”

Gov. Snyder has yet to sign the bill. Local governments, school districts, and some politicians have geared up a campaign to urge a veto of the legislation.

Their complaints are often based on two misunderstandings. The first is that is a restriction on the free speech of public officials and employees. But public entities are funded by tax dollars and the government can limit the ways money is being spent by its employees without violating the First Amendment. The second concern is that this bill is solving a problem that doesn't exist — but that concern does not match up to the historical record.

Current state law is very loose about public entities using tax dollars to advocate for more tax dollars. Generally, officials can provide any information they want, no matter how biased, as long as they don’t explicitly say “vote yes.” That’s how local governments and school districts have repeatedly and consistently advocated for higher taxes with public dollars while perhaps not technically violating the law.

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For example, as noted in stories covered by Michigan Capitol Confidential:

  • Muskegon County sent a flier to voters for a $6.7 million property tax hike in February 2015 which stated, “Repairing our roads is costly, but if everybody pitches in to help with this 1.5 mill proposal, it’s not much at all.”
  • Traverse City schools mailed a flier to residents that said, "Traverse City Area Public Schools is asking voters to support the continuation of TCAPS' long-term capital infrastructure improvement plan by authoring a bond proposal on November 6, 2012."
  • In November 2014, Pinckney Community Schools used school mailing lists to say the district was “asking voters to renew” a multimillion-dollar millage.
  • Saline High School posted a video on its website in 2011 that featured a school official saying, “I’d like to ask for your support for our upcoming bond extension.”
  • Lansing School District sent out a flier shortly before a bond vote that read, “Preserve Our Heritage. Fund Our Future.”

As a watchdog of state and local governments, the Mackinac Center has seen repeated examples — many more than what is listed above — of public entities using taxpayer dollars to advocate for more money for themselves. If people want to argue for higher taxes, they are free to do so — but they should use their own money.

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Americans are Moving to Right-to-Work States

Right-to-work states gain 480,000 people from domestic migration

New numbers from the Census Bureau on how many people move from state to state underscore another aspect of the right-to-work debate that does not often take center stage: Americans continue to move to right-to-work states.

The Mackinac Center has long viewed changes in the number of people in a state as perhaps the single best tool for measuring the quality of life there. After all, there are reasons people pack up and move, and those reasons reflect an individual’s self-interest. Economic opportunities are a clear reason to move, as are amenities such as access to coastal waters or more temperate climates.

According to the Census Bureau, states with right-to-work laws gained a net 480,411 people who moved from non-right-to-work states between July 1, 2014, and July 1, 2015. Granted, few people move to a state specifically because it enjoys right-to-work protections. They do, however, move to states with greater economic opportunities, something which is facilitated by right-to-work statutes.

In his excellent 2010 paper for the Cato Journal, Richard Vedder called the migration of Americans to right-to-work states an “important untold story.” Vedder investigated whether right-to-work had an impact on net migration and — after controlling for other factors, such as climate, taxes, and the types of jobs available in each state — he found that “without exception, in all the estimations, a statistically significant positive relationship … was observed between the presence of right-to-work laws and net migration.” That is, right-to-work states attract more people.

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Vedder is not the only scholar to find a link between right-to-work laws and positive population changes. In 2013, I published a study with Mackinac Center adjunct scholar Michael Hicks titled, “Economic Growth and Right-to-Work Laws,” which contained 64 years of data from 48 contiguous states. We found that right-to-work states saw population growth nearly 0.6 percentage points higher than they would have had without a right-to-work law.

Michigan’s population now stands at 9,922,576, the 10th-largest in the United States. Despite being a right-to-work state, Michigan had a net loss of some 39,000 people between July 2014 and July 2015.

If the Michigan Legislature wants to stem further losses, it could turn its attention back to policies that chase citizens away — or even thwart their arrival. Cutting the personal income tax and offsetting any revenue losses with spending cuts would be an obvious place to start.

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Archaic Prevailing Wage Law Should Be Repealed

State-imposed wages lead to unnecessary extra costs for taxpayers

In Michigan, government entities, such as school districts, must pay all contractors union wages for construction projects — the so-called prevailing wage. This wage rate is established by the state and is based on wages collectively bargained for by unions in the region where the construction work is being done. Market wages set by open competition are explicitly forbidden. The law was first enacted in 1965 when a much larger portion of Michigan’s construction force was unionized, but today, in the construction industry, only one-fifth of workers belong to labor unions.

In other words, when companies bid on government construction jobs, a one-fifth minority now effectively sets the wages for the entire industry. It may have been plausible to argue these wages were “prevailing” many decades ago, but today, the law’s title is nothing short of a misnomer. In fact, only six states still set state construction wages in such a manner. It is time for this archaic law to go.

Basic economics predicts the consequences of such a law. A market’s pricing mechanism reveals relative scarcity and sends pricing signals via supply and demand, promoting the most efficient allocation of resources. Price- and wage-control laws prevent such equilibria by imposing an artificial ceiling or floor, resulting in deadweight loss. A 2015 study by the Anderson Group estimates that, from 2003 to 2012, an average of $127 million per year, or $1.3 billion total, was added to education-related construction costs.

Some argue, however, that government-determined wages are necessary to address social ills. But this argument doesn’t bode so well when it comes to Michigan’s prevailing wage law. Average construction wages are nearly triple the minimum wage — prevailing wage only pads the pay of already relatively well-paid employees, all at taxpayers’ expense.

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According to a 2007 Mackinac Center study, the law artificially inflated construction wages by an average of 40-60 percent above market wages, increasing overall project costs by 10-15 percent. For example, in the Detroit metro area, the going market wage for electricians in 2005 was $30.83 per hour. However, when electricians were hired by a public school district in 2005, Michigan’s prevailing wage law forced districts to pay all electricians $46.88 per hour — a 52.1 percent wage inflation.

Higher prices tend to reduce demand. Michigan’s prevailing wage law, therefore, results in fewer overall construction jobs. Since government entities are forced to pay union wages for all construction work, firms that employ higher-wage workers are given an advantage. The result is a disadvantage for lower-wage workers, which places labor unions in a desirable position. Labor unions passionately defend this law, as it effectively forces taxpayers to subsidize inflated wages while protecting their members from fair market competition.

Fortunately, Michigan lawmakers are interested in repealing this law. Rep. Amanda Price introduced House Bill 4001 in January to repeal the law, and the Senate passed Sen. David Robertson’s similar proposal, Senate Bill 3. However, because unions receive a concentrated benefit from the law, they join together to lobby hard against it. And Michigan’s Republican Gov. Rick Snyder also vowed to veto any attempt to repeal the law, honoring a deal made with state Democrats for supporting the failed road-funding plan, Proposal 1.

But there’s additional action on this front, led by taxpayers themselves. A coalition organized to repeal the state’s prevailing wage law submitted petitions with more than 390,000 taxpayer signatures; however, the coalition quickly retracted the petition after learning a hired contractor had duplicated signatures. A new effort is now prepped to launch. If 252,523 validated signatures are submitted by June 1, 2016, the law’s fate will be decided by voters in a Nov. 2016 ballot proposal. If voters approve, the repeal can pass without the governor’s signature.

However well-intentioned Michigan’s prevailing wage law might have been when passed in the 1960s, there’s little case to be made for it today. It is now costing taxpayers hundreds of millions of dollars annually — and is certainly no longer representative of prevailing construction wages. Michigan is one of six states left in the nation to hold onto a similar law. As the state tries to address its fiscal woes and infrastructure, the opportunity cost of allowing this costly law to remain on the books is simply too great.

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Mackinac Center Research Featured in The Detroit News

Vernuccio quoted on Friedrichs v. California Teachers Association

The Mackinac Center for Public Policy’s Director of Labor Policy F. Vincent Vernuccio was quoted recently in The Detroit News’ latest coverage of the U.S. Supreme Court case Friedrichs v. California Teachers Association that could make all public sector employees right-to-work.

Vernuccio explains that half the states in the country are already right to work and this case would simply extend that freedom to public employees in the other 25.

The Mackinac Center analyzed U.S. Bureau of Labor Statistics data and found that, over 14 years, union membership among private-sector workers covered by collective-bargaining agreements was 93 percent in states with agency fees and 84 percent in right-to-work states.

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The center also looked at public-sector union statistics in eight right-to-work states and found membership rates in the 80 percent range, with no significant pattern of decline.

In Michigan, where the right-to-work law took effect in March 2013, union membership among state and local government employees covered by labor agreements fell to 95.7 percent last year from a high of 98.4 percent in 2008, according to another Mackinac analysis.

“The sky is not going to fall,” Vernuccio said. “As we’ve seen in right-to-work states across the country, union members who see the value in their unions continue to support it.”

Read the full article at The Detroit News.

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“Guilty state,” push-back fed overreach, selective tax breaks, more university debt

Now with one click you can approve or disapprove of key votes by your legislators using the VoteSpotter smart phone app. Visit votespotter.com and download VoteSpotter today!

House Bill 4095, Authorize $51 million in new debt for college & university building projects: Passed 38 to 0 in the Senate

To authorize $51.3 million in new government spending for several state college and university construction projects. The bill would cause the state to increase its own debt burden by $33.1 million.

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Who Voted “Yes” and Who Voted “No”


House Bill 4581, Increase state payments to liquor distribution oligopolists: Passed 36 to 2 in the Senate

To increase from $7.50 to $8.25 the per-case fee that the private company or companies granted a state monopoly to warehouse and distribute liquor to retailers can collect from the state as a "reimbursement" for its distribution costs. According to the Senate Fiscal Agency the bill would have the effect of transferring an additional $5.8 million annually from taxpayers to these private companies.

Who Voted “Yes” and Who Voted “No”


Senate Bill 492, "Push back" against Obama NLRB franchise unionization rule: Passed 59 to 46 in the House

To establish that the owner of a local business franchise is the sole employer of its employees, rather than being a "joint employer" alongside the franchisor, with some specified exceptions. The bill was introduced after President Obama’s appointees on the National Labor Relations Board ruled that all franchise employees are actually employed by the franchiser for purposes of union organizing. This would mean that employees at local stores franchised by a national chain (like McDonald’s) could be unionized on a nationwide basis.

Who Voted “Yes” and Who Voted “No”


House Bill 4713, Require “culpable mental state” for criminal conviction: Passed 38 to 0 in the Senate

To establish that (with some significant exceptions) if a law does not indicate whether a culpable mental state (“mens rea”) is required to establish guilt, the presumption will be that this is required, meaning that prosecutors must show that the defendant violated the law “purposely, knowingly or recklessly.” This would not be the case if a law explicitly imposes a strict liability standard. Under current law, many complex administrative offenses authorize criminal penalties for actions that a regular person would not know are illegal.

Who Voted “Yes” and Who Voted “No”


Senate Bill 616, Exempt data centers from sales tax: Passed 61 to 45 in the House

To exempt business equipment purchases made by an internet data center from the state sales tax. The bill originally applied only to the developers of proposed data center in the vacant “Pyramid” building near Grand Rapids, but was expanded to all companies in this particular business. The House did not adopt the proposal in Senate Bill 618 to also exempt these firms from property taxes levied on business tools and equipment (the so-called personal property tax).

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 http://www.MichiganVotes.org.

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