The MC: The Mackinac Center Blog

Lopez on Fox Business

Corporate welfare for movies unfair to taxpayers

Manny Lopez, managing editor of Michigan Capitol Confidential, was a guest on “Money With Melissa Francis” on Fox Business this afternoon, explaining why corporate welfare for film makers is unfair to the taxpayers from whom the money is taken.

You can read more about Michigan’s film subsidies here.

What a Union Looks Like in a RTW State

Alabama UAW shuns rhetoric, gives honest answers

As auto manufacturing has shifted to the South, the UAW has made a push to begin unionizing workers in right-to-work states.

The words and actions of union officials are interesting compared to states where workers are still forced to pay money to the union.

On the website for a UAW chapter in Alabama, which is trying to organize workers at a Mercedes-Benz plant, the union writes the following in its FAQ section:

Q: Do I have to join the union?

A: First of all remember Alabama is a Right to Work state; therefore, it is totally voluntary whether or not you decide to join the union and pay union dues. If you think your local union is doing a good job representing you and in negotiations for improvements then we hope you will join. If you feel it isn’t then it is your right not to join.

Q: Alabama is a "Right to Work" state. What does "Right to Work" mean?

A: The law speaks to one narrow issue. The right to work law means that Mercedes employees have the right to join or not join the union. It is the employee's choice. It does NOT mean that workers in Alabama don't have the right to form unions. They do. In fact, there are many workers all over the country – including in Alabama – who have strong, effective unions in so-called "right to work" states.

Contrast that with Michigan, where it is said that right-to-work laws "destroy unions," "eliminates the middle class," and will lead to "blood." Where unions harass teachers, intimidate employees who disagree, and freeload off of members with the spending of dues or fees on issues with which they don't agree.

As the UAW branch in Alabama notes, right-to-work laws change nothing about collective bargaining other than making it illegal to fire a worker for not paying money to a union. This choice means the union is more responsive to its membership. If it isn't, well, "it is your right not to join."

Economics 101: Minimum Wage Kills Jobs

When prices go up, quantity demanded goes down

The minimum wage has been in the news a lot lately due to proposals at the state and federal levels to increase it and because of a February Congressional Budget Office report on the subject.

Among all the policy subjects up for debate, there is perhaps no easier conclusion to draw than that minimum wage mandates are jobs killers.

Both economic theory and empirical evidence — despite some recent claims to the contrary — make it clear that mandating an artificially high minimum wage leads to job losses.

First, consider the theory behind the economics. Basic price theory informs us that there is an inverse relationship between the price of just about anything and the quantity demanded of it.

The graphic below demonstrates a simple demand curve. On the vertical axis is the price of labor, marked by PL1. On the horizontal access is QL1, which is the quantity of labor demanded at that price on the vertical axis.

Price and Quantity 1

If the government commands that a higher wage be paid to labor (below) — artificially moving PL1 upward to PL2 — the quantity demanded for labor must by definition fall to QL2.

Price and Quantity 2

Second, we have scholarly empirical analyses published in peer-reviewed journals by academics. A 2007 review of this literature by David Neumark and William Wascher supports the contention that minimum wage mandates have a negative effect on jobs. Their review of studies from 1990 forward indicates that some 85 percent "of the most credible evidence" suggests that these higher mandated minimums hurt employment.

Last month the Congressional Budget Office released a report on the economic effects of increasing the federally mandated minimum wage to $10.10 an hour. They concluded that from the perspective of the federal budget all the pluses and minuses would net out evenly. That is, no real gains or losses over time.

They observed that about 500,000 people would lose their jobs while another 900,000 would be pulled just a little above the federal poverty line. In other words, for every two people lucky enough to keep their jobs, one would lose their job entirely. Of those 900,000 who do better, it is only marginally with the average income of families being lifted "by about 3 percent …"

Writing for the Cato Institute in this month's, “Tax & Budget Bulletin," economist Joseph Sabia notes that the CBO's estimate of job losses may be low because it took "a lower bound estimate" of potential changes in employment of lower skilled persons.

The economic evidence in support of a higher minimum wage amounts to pretty thin gruel.

Rather than being a help to poor people, on net balance it hurts people and is apparently no great friend to government treasuries, either. The CBO estimates a wash, but its estimate of employment losses may be on the low side. 

A better solution to helping low-wage earners would include removing obstacles to creating and obtaining jobs, not building more of them.

LaFaive Proven Right on Cigarette Tax Hike

Mass. losing millions due to smuggling

A Boston Herald editorial on a $1 per pack tax hike on cigarettes in Massachusetts cites Michael LaFaive, director of the Morey Fiscal Policy Initiative, who warned that an increase would lead to more tobacco smuggling and less state revenue.

The editorial references an interview LaFaive did with WBUR last year, indicating that the tax hike would cause the cigarette smuggling rate in Massachusetts to more than double from 18 percent to 43 percent. The state is now reporting that it is losing up to $246 million a year in cigarette taxes and $49 million a year in sales tax due to cigarette smuggling.

Vernuccio on Worker Freedom

Panel discussion in Washington, D.C.

“We’re looking at Ohio. We’re looking at Missouri. We’re looking at Kentucky. The fire of worker freedom is shining brightly, and it is spreading.”

Those were among the comments of Labor Policy Director F. Vincent Vernuccio at a panel discussion on right-to-work Saturday held at CPAC near Washington, D.C., according to Huffington Post.

Vernuccio also said that Ohio Gov. John Kasich is “the biggest impediment” to worker freedom in the Buckeye State, according to Talking Points Memo.

Vernuccio noted that while it took 20 years to achieve right-to-work in Michigan, “It’s not going to be another 10 years” until the next state passes a worker freedom bill, according to Salon.

The full panel discussion can be seen here.

Teachers Victorious Over MEA

State, national media report on RTW win

State and national media are reporting on the victory of two Mackinac Center Legal Foundation clients over the Michigan Education Association in their fight against the union to exercise their worker freedom rights.

The Detroit News, Detroit Free Press, National Review Online, WZZM-TV13 in Grand Rapids, MLive, The National Law Review, the Washington Examiner and the Petoskey News-Review all reported on the union giving up in its battle to force teachers Miriam Chanski of Coopersville and Ray Arthur of Petoskey to pay union dues. Patrick Wright, director of the MCLF, also discussed the matter on “Capital City Recap” with host Michael Cohen on WILS AM1320 in Lansing and on "The Frank Beckmann Show" on WJR AM760, and Labor Policy Director F. Vincent Vernuccio was interviewed about the matter by National Review in Washington, D.C.

Michigan Capitol Confidential reports that about 8,000 teachers have not paid dues to the MEA this year.

Senate Bill 783, Let landlords ban medical marijuana use: Passed 31 to 7 in the Senate

To prohibit the use of medical marijuana on any portion of private property that is open to the public, or where it is banned by the property owner. The bill would also permit a landlord to refuse to rent a residence to someone who uses medical marijuana on the property. Because the bill amends an initiated law adopted by the people, it requires a three-fourths supermajority vote in the Senate and House.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 821, Revise 2012 “personal property tax” reform law: Passed 36 to 2 in the Senate

To revise details of a 2012 law that distributes some state use tax revenue to local governments, as a replacement for revenue they lose due to reductions in the "personal property tax" imposed on business tools and equipment. The bill is part of proposal to essentially replace all of the foregone local government revenue from a 2012 personal property tax reform law, instead of replacing most of it. For any of this to happen voters must approve related changes to the state use tax in an August, 2014 ballot initiative; the current proposal is intended to forestall local government opposition to that measure.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 821, Whitmer amendment to impose "Amazon" internet sales tax: Failed 12 to 26 in the Senate

To "tie-bar" the personal property tax reform bill described above to Senate Bill 658, which would impose state sales tax on catalog or internet purchases made from sellers outside the state that have an affiliation with a different business located in Michigan, in the manner pioneered by internet retailer Amazon.com. The amendment would require the internet sales tax legislation to become law for the personal property tax bill to do so.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 667, Prohibit minors from using “e-cigarettes”: Passed 38 to 0 in the Senate

To prohibit minors form using electronic vapor cigarettes, making it a misdemeanor crime punishable by a $50 fine, community service in a hospice or long term care facility, and being ordered into a health promotion and risk reduction program. Senate Bill 668 bans selling or giving minors e-cigarettes.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 711, Extend Cobo sales tax break: Passed 100 to 10 in the House

To extend for another two years a sales tax exemption for the purchase of tools and equipment by a contractor if these are used to fix or renovate Cobo Hall in Detroit.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 608, Revise Medicaid expansion funding; authorize extra spending: Passed 65 to 44 in the House

To adjust spending in the current year budget to reflect fund source changes triggered by adoption of the federal health care law Medicaid expansion starting in April. The bill also appropriates $215 million in additional spending on roads (including $100 million for extra winter maintenance costs), money for Amtrak-related rail improvements, government pre-school programs, low income heating bill subsidies, veterans programs, marina projects, and much more. The House removed a Senate-passed $5.5 million appropriation involving purchase of the Steelcase "Pyramid" building for a loosely defined, education-related "public/private partnership," along with other spending including more money for "land banks." The bill would also authorize $60.3 million in new debt for state college and university construction projects.

Who Voted "Yes" and Who Voted "No"

 

House Bill 4295, Add additional spending to current school budget: Passed 107 to 3 in the House

To appropriate extra money for various school-related purposes, including a $51.7 federal "early learning challenge grant" the state applied for and received. Among other things this will pay for government programs that promote “physical, social, and emotional health...for high-needs children from birth to kindergarten entry,” in ways that are "culturally, linguistically, and developmentally appropriate." The money can also be used to train the employees who perform these activities, and figure out how and what to measure in assessing them. The bill also authorizes (but does not yet fund) contracting for a student nutrition and behavior tracking software program for schools. It would also appropriate $5 million more for transition costs related to dissolving the fiscally-failed Buena Vista and Inkster school districts; $2 million for a year-round school pilot program; $3.9 million for contracts to provide students "information technology education opportunities; and more. Finally, it makes adjustments to the current school aid budget to reflect lower than expected student counts.

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.

Electricity Competition in Illinois

Consumers save $240 annually

What could your household do with an extra $240 per year?

A new study estimates that Illinois electricity consumers have saved $37 billion from 1999 to 2013 as a result of increased electricity and natural gas competition. That works out to a total savings of $3,600 per household, or $240 annually. Illinois now boasts the lowest electricity prices in the Midwest.

The report calls these consumer savings "a triumph of market-based public policy." It outlines the process by which the Land of Lincoln transitioned from providing electricity through a state-controlled monopolistic system to one centered on competitive, level and open markets. As centuries of research on trade markets would predict, Illinois consumers win when electricity firms compete for their business.

The report notes that Michigan is a state with "extremely limited customer choice." Not coincidentally, we also have some of the highest electricity rates in the country.

There's a debate right now inside Lansing about whether Michigan will follow a path similar to Illinois and open the provision of electricity to more utilities, or whether it will continue using a legal monopoly to guarantee 90 percent of the electricity market to just two firms.

If Illinois is any example, Michigan electricity consumers should favor opening this state up to the positive cost pressures of a more competitive electricity market.

Other Michigan Cities in Pension Debt

Not just a Detroit problem

Detroit's pension woes are in the news, but municipal employees around Michigan should not presume that their pension systems are secure.

Indeed, in most Michigan cities the underfunding problems are worse than those in Detroit.

On paper, the unfunded liabilities for Detroit's police and fire system are $147 million, and its general employee pension system underfunding comes to $838 million. That translates into 96 percent and 77 percent funded, respectively. That is, for every dollar in pension benefits earned by an employee, the city has an average of 87 cents saved.

That's not good, but the 2012 financial statements of Michigan's 35 largest cities found that 90 percent of municipal pension plans were underfunded, with total underfunding stated at $2.1 billion.

It may be even worse. Pension funding policies can mask the magnitude of underfunding.

For example, to prevent a single very good or very bad year in the stock market from skewing the value of their investments, pension systems typically use a "smoothing" method to average the values over a period of several years.

Detroit uses an eight year smoothing window. This lengthy period means that its pension fund valuations do not yet fully incorporate the effects of the great recession. At current market prices, the system's assets are $1.35 billion below their "smoothed" values.

Moreover, Michigan's cities also tend to offer retiree health care benefits to employees, even though few private sector employers provide such coverage. Unlike pensions, these benefits are not protected by the state constitution. They amount to gratuities that can be revoked at any time. Importantly, these "other post-employment benefits" are rarely prefunded.

With prefunding, employees know there's some money set aside to pay for what they were promised. Just as important, the cost of each year's service is largely paid for during the same year. When benefits go without prefunding, the certainty that benefits will be provided as advertised is diminished. This is especially the case in the Michigan cities that have lost residents and jobs. Without prefunding, the costs of long-gone government employees' service must be paid by a shrinking tax base.

Underfunding is not the only reason Detroit is seeking to trim the pensions of retirees. The city also is insolvent. That is, it lacks the cash to pay its bills when they come due — including constitutionally mandated pension prefunding contributions. Insolvency coupled with underfunding risks pensions, and the increasing costs of catching up on unfunded liabilities can drive some governments to insolvency.

It wasn't supposed to be like this.

Delegates to Michigan's 1962 constitutional convention wanted cities to pay for pensions as they are earned, and not defer the costs of current employees to future taxpayers. The provision they wrote into our current state constitution amounts to an instruction to city managers to make good, reasonable assumptions about the future value of investments made today, and deposit enough each year to cover the future costs of another year's worth of benefits earned.

The reality of underfunding shows that they have not made good assumptions, and are still assuming excessively rosy scenarios. As a first step, this should change.

Beyond that, the only sure way to avoid digging even deeper holes in the future is to follow the lead of a handful of municipalities that have closed their conventional defined benefit pension systems to new members and offer defined contribution retirement plans instead.

McHugh Discusses Budget on WILS

Focus on smarter spending, not more spending

Senior Legislative Analyst Jack McHugh was part of a roundtable discussion on “The Tony Conley Show” on WILS AM1320 in Lansing Tuesday, discussing wasteful government spending and how Michigan can use the tax dollars it takes from us more wisely and more efficiently.

Part 1

Part 2

Part 3

Part 4