The MC: The Mackinac Center Blog

Why Not Double the Prevailing Wage?

Arbitrary rate does harm taxpayers, school districts

Michigan’s prevailing wage law sets an arbitrary mandate for what public entities (like schools) have to pay for construction projects.

Top Republicans in Lansing rightly want to eliminate these mandates, as the Mackinac Center has recommended for years. This is estimated to save taxpayers more than $200 million per year.

Democrats disagree with the proposed changes.

"It's extremely disappointing that the first priority of Republicans is to lower wages and have people work for less," said House Minority Leader Tim Greimel, D-Auburn Hills. "It's just another example of Republicans' relentless push for cheap labor."

But if government can set an arbitrary rate that raises wages with no harm to taxpayers or public schools that have to pay for them, why doesn’t the state double the prevailing wage rate?

The reason is that there are real costs to Michigan’s prevailing wage policy. Because of it, taxpayers get fewer government services than they would otherwise. Eliminating this extra cost would mean taxpayers could get that new school and afford new laptops for students. Or taxpayers could finance a new city hall and fill hundreds of potholes.

Michigan residents don’t set arbitrary rates on what they are going to pay for projects they have done on their own homes. Schools and local governments shouldn’t be forced to either.

Open Letter to the Liquor Control Commission

Abandon rules allowing industry price collusion

Dear Commissioners:

By now you may know that the Mackinac Center for Public Policy has filed a lawsuit against the Michigan Liquor Control Commission over illegal costs associated with a Freedom of Information Act request I submitted. The suit arose out of my investigations into your so-called “post and hold ” rules for distributors and wholesalers of alcoholic beverages. Previous empirical research has shown these rules may artificially raise prices paid by consumers between 6.4 to 30 percent, depending on the product.

You will recall that in testimony before the commission last June I recommended these rules be repealed because they hurt consumers and only benefit a handful of beer and wine wholesalers. This amounts to government-enabled industry price collusion.

It is distressing that the Commission has chosen to continue enforcing these anti-consumer rules. The reasons given in your explanation for not repealing the rule strongly suggest that the Commission is excessively interested in what benefits members of this industry rather than the public.

For example, the minutes of your Sept. 9, 2014 meeting state:

“The only voice of opposition to these rules at this time is the Mackinac Center for Public Policy. The Commission has not heard from retailers that these rules are detrimentally impacting their business.”

What difference does it make that a free-market think tank is the only opposition? How many retail beer-and-wine store owners, much less consumers, know or even imagine that a state agency enforces a form of anticompetitive price collusion? As you know, the rule (which was never enacted by the Legislature) does so by mandating that distributors and wholesalers “post” their prices for anyone to see, including competitors, and then prohibits them from changing these prices for up to 180 days.

Also, your focus on a particular business interest in that paragraph suggests that a point of clarification is necessary: The Mackinac Center’s concern is not about retailers and their businesses, but rather consumers and their wallets. Nothing we have written on this issue references “retailers.”

You also wrote the following:

“Both the Michigan Beer and Wine Wholesalers and the Michigan Licensed Beverage Association are in opposition to the rescission of these rules.”

This is unsurprising. Monopolists and price-fixing cartels are always opposed to repeal of their cozy arrangements.

This also raises the question, why is hearing from a disinterested “voice of opposition” cited as grounds for refusing to repeal an anti-consumer practice, while support from the special interest that profits from it is held up as justification? Of course those industry trade associations are “in opposition to the rescission of these rules” — they’re the primary beneficiaries! It’s consumers who suffer.

Continuing, the minutes from your Sept. 9, 2014, meeting includes the following:

“(T)he Chairman advised that the Commission is conducting a comprehensive review of all the administrative rules and will be reviewing both the beer and wine rule sets to incorporate the recent statutory changes.”

Unfortunately, the commission’s pro-industry history suggests nothing is likely to change. For example, Gov. Rick Snyder appointed a special advisory committee to review onerous alcohol rules and regulations, and yet “post and hold” was never addressed. Just in case it might have slipped the committee members’ minds, we sent them a letter on Oct. 24, 2011, that included the following bullet point:

  • Eliminate the “post and hold” rule from the Administrative Code.
    This is a measure that protects beer and wine manufacturers and wholesalers. The rule is tantamount to state-mandated price collusion… (more)

Nevertheless, apparently reviewing these rules wasn’t deemed convenient at this time. Still, you may want to reconsider, given that federal courts have held that similar schemes in other states violate the Sherman Antitrust Act. [See cases from Oregon (Miller v Hedlund, 813 F.2d 1344 (CA9 1987)), Maryland (TFWS v Schaefer, 242 F3d 198 (CA4 2001)), and Washington (Costco v Maleng, 522 F3d 874 (CA9 2008)].  

Finally, I understand that communications with persons outside the liquor industry may not be the Commission’s strong suit. This may explain why you are being sued under a law that requires government agencies to make public records (including electronic ones) available to — well, the public.

The Freedom of Information Act lawsuit was filed after I was informed that the Commission would charge $1,550 to “copy” 6,000 pages of records requested under the state open records law.

I know Commission traditions date back to the post-Prohibition era of the 1930s, but no page “copies” were ever requested. Instead, the request was for someone to stick a thumb drive in a computer and copy a spreadsheet from your database.

Thank you for your time and attention in this matter.

Sincerely,

 

Michael LaFaive

Director

Morey Fiscal Policy Initiative

Another Tobacco Store Burglary Today

Unintended consequence of high cigarette taxes

News reports today tell of a Macomb County tobacco store burglary by four men who stole cigarettes and escaped capture after a police chase. This unlawful behavior is a direct and unintended consequence of the high excise taxes imposed on Michigan cigarettes ($2 per pack) statewide.

There are other unintended consequences too. Mackinac Center analysts estimate that 25 percent of all the cigarettes consumed in the Great Lake State in 2013 were smuggled in from other states. Revenue losses to the treasury from smuggling total $298 million.

High tobacco taxes lead to violence against police, property and people in addition to smuggling.

In late 2013, police officers in Warren had to shoot smoke shop thieves as they attempted to make their getaway with $10,000 worth of tobacco merchandise. “It happens all the time” one police officer said. She said tobacco stores are “targeted.” Wholesalers are sometimes targeted too.

The reason they are targeted is that thieves know cigarettes have value in part due to the high excise taxes imposed on them. Once stolen, they are easily passed off as legitimate smokes elsewhere and sold to other (illicit) distributors or directly to smokers.

There are several ways to address the problems associated with illegal trafficking: cut excise taxes, increase law enforcement efforts or some combination of both.

Feds Take Step Forward on Asset Forfeiture

Now state needs to step up

Attorney General Eric Holder last week limited local and state law enforcement from using federal asset forfeiture laws to seize property and funds without proof that a crime has occurred.

According to the most recent state report, Michigan seized $8.8 million worth of property in federally shared asset forfeitures in 2013. Michigan statute allowed agencies to take another $15 million that was officially reported.

Michigan has had numerous problems with its program, both from federal agencies. State laws provide skewed incentives that have led to innocent people having their property seized. The federal rules are a big step in the right direction – state lawmakers should follow suit.

And They’re Off – Jan. 16 Legislature Report

Hike taxes, extend term limits, repeal "prevailing wage"

As required by the state Constitution, Michigan’s 98th Legislature opened on the second Wednesday in January, Jan. 14. It will be several weeks before any substantive non-procedural votes are taken, so this report describes some bills of interest introduced during the first week.

Senate Bill 1 and House Bill 4001, Repeal “prevailing wage” law

Introduced by Sen. Arlan Meekhof (R) and Rep. Amanda Price (R), respectively, to repeal the state “prevailing wage” law, which prohibits awarding government contracts to contractors who submit the lowest bid unless the contractor pays “prevailing wages,” which are based on union-submitted pay scales that tend to be above the market rate. Referred to committee, no further action at this time.

House Bill 4006, Mandate emergency cell phone user location disclosures

Introduced by Rep. Kurt Heise (R), to require cell phone companies to disclose call location information when requested by law enforcement because the information is needed in an emergency situation that involves the risk of death or injury. The bill would grant legal immunity to cell phone companies for making the disclosures. Referred to committee, no further action at this time.

House Bill 4012, Require local zoning let residents grow some farm products

Introduced by Rep. Tim Kelly (R), to establish that under local zoning ordinances property zoned as residential may be used by a resident to grow farm products and animals for personal use and some “de minimis” sales. Referred to committee, no further action at this time.

House Bill 4014: Restrict schools collecting personal and “biometric” student data

Introduced by Rep. Tim Kelly (R), to prohibit public schools from collecting or using student “biometric” or other specified data, including data from a behavior-response measuring “biofeedback” or facial recognition device. The bill also bans schools from administering tests that ask students about their own or family members’ socioeconomic status; place of birth; political affiliations or beliefs; religious practices, affiliations, or beliefs; income; or any other data about the student’s relationships, health, behaviors, attitudes, or beliefs, unless approved in writing by a parent or legal guardian. Referred to committee, no further action at this time.

House Bill 4021: Authorize 5-mill property tax for school buses

Introduced by Rep. Robert Kosowski (D), to allow school districts to use a “sinking fund” property tax to buy school buses. Under current law, schools may levy up to 5 mills for 20 years for a “sinking fund,” which is a permanent fund that may only be used only for land purchases and the construction or (major) repair of school buildings. Referred to committee, no further action at this time.

House Bill 4023, Ban child care for more than 11 consecutive hours

Introduced by Rep. Robert Kosowski (D), to prohibit a parent or guardian from leaving a child in the care of a child care center, group child care home, or family child care home for longer than 11 consecutive hours, unless the parent works longer than that. Referred to committee, no further action at this time.

House Joint Resolution A, Repeal constitutional prohibition on graduated state income tax

Introduced by Rep. Jeff Irwin (D), to place before voters in the next general election a constitutional amendment to repeal an existing prohibition on a graduated income tax (as opposed to Michigan’s current flat tax). The measure does not specify a rate structure, which would be left to future legislatures. Referred to committee, no further action at this time.

House Joint Resolution C, Lengthen term limits

Introduced by Rep. Jeff Farrington (R), to place before voters in the next general election a Constitutional amendment to extend the term limits of state representatives and senators, allowing the former up to six terms of two-years each, and the latter up to three terms of four years each. Currently, representatives may only have three two-year terms, and senators two four-year terms. Term limits on legislators and state officers were adopted by a 59-41 percent vote of the people in 1992. Referred to committee, no further action at this time.

'Big Oil' and Climate Change

Debunking an urban myth

(Editor’s note: Jack Spencer is capitol affairs specialist for Michigan Capitol Confidential and a veteran Lansing-based journalist. His columns do not necessarily represent the views of the Mackinac Center for Public Policy or Michigan Capitol Confidential.)

Elvis Presley celebrated his 80th birthday on Jan. 8. Although his present location is undisclosed, sources suspect he lives near Roswell, N.M., where aliens from outer space crashed long ago and still stop over for lunch when they visit our solar system. Everybody knows that, right?

Myths, urban and otherwise, are narratives often accepted because they reinforce a certain worldview. One of the most widely believed urban myths of our time is that the oil (aka fossil fuel) industry wants to and works to undermine the belief in man-made climate change.

This idea only makes sense to those (unfortunately a great many) who subject it to the most superficial analysis. It is based on the manifestly false premise that the oil industry has something to fear from the theory of man-made climate change. In reality, the oil industry — like any industry driven by the quest for profits — long ago decided to cash in on the man-made climate change dogma.

Funding available to support the argument that man-made climate change is bunk (if there is any at all) is insignificant compared with the billions of dollars promoting an impression that the theory is factual. If the oil industry put its financial muscle behind efforts to dispute man-made climate change, the politics surrounding the issue would be very different than they are today.

Here’s where things really stand:

Point 1 — Let’s say you were an executive at a huge international candy company in the early 1970s when a significant number of consumers in Western Europe and the United States joined the health and fitness movement. Would you tremble in your boots and fear the impact? Of course you wouldn’t.

As a candy executive you’d realize that tens of millions of people were hooked on your product. High levels of candy consumption would be guaranteed, regardless of how popular the health and fitness lifestyle became. Yes, the health and fitness trend would be a ‘concern,’ but wouldn’t pose an immediate threat to profits.

Facing manmade climate change claims, the oil industry enjoys an even more secure position than the candy industry did in the 1970s. The developed world is far more dependent on fossil fuels for its energy needs than portions of the population with a sweet tooth are on candy. Consider all the places on Earth with existing infrastructures that require fossil fuels to function. Alternative energy sources present no real threat to the position fossil fuels have in the world market, as the recent natural gas revolution has clearly demonstrated.

Point 2 — Any moderately intelligent candy industry executive facing the health and fitness movement in the1970s would have looked for ways to take advantage of it. They’d advocate development of new “healthful” candies, with reduced sugar, sugar substitutes and specific health benefit claims. They could even consider having their candy company invest in health food stores. In other words, don’t fight the health and fitness movement, join it by diversifying and prospering.

That’s exactly the approach the oil (aka fossil fuel) industry took with manmade climate change. The ads turned out by oil (now ‘energy’) companies over the past 15 years have been all about being “green” and getting “greener.” The fossil fuel industry is deeply immersed in so-called renewable energy. It was perfectly positioned in terms of expertise and technology to take advantage of these trendy developments. And, with government subsidizing renewable energy projects, profits — or at least tax write-offs — have been virtually guaranteed.

With some, or perhaps most, substitute candies the actual health benefit is dubious. Certain additives are arguably worse than sugar. The story is the same with the most prominent and ballyhooed renewable energy sources: ethanol, wind and solar. They fall far short of their advertised energy production potential and positive impact on the environment.

But the bottom line for both the candy industry and the fossil fuel industry has been to ‘go where the money is’ by adjusting to societal trends and not worrying about whether or not those trends are rational.

Point 3 — Ironically, the anti-fossil fuel movement’s clamor against further drilling and exploration — which evolved largely due to claims of man-made climate change — has tended to drive oil industry profits up. Dispensing with the intricacies of the economics involved, just look at the evidence. Some readers might remember the so-called “windfall profits” oil companies made in the 1970s. Those profits were reaped as the result of shortages perpetuated by government restrictions on drilling and exploration. After President Jimmy Carter (too late to save his job) lifted the restrictions, oil prices plummeted and in the 1980s the domestic oil industry went through a recession. Competition and innovation always drive prices down.

Now it’s happening again with the natural gas revolution bringing the price of gasoline below $2 a gallon . Meanwhile, oil (aka fossil fuel) stocks on Wall Street have been falling, not rising. As strange as it seems, that’s because the oil industry was allowed to do what man-made climate change activists tried to prevent it from doing. These realities should be a clue to those who believe the ‘Big Oil needs to dispute man-made climate change’ myth that the complexities involved are more than their simplistic assumption takes into account.

Center Research Cited in Washington Post

New cigarette smuggling study released

New research by Mackinac Center experts on the effect of high tobacco excise taxes on cigarette smuggling rates is featured in The Washington Post. The study was also cited by WLUC TV-6 in Negaunee, WWMT-TV3 in Kalamazoo, WKZO AM-590 in Kalamazoo and WSJM FM-94.9 in Benton Harbor, as well as Hot Air.

In addition, WKBW-TV7 in Buffalo, the Staten Island AdvanceThe Kansas City Star, The Sacramento Bee and The Witchita Eagle have covered the study.

Legislature Looks at Repealing Prevailing Wage

Center experts made suggestion 20 years ago

Senate Majority Leader Arlan Meekhof, R-West Olive, said today that the Michigan Legislature will seek to repeal the state’s costly prevailing wage law.

Here is more information on why such a policy change would benefit Michigan.

'Blown Away' Program Prolonged

Corporate welfare program a continued failure

With little discussion, legislators extended Gov. Granholm’s $75 million-a-year “Blown Away” program. It has never lived up to expectations.

There are allegations that Michigan lawmakers are suffering a bout of “tax cut fever” and have slashed taxes over the past decade. These accusations are a way of denigrating the desire of people who would rather keep more of their money than be forced to give it to Lansing. Considering the state’s financial situation, there is more of an outbreak of tax cut phobia than fever.

The state is on its fifth year of an economic recovery that drove up tax revenue. Income tax revenues are up $3 billion more than just four years ago. Preliminary revenue estimates show another $1.6 billion in tax revenue for the upcoming fiscal year above fiscal year 2014.

Moreover, to say that policymakers have been cutting taxes like it’s going out of style relies on a bad definition over what constitutes a tax cut. Not everything that results in less money in the state treasury is a reduction in taxes.

Consider former state official Doug Drake’s list of “tax cuts.” These include subsidies to selected businesses in the form of refundable tax credits. On the treasury’s financial records, they will note that the government has less net revenue because of this. But in order to give out money in these tax credits, government must raise tax money elsewhere.

By increasing a tax credit somewhere, the state would still be extracting just as much revenue from the general taxpayer. Giving out subsidies through film credits, for instance, may mean less revenue for Lansing, but that matters little to taxpayers who still have to finance those expenditures.

The most extreme example is in the Michigan Business Tax. This “tax” is only filed by companies that have received special tax credits. Thus, it does not raise any revenue — it pays it out. The state expects that it will have paid out $734 million to those tax filers in fiscal year 2014. In order to pay out these credits, this money has to come from other taxpayers.

The difference will be important in the upcoming sales tax ballot proposal. The Earned Income Tax Credit will be increased and this is pitched as tax relief. The credit will deliver cash from general taxpayers to those filers who have low incomes and children, regardless of their tax burdens. Often, this involves more credits that are more than tax liabilities. This is taxpayer-financed assistance and qualitatively different from easing tax burdens.

Moreover, Michigan taxpayers have been faced with tax increases over the past decade. The state increased its personal income taxes in 2007 from 3.9 percent to 4.35 percent. This was initially a temporary tax increase that was made perpetual in 2012 after phasing down to 4.25 percent.

The state also increased its business taxes by 22 percent in 2007.

When it comes to easing the burden of taxation, only the move from the Michigan Business Tax to the corporate income tax applies.

So over the decade, it’s 2-1 in favor of tax rate hikes. It is strange to say that Michigan legislators have been suffering from a tax cut fever.

But the state has also changed some of its broad-based exemptions over the period as well that some may consider tax cuts and tax hikes.

The 2011 tax reforms took away exemptions for pension income and reduced and eliminated a number of smaller exemptions.

Proposal 1 of 2014 eliminated personal property taxes on small business establishments and will phase out these taxes on industrial businesses. These taxes will still remain for larger commercial entities and utility providers, and even industrial businesses benefiting from these reductions will still pay some taxes on their business equipment.

Even including these changes for exemptions, the story of Michigan’s past decade is one of tax increases, not “tax cut fever.”

Yet calling it an illness denigrates the intentions of the people who support lower taxes. Finding ways for governments to spend less and let people keep more of their earnings is a noble cause. The people who want this ought not have their intentions written off as pathological. Especially when reducing the state’s tax rate is an affordable option.