The MC: The Mackinac Center Blog

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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Labor Reform Not a Death Knell for Legislators After All

December 18, 2015 MichiganVotes Weekly Roll Call Report

“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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Vernuccio Interviewed by Wall Street Journal

Editor's note: Gov. Rick Snyder has signed House Bill 4713 since this blog was first posted. It is now Public Act 250 of 2015.

The Michigan Legislature unanimously passed House Bill 4713 this week. The bill provides legal protections for individuals by clarifying how certain crimes may be prosecuted.

The problem of overcriminalization at the state and federal level is well-documented. The number of criminal laws increases each year, and, in a troubling development, the use of severe criminal sanctions for regulatory violations is becoming more common. In Michigan alone, more than 3,100 criminal prohibitions can be found in state statutes, with many other penalties promulgated through administrative regulations.

HB 4713 addresses criminal statutes that fail to require a culpable mental state for the conviction of the crime. The culpable state of mind (“mens rea” in Latin) is often indicated in statute as “intentionally,” “knowingly,” or “recklessly.” These are the mental states of the accused that the prosecution needs to demonstrate in order to convict.

In the last several years, legal scholars and commentators have identified a trend of legislatures omitting mens rea provisions from criminal statutes. Congress and states have proliferated strict-liability crimes, which allow a person to be convicted of a crime regardless of his or her state of mind. Regulating behavior through strict liability can be especially harmful when an act is criminalized that most people would not necessarily recognize as criminal behavior.

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An analysis conducted by the Mackinac Center suggests that 26 percent of felonies and 59 percent of misdemeanors lack an adequate mens rea provision. When a statute lacks this, Michigan courts are left to decipher what the Legislature intended to enact with regards to the required state of mind needed for a conviction, often resulting in costly and time-consuming litigation. Or, courts must assume that legislators meant for the crime to be a strict-liability one, where the defendant’s state of mind is irrelevant.

The Mackinac Center has stressed the importance of a default mens rea standard in instances where the statute is silent on intent. HB 4713, sponsored by Rep. Ed McBroom, R-Vulcan, and also championed by Sen. Mike Shirkey, R-Clarklake, does just that. The bill ensures that:

  • A person can only be convicted of a criminal offense if the person acted with the requisite degree of culpability;
  • The Legislature can continue to enact strict-liability crimes by explicitly indicating its intent to do so;
  • If a statute prescribes a culpable mental state but does not specify the element of the crime to which it would apply, the prescribed state applies to each element of the crime;
  • If a statute fails to prescribe a culpable mental state and the Legislature has not imposed strict liability, the default mental state is “recklessness;”
  • Several chapters of the Michigan Compiled Laws are exempted from the new default, but the bill is directed at hundreds of the most harmful regulatory crimes that can entangle well-meaning individuals and small business in criminal prosecutions.

This reform means that the criminal law can be used more prudently to penalize truly blameworthy behavior. Too often, otherwise law-abiding and well-meaning individuals are caught in the criminal justice system for an unlawful act that most people would not consider to be criminal behavior.

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Related Articles:

Overcriminalization Study in The Detroit News

Center Study Featured in WZZM Report

Federal Government Mirrors Michigan Overcriminalization Efforts

Legislature Examines Overcriminalization

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Government Officials to Pick Lodging Industry Winners and Losers?

Tourism officials said to be scrutinizing Airbnb

A recent report from Lansing-based MIRS News indicated that state tourism officials are closely monitoring the travel accommodations website Airbnb. The site brings together travelers looking for a place to stay and property owners willing to rent a room, apartment or house for a few days. These peer-to-peer exchanges are often compared to Uber’s ride-sharing service.

Lodging industry lobbyists and some government economic development officials are publicly referring to Airbnb as a “threat.” This suggests that citizens should be on guard against Lansing lawmakers passing bipartisan protectionist laws that regulate new and rising services out of business.

In the MIRS report, an industry lobbyist and several local economic development officials were quoted saying that Airbnb’s lodging providers have unfair advantages when it comes to taxes, fees and other matters. One official called private home owners free riders. They also shared speculations about potential security shortcomings at Airbnb lodgings.

The report follows an event earlier this year sponsored by the state agency in charge of marketing subsidies for the lodging industry, which also referred to Airbnb in unflattering terms.

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These examples of economic development officials siding with lodging industry incumbents are curious: More choices and potentially lower prices are what drive the very thing their agencies claim to be about, which is to encourage more out-of-state visitors to spend money in Michigan.

Taken together, it starts to look like a classic example of “agency capture.” That’s what happens when government officials charged with regulating an industry — or in this case, with helping to grow it — place what’s best for the largest players in that industry ahead of what best serves the people and state as a whole.

Here are several examples from the MIRS article of the complaints that industry officials and their allies raise about Airbnb:

“We can safely say they’re not all paying those taxes.” This was in reference to government mandates that impose a host of fees and taxes for the privilege of operating a hotel or motel.

Just because free people choose to peacefully interact in a manner that doesn’t fall under archaic tax regimes doesn’t make their transactions unfair. Real economic growth necessarily results in a degree of “creative destruction,” as more expensive and less satisfying ways of meeting human needs give way to less expensive and more satisfying ones. Saving the buggy whip makers would have been a poor reason to prohibit early automobiles.

“Owners of private homes are kind of getting a free ride on the backs of the lodging facilities that are abiding by the public act.”

The “public act” seems to refer a law that empowers local bureaucracies to levy a promotion “assessment” or property tax on traditional lodging owners. Without this additional burden on conventional lodging facilities, there would be no free ride for the peer-to-peer providers — or for any kind of provider.

“What assurance do you have that at 2, 3 o’clock in the morning, that that deadbolt’s not going to start turning from the outside of the room?” This was from the state lodging industry’s top lobbyist.

Airbnb does not force anyone to take undue risks. The website — which says it has 2 million rental opportunities in 190 countries and has served 60 million guests — uses the kind of user feedback tools that are common in the growing area of peer-to-peer exchange sites that were popularized by outfits such as eBay, Amazon and the like, starting in the 1990s.

Millions of people are familiar with and comfortable using these reputation-dependent institutions because they quickly root out bad actors. See Airbnb’s “trust” page here.

Business history is littered with examples of politically well-connected industries engaging in “a conspiracy against the public, or in some contrivance to raise prices,” as the wise Adam Smith put it back in 1776.

We can only hope that Michigan’s politicians understand that the has-been locations in this world are the ones where politicians let themselves be used by industry players to protect them from the future.

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Related Articles:

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State's Tourism Agency Sees Tourism-Boosting Lodging Service as a 'Threat'

Tracking the True Cost of Tourism Spending

State Tourism Spending Ineffective

MEDC’s Pure Michigan Puffery: Part I

USA Today reports on the growing consensus across the political spectrum — from the Obama administration to the Koch brothers — that many occupational licensing laws are unnecessary obstacles to employment and do not provide any real benefit to public safety.

The article featured a chart based on survey data showing the share of state workforces that are licensed. Michigan borders three states that all have a lower portion of their population licensed.

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So the question is: Do you feel endangered when visiting Indiana, Ohio or Wisconsin? Each state has fewer licensing requirements than Michigan, so if licensing laws really did improve public safety, you should feel more at risk. Of course, there’s no evidence that you are actually less safe in these states.

According to a newly updated report from the Institute for Justice, “License to Work,” the burdens of licensing requirements in Michigan are among the highest in the Midwest.

Licensing laws typically get and stay enacted because special-interest groups argue they are necessary for public health and safety. But policymakers rarely test these claims when passing new regulations. Instead, occupational licensure protects existing practitioners and businesses from competition and unnecessarily prevents others from using their talents to make a living. This, of course, disproportionately harms people with low incomes and limited job skills. If Michigan policymakers want to help those with the most needs, they should start by removing barriers that prevent them from using their talents to earn a living.

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Related Articles:

Michigan Can Do More On Occupational Licensing

Let Them Work: Solutions for Michigan’s Overbearing Occupational Licensing Laws

How Occupational Licensing Redistributes Income

New White House Report Highlights Occupational Licensing Problems

Our Guild-Ridden Labor Market: The Curious Case of Occupational Licensing

Don’t Blame Employees for Pension Underfunding

Liabilities caused by wrong assumptions

It is unfortunate that government employees are often blamed for underfunded government pension systems. When concerns are raised that retirement systems owe members billions more than has been saved, high-earners and early retirees are viewed as the culprits. Policymakers in return cut the generosity of the plans. Yet these policy reforms will not fix the basic problems faced by pension systems.

In 2010, Michigan’s school employee pension system was underfunded by $12 billion, not including the value of promised retiree health care benefits. Lawmakers sprang into action. They increased employee contributions to the system and made new employees' benefits less generous.

In 2012, Michigan’s school employee pension system was underfunded by $22.4 billion, not including the value of promised retiree health care benefits. Once again, lawmakers sprang into action. They increased employee contributions to the system, made benefits offered to new employees less generous, and reduced some of the benefits of current retirement system members.

These reforms made lots of changes to Michigan public school employee retirement benefits, but their focus on generous benefits as the cause of underfunding was misguided.

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The $10.4 billion growth in unfunded liabilities between the two reforms was not due to more people gaming the system (although it happens). It wasn't the result of employees not paying their fair share into the system. The real culprit was the state’s failure to meet the system’s own actuarial assumptions of how much needs to be contributed each year to cover future benefits. 

A 2014 performance audit of the retirement system found that the lack of investment gains compared to their assumed returns was responsible for 93 percent of the underfunding over the past 10 years.

Lawmakers made the system less generous to employees based on assumption that generous benefits were behind the underfunding problem. But actually, it was the system's underlying assumptions about the pension fund's projected investment returns that caused the most damage.

A few minor things have been done about this. The 2012 reforms allowed new employees to participate in a defined-contribution retirement plan, and roughly 20 percent choose this option. The 2010 reforms also reduced the assumed return on pension fund investments from 8 percent to 7 percent for newer system members. These are improvements.

But in the end, the solution is clear: The state should stop putting new school employees in defined-benefit pension plans. Instead of tinkering with a failed model, all new school employees should be offered defined-contribution retirement benefits instead.

These plans belong to employees themselves and are are paid as they are earned, which makes it impossible for the state to generate billions of future unfunded liabilities on their behalf. Preventing new liabilities will help the state honor the pension promises already made to current staff and retirees. Because it's not their fault the state has failed to properly fund their retirement benefits.

www.mackinac.org/pension

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Related Articles:

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Economic Freedom Matters

Michigan ranks 27th among the states

The 11th edition of the highly respected report Economic Freedom of North America has been released and it has good news for Michigan. In the index Michigan ranks 27th among the 50 states.

The 2015 freedom index — this year’s data runs through 2013 — attempts to measure the degree to which governments across Canada, the United States and Mexico restrict (or permit) economic liberty. It is produced by the Fraser Institute, a Canadian research organization, based in Vancouver, British Columbia.

At 27th, Michigan is tied with Iowa and Utah. The top-ranked state for economic freedom was New Hampshire, followed by South Dakota, Texas, Florida and Tennessee. New York finished dead last. The other least-free states included California, Alaska, Hawaii and New Mexico.

Michigan’s middling performance may not seem impressive but it does reflect improvements over time. Dean Stansel, one of the architects of the report, tells me that Michigan has moved up from 40th based on 2010 data to 33rd in 2011 and 27th for both 2012 and 2013.1 These changes in the “more free” direction are nothing to dismiss as they could portend greater economic well-being for the Great Lake State.

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The authors of the index note that per capita personal income in the most-free states was seven percent above the national average compare to eight percent below in the least free. It is unlikely that this is simply a coincidence.

Economists have long investigated how and why some nations and people grow rich, using a number of valuable categories. Their conclusions are usually mundane: property rights, the rule of law and an ability to engage in voluntary exchange often rank high on the list of qualities associated with national wealth. In other words, economic freedom matters and the Fraser Institute’s index is one way to measure economic liberty and make comparisons by country and by subnational units of government.

The index is built around data compiled on such things as the size of government, laws governing labor markets and the level and types of taxation. Within each of these major categories are ten subcategories. As one example, under the size of the government the index uses data such as government expenditures as a percentage of personal income. The authors rank each of these variables on a scale of one to ten and total the scores in each area. A score of 10 represents the greatest freedom and a score of one the least.

The authors describe each area and subcomponent in detail and — much to their credit — are 100 percent transparent about their data sources. The data from each category is made available by the Fraser Institute on its “Free the World” website that hosts the study. Previous editions and datasets from the study have been used by other scholars in their own work.

Economic freedom is associated with almost every objective measure of human well-being, including longer lives, lower death rates among children and greater incomes.

Michigan has made important strides in the past few years. But more needs to be done to restrain the state’s ability to lord over — if not unnecessarily interfere with — the lives of its citizens.

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1These rankings are based on a slightly new methodology. Direct comparisons to previous year’s reports will show different rankings by state.

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Related Articles:

Economic Freedom of the World Index: America’s Worrisome Decline

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Economic Freedom: What It Is and Why It Matters

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'We’re Number 10' in School Choice

Could be better for Detroit students

The “fix Detroit schools” discussion ought to begin and end with what best serves students and their families, rather than what serves school administrators, unions or any other interest group. A new report from a respected education reform group describes one feature that should be at the forefront of this conversation.

Earlier this month, the Thomas B. Fordham Foundation released its findings from a careful examination of 30 big city school systems in a report called “America’s best (and worst) cities for school choice.” The authors asked which cities are most open to giving families access to options beyond conventional public school districts, rather than locking them in to stale bureaucratic models from a past era.

Detroit ranked the 10th-best school choice city out of the 30 surveyed. This actually set a very low bar: Ranking higher than school systems like those in Pittsburgh, Nashville, or Minneapolis is okay but not much to boast about.

A recent major analysis by Stanford University’s Center for Research on Education Outcomes (CREDO) found Detroit charter students gain an extra 70 days of learning each year in math and reading. Nearly all high-quality research into school choice, including the recent report from CREDO, shows it has positive results for student achievement or attainment, including both participating students and their peers who don’t exercise choice but experience the benefits of the rising tide.

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Unfortunately, Detroit’s recent educational hallmarks have been free-falling enrollment, abysmal test scores, and far too many students unprepared to succeed. Giving parents more freedom to choose a school that best serves their children is one of the key principles that have been identified to guide the next steps in fixing or replacing a broken institution.

Fordham observes that school choice in Detroit is hamstrung by weak backing from local school and city officials. On the other hand, the district gets partial credit in the category of political support for the governor mentioning school choice in his state of the state speech.

Also on the positive side, the state charter school law was reformed in 2011 to eliminate an artificial cap on the number of charters. But there is still clearly room for improvement.

In 2014, the University of Arkansas found that Michigan charter schools get a bigger student achievement bang for the buck than their district-run counterparts. Michigan has made progress in closing a funding gap charters face, but they still get less than conventional public school districts.

The unfavorable treatment of charter schools isn’t a simple matter of them getting less money; it’s how public money is spent. For example, students can’t benefit from having access to a better school if they can’t get to it. Fordham gives Detroit demerits for failing to provide transportation to charter students on the same terms as conventional school district students. Michigan law does not provide for charter school bus service.

Detroit also is marked down for lacking a common school application process. However, such systems are only beneficial if they are designed to empower parents — not bureaucrats — as the primary decision-makers.

Fordham’s rankings give the most weight to the quantity and quality of available choices. Detroit gains points with a 54 percent market share for charter schools, the nation’s second-highest. At least on paper, Detroit families also have the right under a state policy known as schools of choice to send their children to schools in neighboring districts. The catch is, not all those districts have or are willing to create the extra capacity.

Finally, the report credits Detroit for having home school and private school options available. Yet the children most in need of these alternative learning environments overwhelmingly come from families that lack the means to access them.

When it comes to school choice, Detroit may look good compared to other big cities. But for a city trying to get back on its feet and many students desperately seeking a path to success in life, 10th place isn’t good enough.

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Related Articles:

Charter School Parent 'Grateful' to Have a Choice

Protecting Detroit School Choice is Critical

Detroit Charter School Parents: Don’t Take Away Our Freedom to Choose

Mackinac in the News for School Choice Week

Michigan Celebrates School Choice

Legislature Hoping for Improbable Federal Rescue of Medicaid Expansion

Without waiver, it's back to the drawing board

The Obamacare Medicaid expansion approved by the Michigan Legislature in 2013 may be on the verge of extinction, which could create a big problem for legislators. Unless the federal Centers for Medicare and Medicaid Services grants Michigan a waiver by the end of the year allowing the state to require some minimal copays from beneficiaries, coverage will cease next April 30 for the 600,000 people the expansion added to the state’s medical welfare rolls.

The waiver would allow the state to require some enrollees to either buy subsidized insurance on the exchange or pay up to 7 percent of the cost of HMO-like managed care Medicaid coverage provided by hospitals under contract with the state. The requirement would apply to people with incomes between 100 percent and 133 percent of the federal poverty level.

When Gov. Rick Snyder recommended that Michigan accept the Medicaid expansion, he relied on projections that it would enroll an additional 477,000 people by 2020. Critics were skeptical of the projection and warned the numbers would likely be a good deal higher.

They were right: As of September, some 600,000 adults had enrolled in an expansion that includes able-bodied, childless adults with incomes up to 133 percent of the federal poverty level.

Michigan legislators accepted the Medicaid expansion after a bitter three-sided political battle involving GOP lawmakers in favor, GOP lawmakers opposed, and grass roots GOP voters hostile to anything Obamacare. They did so on the condition that it incorporate reforms specified in the state’s waiver request. While state officials have put up a confident front regarding the prospects of federal approval, the chances were never very good.

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If the waiver is rejected, it may be back to the drawing board for Snyder and a new state House. This would be a bitter pill for Republicans who endured that 2013 battle, and the prospect of having to take up a do-over Obamacare bill is sure to give heartburn to GOP lawmakers.

Even if the feds grant the state’s request, waivers represent a shaky foundation for meaningful Medicaid reforms, given that they are temporary, subject to changes in federal policy and vulnerable to judicial review.

Moreover, Medicaid remains an expensive and ineffective program, rife with perverse incentives and massive opportunity costs. As a nation and state, we can do much better.

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Related Articles:

Michigan’s Obamacare Medicaid Expansion

Medicaid Expansion Studies Weren't Trustworthy

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Obamacare's Michigan Tale: Small Drop in Uninsured While Families Pay More

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LaFaive Op-Ed Published in The Detroit News

Why Michigan shouldn't single out Switch for tax breaks

Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center, authored an op-ed published by The Detroit News today. In it, LaFaive discusses the ongoing debate surrounding a proposed incentive package intended to lure Switch, a data storage company, to set up shop in the old Steelcase Pyramid Building in west Michigan.

Citing past failed incentive programs, such as the film tax credits, LaFaive suggests an alternative to singling out Switch or other data companies:

Any jobs or revenue predictions made by the state about Switch’s incentive package should be examined skeptically. The state — specifically the Michigan Economic Development Corp. — has a reputation for producing or buying analyses that comport with its worldview and not necessarily reality.

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If the state of Michigan attempts to estimate the jobs and revenue impact that their incentive offerings for Switch will have on the state, they should also estimate the alternative scenario. Doing so would likely demonstrate that broad-based tax cuts are superior to targeted ones.

Read the entire op-ed in The Detroit News.    

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Related Articles:

Lawmakers Rushing Through Special Tax Breaks

Michigan Paying $860 Million In Select Tax Incentives, Subsidies

Benefits of Switch Data Center Likely to be Exaggerated, Unverified

Detroit News Exposes MEDC Secrecy

Pension Reform Failure Cost Michigan Taxpayers $6 Billion or More