Senate Bill 475, Establish trampoline court regulations & immunities: Passed 25 to 12 in the Senate
To establish standards and regulations for recreational trampoline court facilities and operators, and grant these businesses limited immunity from lawsuits if the proposed regulations are followed.
Senate Bill 146, Extend enterprise zone tax breaks to a particular development: Passed 93 to 17 in the House
To revise a law that authorizes tax breaks for developers whose projects are in an area deemed a “neighborhood enterprise zone,” in a way that would allow the tax break for a particular developer's project, notwithstanding this developer's failure to request the tax break before getting a building permit, which the current law requires.
Senate Bill 319, Repeal mandatory life sentences for minors: Passed 62 to 48 in the House
To revise Michigan's mandatory life sentence with no chance of parole for certain very serious crimes committed by minors. Life without parole would no longer be automatic in these cases but prosecutors could request it. Otherwise, the minimum sentence would be 25 to 40 years, and the maximum at least 60 years. The measure responds to the U.S. Supreme Court's Miller v Alabama decision, and would not apply the new standard retroactively to the approximately 350 current prisoners in this category. However, it does have a provision authorizing parole hearings for them if a future ruling requires this.
House Bill 4825, Require candidates to disclose felonies: Passed 105 to 3 in the House
To require a candidate for public office to disclose when filing for the race whether the individual has been convicted of a felony in the past 10 years, and to disclose the crimes.
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.
Made full contribution just twice in last decade
Michigan's school employee pension system is underfunded by $23 billion and to return it to full funding, it is necessary to continue to pay the system's annual required contribution.
The annual required contribution is the amount necessary to pay for the pensions that employees earn and to catch up on unfunded liabilities under the state's assumptions. The state has not been paying the full amounts.
The annual required contribution last fiscal year was $1.9 billion, but the state put in only $1.4 billion.
This has been a long-term problem. The state only paid its full contribution in two of the past 10 years.
This is one reason why the state should convert to a defined contribution retirement system, where it becomes clear whether the state is fully funding the retirement benefits offered to employees.
Chris Douglas, Michael Hicks, Todd Nesbit
The Mackinac Center is pleased to announce that three new economics professors have agreed to join our Board of Scholars. Our Board of Scholars members assist us in our research, helping us produce studies that are of the highest quality.
Chris Douglas is an economics professor at UM-Flint. He authored a 2011 Mackinac Center study, and has published in Oxford Review of Economic Policy, Journal of Economics, and Journal of Applied Econometrics, among others. Douglas's research interests include gasoline markets, smoking externalities and the economics of sports.
Michael Hicks is an economics professor at Ball State University. He co-authored the 2013 Mackinac Center study "Economic Growth and Right-to-Work Laws," and also presented findings of his research at a 2012 Mackinac Center "Issues & Ideas" forum. Hicks has been published in Eastern Economics Journal, Atlantic Economics Journal, Economic Development Journal, Regional Economic Development, Journal of Private Enterprise, and Review of Regional Studies. He wrote a book on the local economic impact of Wal-Mart stores, and also does research on telecommunication deregulation, natural disasters, corporate welfare and many others.
Todd Nesbit is an economics professor at the College of Charleston and a senior lecturer at Ohio State University. He co-authored a 2008 Mackinac Center study on the relationship between cigarette taxes and cigarette smuggling. He has been published in Journal of Economic Behavior and Organization, Southern Economic Journal, Public Budgeting and Finance, Journal of Media Economics, and Atlantic Economic Journal. Nesbit's research interests include sports economics, economics of education, automobile safety and several others.
He had lots of help from the GOP along the way
Mark Schauer, Democratic candidate for governor, is railing against tax breaks for businesses.
In a recent ad Schauer alleges that Gov. Rick Snyder cut education spending and used the revenue "to give tax breaks to businesses even if they send jobs overseas." Schauer's spokesperson, Zack Pohl, reiterated the claim in a recent Detroit Free Press article: "Snyder chose not to find new revenue for education because he used that money to pay for his huge $1.8 billion corporate tax break." The media has recently given more scrutiny to this narrative.
Yet over the past decade Schauer himself was one of the leading proponents of tax breaks for business — at least for particular firms selected by the political appointees on the board of the Michigan Economic Growth Authority. Ironically, it was Schauer's opponent — incumbent Gov. Snyder — who ended this tax break program, albeit replacing it with a smaller subsidy program.
There is an obvious difference here in economic development visions. The MEGA program offered politically well-connected firms special favors. Broad-based tax cuts for businesses take a more "fair field and no favors" approach to development.
In the audio posted below you can hear Schauer, then a state senator, back in 2003 expressing concern about a looming sunset of the MEGA targeted tax break program. (Politicians from both parties voted with near unanimous majorities voted to extend it.)
From its beginning and up to the point these 2003 hearings were held, MEGA had offered up to $1.5 billion in state tax breaks to businesses. These special deals often came with other state goodies and were contingent on local governments providing additional special treatment.
Two Mackinac Center for Public Policy studies found that MEGA failed to create the jobs it had promised. The first in 2005 found no new net jobs from the program, and the second found the program may have actually destroyed more manufacturing jobs than it created.
This wasn't the only corporate welfare program supported by Schauer — and he had lots of company on the Republican side of the aisle, too. See Schauer's record of voting on corporate welfare bills introduced and supported, including flat-out cash subsidies, at MichiganVotes.org.
Corporate welfare is a bipartisan bad habit. Politicians in glass houses shouldn't throw stones.
Michigan needs "visionary leadership" on tax cuts
(Editor’s note: This is an edited version of testimony provided by Mackinac Center Senior Economist David Littmann to the Senate Finance Committee regarding Senate Bill 402.)
While Michigan is doing better, it should have been capitalizing far more on the past two years of national economic expansion. After all, the unusually low financing rates that have served as a catalyst for impressive improvements in auto industry sales, employment and profitability are unlikely to remain this favorable for another full calendar year.
Budget surpluses that have accrued to state coffers, in part reflecting Lansing's unwillingness to reduce marginal income tax-rate hikes from the Granholm era, must now be returned to Michigan's households and families. Such private-sector enhancements would incentivize market forces and re-invigorate Michigan's image in the domestic and global economies
Instead, despite improvements, Lansing is still pummeling the private sector with high taxes and higher spending. Notwithstanding useful reform of the business tax and a mixed bag of personal property tax changes, many taxes, fees and the amount of spending have risen. More growth in Michigan's public sector, especially proposals to further insulate Detroit's public sector at the expense of Michigan's private sector, will hurt rather than help the long-term business climate of our state.
Leadership in Michigan requires a vision of economic excellence and fiscal strength. The elimination of waste, fraud and departmental duplications should be among its highest priorities.
Instead, Michigan budgets continue to expand, in good times and bad. A surplus, rather than being used for attracting and retain business, entrepreneurship and population by enabling existing tax-base generators to expand, is in danger of being co-opted by Lansing.
Failure to return surpluses to the private sector of Michigan announces policies of political favoritism — subsidies determined by politicians and directed toward a chosen few firms and individuals at the expense of the general public, both current and future generations in Michigan.
Will Michigan ever make it back into the top 10 business climates among the 50 states? We are again squandering a short-lived window of economic momentum.
Very modest reductions in marginal income tax rates are a very modest step in the right direction. Truly visionary leadership would be seriously exploring how to eliminate the income tax altogether, which would also require significant downsizing of state government. If we want to see Michigan reclaim the economic pre-eminence it once held, only bold steps like these will make it happen.
Some “quick hits” on Income Tax Marginal Rates
Assembled by Michael LaFaive, Director of the Mackinac Center’s Morey Fiscal Policy Initiative
What Is the Evidence on Taxes and Growth
William McBride, chief economist at the Tax Foundation
Published by the Tax Foundation, December, 2012
“While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth. Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.”
Tax Myths Debunked
Randall Pozdena, former vice president of research at the San Francisco Federal Reserve Bank, Dr. Eric Fruits, president of Economics International Corp.
Published by the American Legislative Exchange Council, February, 2013
“The evidence that lowering marginal tax rates grows the economy is voluminous and, because individual states vary so much in the level and type of taxes levied against the backdrop of federal policy, it is relatively easy to demonstrate a causal relationship between lower marginal tax rates and greater employment overall and migration to those states with preferable, low income tax rates.
“Thus, instead of states cutting taxes—the most theoretically and empirically promising means of stimulating the economy—a standard prescription for them is to raise tax rates to preserve or increase public spending during a business cycle downturn. The irony is that both halves of this policy are, in fact, depressive, so there is a negative net effect on economic activity.”
Graduated Income Taxes Hurt State Growth
Mackinac Center blog post, Nov. 24, 2009
Last but not least, responding to a proposal to repeal Michigan’s constitutional prohibition on a graduated income tax, Michael LaFaive reviewed several studies, some of which also include findings on the impact of income tax rates. They include:
Does the Progressivity of Taxes Matter for Economic Growth?
Elizabeth M. Caucutt, University of Rochester; Selahattin Imrohoroglu, University of Southern California; Krishna B. Kumar, University of Southern California
Published by the Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis
“Quantitatively, welfare is unambiguously higher in a flat rate system when comparisons are made across balanced growth equlibria…”
State Income Taxes and Economic Growth
Barry W. Poulson and Jules Gordon Kaplan
Published by the Cato Institute, Winter 2008
“The analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis also shows that greater regressivity had a positive impact on economic growth. States that held the rate of growth in revenue below the rate of growth in income achieved higher rates of economic growth.”
The Robust Relationship Between Taxes and State Economic Growth
W. Robert Reed, Department of Economics, University of Canterbury, Christchurch, New Zealand
Published by the National Tax Journal, March 2008
Abstract: “I estimate the relationship between taxes and income growth using data from 1970–1999 and the 48 continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state–specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship.”
Paper substantiates what Michigan Capitol Confidential first reported
Paul Egan of the Detroit Free Press had a good story Sunday covering the argument about education funding in Michigan.
The story is worth reading in its entirety, but some parts in particular stick out and reiterate work done by Michigan Capitol Confidential and deserve to be reposted with comment.
Right off the bat Egan takes on the main piece of misinformation that Democrats and some supporters of the status quo in education have been touting:
Did Snyder cut $1 billion from K-12 education, as many critics claim?
The answer is no, state records show.
State funding for K-12 schools has increased by $723 million under Snyder, from $10.7 billion in fiscal year 2011 — the last budget of former Gov. Jennifer Granholm — to $11.4 billion in fiscal year 2014
Michigan Capitol Confidential has reported this earlier, explaining in detail why that alleged cut is way too steep. Despite claims by some Democrat politicians, unions and some superintendents, Michigan never saw a $1 billion cut in education funding.
So what happened with K-12 spending? While federal stimulus money dried up, state spending increased for the past few years, leading to more money per pupil today than when Gov. Snyder took office.
Regarding the funding for 2010-11, Egan noted that it was never correct to say that Gov. Snyder cut education funding by $1 billion.
The governor originally proposed decreasing state funding about $440 million, which many add to the decrease of $520 million in stimulus money. But that proposal did not happen.
By the time the budget was finalized, the cut was reduced to closer to $500 million, with nearly all of that related to lost federal funding.
Then it turned out the 2011 estimates were wrong and the state ended up spending $180 million less than expected on school aid during Granholm’s last year. That meant it was suddenly easier for Snyder to match 2011 school spending in 2012 than it appeared it would be when he presented his budget. Those revised numbers reduced the cut to about $393 million, an amount that could be blamed entirely on the feds.
In fact, Snyder’s first budget ultimately increased the state share of education funding by about $134 million, from $10.7 billion in 2011 to $10.8 billion in 2012.
That being the case, how are some critics able to claim the Legislature cut such a large amount of money? By ignoring the numbers they don’t like and fudging the ones they do.
Zack Pohl, a spokesman for Democratic gubernatorial candidate Mark Schauer, said Schauer maintains that Snyder cut more than $1 billion from education in his 2011-12 budget, including $931 million from K-12 education.
'It’s preposterous ... to claim it's 'unfair' to criticize Snyder for not having control over elapsing (federal) funding,' Pohl was quoted as saying. 'He's the governor, and it was his budget he signed into law. Snyder chose not to find new revenue for education because he used that money to pay for his huge $1.8-billion corporate tax break.'
To support his claim that the K-12 cut for 2011-12 totaled $931 million, Pohl points to a Senate Fiscal Agency report from June 2011 which did not include supplemental appropriations, which changed the numbers significantly.
So, despite the actual numbers being laid out, Pohl stuck with the false number based on a proposal that never happened. This is justified by then claiming a state governor should have held more sway over the federal budget, apparently arguing that the stimulus should have been continued forevermore. Then, a larger "cut" can be claimed by only counting some funding and ignoring other spending as they see fit.
But if this is true, why does it feel to teachers and administrators like K-12 funding is so tight when the reality is that it is essentially at an, inflation-adjusted, all-time high? Egan quoted several superintendents who, while happy the Legislature is shoring up the system, are upset because this is not money that comes right to them to spend as they wish.
[Retirement] costs were forecast to jump from 25% of payroll to 35% of payroll statewide. The state moved to cap those costs at 26% of payroll and pledged to cover increases beyond that, which won’t level off until 2017. The budget that Snyder presents Wednesday will include $270 million just to cover those increased MPSERS costs above the cap, Nixon said.
That 'extra' money doesn’t get to the classroom because it's 'matched by a bill from the Office of Retirement Services,' said Marcia Wilkinson, director of community relations at Birmingham Public Schools.
The bottom line, said Ron Stoneman, superintendent for the Redford Union School District, is less money is getting into the classroom. That means class sizes are surging, programs are being scaled back and teachers took an 11.5% pay cut, he said. The district is one of about 50 in the state operating with a deficit. Stoneman said the retirement aid has helped.
'But we are floundering with getting money to the classroom,' he said
This also was covered previously by Michigan Capitol Confidential in the story, "Pension Costs Mean Tighter Budgets For Classrooms, Taxpayers." The underfunded teacher pension system, $23 billion and counting, is sucking up a lot of education spending.
How school administrators, some Democrats and union officials view school funding is important because it shows the mindset of some who only want to count some of the money they receive as state spending. It is a bit strange that the superintendents quoted don't believe this money is "getting to the classroom." This is the retirement money for teachers. Does teacher compensation not now count as classroom spending? As a colleague asked me, "If teachers aren't 'in the classroom,' who is?"
In sum, there was never a $1 billion cut in K-12 funding in Michigan (or $2 billion, as some have claimed). Education spending per pupil is just about at an all-time high.
But classrooms are being squeezed by other factors, namely mismanagement. At the local level, administrators are not anticipating student population loss or dealing with health care costs, and at the state level mismanagement is occurring by not properly funding the pension system or getting the government out of a defined benefit system.
The way the state dishes out its K-12 funding is complicated. That's why it is important to have a news source like Michigan Capitol Confidential that dives into the details, correcting popular misconceptions and fact checking those in charge when they are incorrect.
Debate over minimum wage
Noted by the promo to the show:
“[Y]ou can decrease the money floating around from that standpoint and [people] lose their jobs which is one of the consequences,” explains Jarrett Skorup with the Mackinac Center for Public Policy whose concern is a jump in minimum wage would do more harm than good.
“If a business does not believe, let’s say they want to hike it to $10.10 an hour, if they don’t believe you’re not worth that amount it doesn’t matter what the government says or anybody says, they’re not going to hire you.”
He earlier participated in a similar event on the GVSU campus.
Senate Bill 273: Impose licensure on "psychological associates": Passed 34 to 3 in the Senate
To impose licensure and regulation on "psychological associates," with license fees, continuing education mandates, a mandate to have accumulated 6,000 hours of experience prior to being eligible for a license, and other requirements imposed on potential new entrants to this profession by a board of existing practitioners.
Senate Bill 711, Extend Cobo sales tax exemption: Passed 34 to 1 in the Senate
To extend for another two years the 2014 sunset on a law that exempts from sales tax the purchase of tools and equipment by a contractor if these are used to fix or renovate Cobo Hall in Detroit.
Other newsworthy legislative developments
The Senate Finance Committee voted on party lines to approve Senate Bill 402, which would gradually roll back a 2007 income tax increase until the rate returns to 3.9 percent in 2017, down from the current 4.25 percent rate. According to the Senate Fiscal Agency, when fully phased in this would save taxpayers around $850 million annually. The bill is now pending before the full Senate.
In the House, House Bills 5265 to 5267 were introduced to cut the current 4.25 percent rate to 4.05 percent in 2016, and then reduce it by 0.1 percent each year, but only if in the previous year this tax has taken in at least $300 million more than it did the year before. The chairman of the House Tax Policy committee, who also is the sponsor of HB 5267, said he plans a committee vote on the bills by the end of February.
Another House committee approved House Bill 5108, which would repeal a state law that bans ticket "scalping" at sports and entertainment events. The bill is now pending before the full House.
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.
Why tax cuts are better than corporate welfare
According to a news release from the Bureau of Labor Statistics, Michigan's economy lost 200,728 private-sector jobs between April and June 2013, a figure equal to 5.8 percent of the state's entire workforce.
On its face, this job loss rate would mean not a single private-sector job will be left in Michigan by 2019.
Meanwhile, in the same period, the Michigan Economic Development Corp. granted special subsidy deals to a few dozen companies that promised to create 2,185 jobs. Even if all those job promises came true (the record shows only 29 percent ever materialize), it would be a drop in the bucket compared to what's needed.
Think about it: Just to stay even, more than 200,000 private-sector jobs need to be created here every three months. Yet even with millions of taxpayer dollars to hand out to lucky "winner" firms, Michigan's economic development officials could barely discover 1 percent of that figure.
But before breaking out a funeral wreath over the imminent death of Michigan's economy, here's the rest of the story reported by that BLS release: Michigan's economy also added 217,038 private-sector jobs last spring, a figure equal to 6.3 percent of the state's entire workforce.
Obviously, it makes no sense to look at just one side of this balance sheet. Adding them together yields a net gain of more than 16,000 jobs last spring — a figure worth celebrating, not a cause for funeral dirges.
The magnitude of the job churn figures in this report is entirely normal — similar figures are released by BLS every quarter. The magnitude of those MEDC job promises also is typical. What the contrasting figures starkly illustrate is just how meaningless this state's corporate welfare regime is for Michigan's economy.
That's 200,728 jobs needed vs. 2,185 jobs promised by the MEDC. If this is the best we have, we're in deep trouble.
Thankfully, it isn't. The job creation figures show that thousands of employers think they can make money by hiring Michigan workers — the only reason any jobs are ever created (nepotism aside) — and hardly any of them needed a government bribe to do so.
All this dramatically shows why policymakers need to focus on broad based improvements to the state's business climate, not just picking a handful of winners for special treatment.
Here's a specific example of what "focus on broad based improvements" looks like: On the same day these job churn figures were released, the state Senate Finance Committee approved a bill to gradually reduce the personal income tax rate from 4.25 percent to 3.9 percent. When fully phased-in, the tax cut would mean Michigan families and job providers would have around $850 million more in their pockets each year to spend and invest.
Yet in that same Senate committee meeting, opponents argued that such "small" savings would probably generate fewer jobs than letting the government take and spend this money.
Job churn figures show how shortsighted this is. When 200,000 new jobs are needed every quarter just to stay even, even small tax changes can make a big difference. They affect millions of people and thousands of businesses, not just a handful.
Letting workers, consumers and job providers keep more of their money will have far greater impact on job creation than politically directed government "investments."
Why some companies want a higher minimum wage
The president chose the location because the average wage for the wholesale warehouse chain is $21 per hour and reports indicate that most employees start around $17 per hour.
The CEO of Costco repeatedly has urged for a higher mandated wage floor and the reporter highlighted the difference between Costco and Wal-Mart in employee pay. Wal-Mart has an average hourly wage of $11.83 per hour.
In Michigan, the owner of Zingerman’s delicatessen in Ann Arbor has also lobbied for a higher minimum wage. Paul Saginaw pays his workers higher than the minimum and wants to force the competition to join in.
But while the heads of Costco and Zingerman's and other businesses that have joined the call (including the previous CEO of Wal-Mart) may legitimately want to improve people's lives, an increase in the minimum wage likely would help their own bottom line by harming that of their competitors.
Many, probably most, of the workers making minimum wage are at restaurants, fast food joints, and small mom-and-pop shops. Since Costco and Zingerman's have starting wages significantly above the current minimum, they will not be affected much by an increase. So the real harm will come to the stores they are competing with for business.
An increase up to $10.10 an hour (as the president has called for) or $15 an hour (as some union driven fast food protests demand) would drive up the costs for competitors. Subway may have to give up its $5 footlong deals with a minimum wage increase, making the more expensive sandwiches at Zingerman's (most cost $14, veggies and cheese extra) more attractive to consumers.
According to a study from professors Joseph Sabia of American University and Richard Burkhauser from Cornell University using reported data from the federal government, only 11.3 percent of workers who would gain from an increase in the minimum wage to $9.50 an hour live in poor households. In fact, 63.2 percent are people who live in households that are relatively well off.
The minimum wage is a poor way to help low-income wage earners and will harm them by making it less likely entry level workers will get that first job. The government should focus on policies that will increase job growth, not decrease it.