At the beginning of 2010, the conventional wisdom
in Lansing seemed sober and self-evident: The state had for many dark months
balanced the budget on the backs of teachers and state employees while holding
the line on taxes. It was time now — and only fair — to levy a modest tax on
services that would address the inequities of an antiquated state tax structure
and spare the public another brutal round of cuts to state services. This
measured rhetoric and the state's pressing budget shortfalls lent these
arguments an air of inevitability.
Then along came James
Hohman, who single-handedly crumpled every pillar of intellectual support for
the pro-tax arguments. At the same time, the Mackinac Center fiscal policy
analyst helped Morey Fiscal Policy Director Michael D. LaFaive spearhead a
withering attack on a series of economic development claims by state government
meant to create the illusion of a friendly state business climate. This second
line of attack against tax-hike apologists made inroads: LaFaive's work was
widely reported and garnered 70 media interview requests through May, including
a live national television interview with Stuart Varney on the Fox Business
These efforts paid off.
Five months after unveiling a tax "restructuring" plan that included the
creation of a sales tax on services, Gov. Jennifer Granholm said at a July
press conference that she had given up on the Legislature adopting her
proposal. While many factors may have contributed to the tax hike's demise, Hohman
and LaFaive — at times lone voices — helped create an informed environment
where the plan was recognized as unnecessary and destructive.
Early on, LaFaive and Hohman were beset by speech,
interview and commentary requests from across the state, thanks in part to Gov.
Granholm's final State of the State address, fiscal 2011 budget proposal and
tax hike recommendations. But it was also due to Hohman carefully explaining
fallacies in arguments advanced by tax "restructuring" proponents.
For example, the state's
"Legislative Commission on Government Efficiency" argued that the state's tax
system was "no longer appropriately linked with state's resources/tax base."
The commission cited as evidence the fact that revenues to the state Treasury
have fallen far short of the state's Headlee Amendment that capped them at 9.49
percent of personal income. But Hohman examined Michigan government revenues
going back to the late 1970s and found that the state's benchmark is a poor
measure for tax affordability, because the revenues include transfer payments
(sometimes described as "welfare"). When these dollars are excluded, Hohman
noted, the numbers show that the state extracts $1 billion more from taxpayers
than would be allowed under the Headlee Amendment. Since 1978, transfer
payments have jumped from 11.2 percent of state personal income to 18.8 percent.
Hohman also pointed out that Michigan's tax system is
"juiced" relative to other states. That is, as revenues have declined in state
treasuries across the country, the Great Lakes State generated more tax revenue
per capita than 35 other states.
Hohman also discovered
and published one of the more remarkable numbers employed by the Mackinac
Center in the last decade: $5.7 billion. In Michigan, that is the staggering difference
between the value of nonsalary benefits, such as health insurance, paid to
employees in state and local government and public schools, and the value of
nonsalary benefits paid to workers in the private sector. To put that figure in
perspective, that amount of money could eliminate the state's hated business
tax and related surcharge and still leave $3.3 billion for balancing the budget
and improving roads.
Not content with
knocking down the arguments of tax-and-spend advocates, Hohman turned his
attention to employment numbers for Michigan's film industry. In his analysis,
Hohman found — to the shock of many — that there are fewer Michigan people
working in Michigan's film industry than before the state's movie subsidy
program began. This finding generated headlines across the state and prompted
one state senator to declare, "As a job creator, film subsidies have failed in
Michigan ... With the budget problems we face, we cannot afford this generous
Hohman and Adjunct
Scholar Gary Wolfram analyzed claims made in a National Institute on Retirement
Security study titled "Out of Balance," which purported to show that government
employees are underpaid compared to their private-sector counterparts. Hohman
explained that the paper's authors used a convoluted, inappropriate method for
arguing that government employees are undercompensated.
Hohman's work resulted
in media coverage throughout the state, including radio appearances on WJR with
Frank Beckmann, WKZO in Kalamazoo, WTCM in Traverse City, WJRW in Grand Rapids,
WBCK in Battle Creek, WKLA in Ludington and TalkLansing.net. Hohman also
published tax- and budget-related editorials in the Detroit Free Press and The
While Hohman was busy smashing tax and spending myths,
LaFaive was focused on both broad and narrow topics of economic development,
detailing for legislators, university professors, students and the public where
Michigan has been and where it may continue to go economically. As part of his
research, LaFaive zeroed in on decade-long interstate migration patterns,
demonstrating that since 2000, Michigan lost more than 540,000 people while
Texas added 848,000 — in part a function of differing state public policies.
LaFaive's Viewpoint on this topic was carried on opinion pages in newspapers
LaFaive also worked
with Communications Specialist Kathy Hoekstra for several months on an
investigation involving a possible Michigan Film Office deal for "Hangar42," a
Grand Rapids-based movie studio project with such state secrecy that Mackinac
Center staff nicknamed the deal "Area 42" after the famed Area 51 military base
With a hard-hitting
video and accompanying essay, LaFaive and Hoekstra publicly raised questions
about the deal's finances and the lack of government transparency. The Grand
Rapids Press, WOOD radio, WOOD-TV and WWMT-TV all used the Mackinac Center's
work as a springboard for their own coverage. (Look for more developments on
this story in the next issue of IMPACT.)
Continuing the factual
bombardment against policies that would create higher taxes for Michigan
residents and businesses, LaFaive on June 15 released the results of an
analysis performed to measure the impact of Gov. Granholm's February tax hike
proposal. The governor's plan would total some $940 million over three
The analysis was done in conjunction with the Beacon Hill
Institute of Massachusetts and found that the first-year job losses would total
more than 30,000, dropping to 13,500 by the end of year three as supposed
offsetting tax cuts were phased in. The model also showed that the tax proposal
would produce a $264 million drop in total investment in the state in the first
Capitol Confidential reporter Tom Gantert contacted Liz Boyd,
spokeswoman for Gov. Granholm, about the findings, she was dismissive. "The
governor's tax restructuring proposal was actually based on recommendations
from the Business Leaders for Michigan," she wrote in an e-mail.
A letter to Gantert
from the Business Leaders for Michigan disputed that characterization, however.
"Our plan has been compared to Governor Granholm's tax reform plan," the letter
read. "While some elements of the Governor's plan may have been influenced by
ours, Business Leaders for Michigan's business tax reform plan is not the same
as the Governor's."
In the end, it did not
matter. Facing an array of influential tax hike proponents, Hohman and LaFaive
effectively exposed every erroneous argument and dissected every example of
specious scholarship that claimed the state needed more revenues. With the
apparent death of the governor's tax-hike proposal, both are determined to
restructure an antiquated tax debate that has focused too often on Michigan
taxpayers' leaving more money for state government — not the other way around.