The best economic development reform that Michigan can adopt is one that does not discriminate. In the Mackinac Center’s 2002 “Manifesto on Economic Development,” Lawrence W. Reed and Michael D. LaFaive wrote: “Economic development is not what happens when governments take charge of the marketplace, bestow special privileges and handouts, or build vast bureaucracies with a know-it-all attitude. It’s what happens when government performs its own limited, core functions extremely well and otherwise leaves the rest of us alone.”
Here are a few specific recommendations for broad-based policy changes.
A 2014 review of studies published by the John Locke Foundation, titled “Lower Taxes, Higher Growth,” examined 681 academic papers, 115 of which involved local and state taxes. Of those, 63% show that “tax burdens were negatively associated with economic performance.” In other words, higher taxes harmed state and local economic growth. Only three of the 115 studies demonstrated that taxes were “positively associated with economic performance, all other things being held equal.”
One peer-reviewed study worth mentioning was the 2008 Cato Journal article, “State Income Taxes and Economic Growth,” which looked at both taxes and growth, with data spanning 1964 to 2004. It found “a significant negative impact of higher marginal tax rates on economic growth.”
It’s worth noting here, too, that Michigan residents are still owed a tax cut. In 2007 lawmakers promised that the 11.5% personal income tax hike they were imposing, which took the income tax rate to 4.35%, would be temporary. Under the enacting statute, the tax hike was to be rolled back in 2011. It was, however, only cut to 4.25%, and further rollbacks were scrapped.
In 2017 the Mackinac Center for Public Policy estimated that rolling back the personal income tax rate from 4.25% to 3.9% could add 15,000 jobs to the state’s economy in about one year.
Reduce occupational licensure burdens.
Some costs that government imposes on working may not meet the definition of a tax, but they can still kill jobs and thwart work. The 2018 Institute for Justice study, “At What Cost,” made the case that occupational licensing requirements do just that. In Michigan, nearly 80,000 jobs each year may be lost to licensing mandates. Reducing licensing burdens, it follows, could lift job creation dramatically.
In a 2020 working paper titled, “Occupational Licensing Effects on Firm Location and Employment,” economist Alicia Plemmons examined how licensing shapes firms’ decisions to locate and hire near state borders. She sought to measure changes in states that border each other, with one state imposing a high-licensing regime and the other having a low-licensing one.
She found, among other things, “When a state becomes more expensive relative to its adjacent state, firms are less likely to locate on the more expensive side of the border. These effects differ by industry and have larger magnitudes for firms in labor-intensive industries.” She also found that there were 2.3 fewer employees per firm in a high-licensing state if the firm was located within 5 kilometers of a neighboring state.
Other Ideas for Boosting the Economy
Of course, these are not the only across-the-board changes that would help create jobs. We could make the case for a robust initiative for parental choice in education, or reintroducing greater electricity choice to help drive down utility costs for businesses and residents. Indeed, the cost of electricity in Michigan is one of the top reasons cited by the Ford Motor Co. in its decision to locate new production facilities in Kentucky and Tennessee, and not its home state.
We would also argue for key health care reforms to allow for patient choice and entrepreneurship among medical professionals. The list of broad-based policy reforms that could serve as alternatives to targeted corporate handout programs is long.