Indiana is using billboards like this one to try and lure Michigan residents and businesses.
Michigan residents and job providers did not need another reason
to consider moving out of the state in favor greener pastures, but in 2007 the
state Legislature gave them several anyway. These included a new complicated
business tax (Michigan Business Tax) to replace the old complicated business
tax; a service tax that was passed and repealed and a $1.4 billion net tax hike.
Indeed, it is possible that the new MBT was the first tax ever to be raised
before it had even taken effect.
Indeed, if the state’s economic landscape doesn’t change soon it may need to change its official motto from “If you seek a pleasant peninsula, look about you” to “If you seek a pleasant peninsula, move to Florida.”
The political theater that took place from October through
December 2007 over the state budget and tax system angered a lot of people —
including taxpayers, political pundits, business people and homeowners. But this
anger stopped at the Michigan border. Other states — notably Indiana — appear to
be delighted with Lansing’s folly. In December, Indiana erected billboards along
borders with Michigan and Illinois that practically taunted their tax-happy
neighbors with the message: "Come on IN for lower taxes, business and housing
Indiana is running radio advertisements in Michigan along the
same vein. You can listen to the ad at the Mackinac Center Web site at
www.mackinac.org/9159. Indiana takes pains to underscore that this advertisement
was not funded with taxpayer dollars.
The highly respected Tax Foundation, whose data has been cited
prominently by both the Mackinac Center and Gov. Jennifer Granholm’s
administration, ranks Indiana at 25 among the 50 states in overall tax burden.
Before the recent tax hikes, Michigan was ranked as having the 14th highest tax
burden, but the increased levies have likely moved us into the 12th worst slot. (Note: On Aug. 7, 2008, the Washington, D.C.-based Tax Foundation released its newest State-Local Tax Burden Ranking of the 50 states. This report included a change in the methodology used to compute and rank tax burdens which led to a significant drop in the position Michigan held in Tax Foundation rankings — from 14th to 27th among the 50 states.)
Of course, while taxes do impact a state’s economic well being,
they aren’t the only variable that matters. In December, economists Stephen
Moore and Arthur Laffer completed a study for the American Legislative Exchange
Council titled, "Rich States, Poor States: ALEC-Laffer Competitiveness Index."
It contains competitiveness indices ranking the states on 16 variables,
including taxes, regulation and right-to-work status.
Describing the findings in a Dec. 10 Wall Street Journal column,
Moore and Laffer report that over the past 10 years, "… the 10 states with the
highest taxes and spending, and the most intrusive regulations, have half the
population and job growth, and one-third slower growth in incomes, than the 10
most economically free states."
Among those top 10 states is Florida, which not only has a lower
state and local tax burden than Michigan, it also has no individual income tax
and a right-to-work law. This may help explain why it is the number one
destination state of Michigan’s outbound migrants. According to Internal Revenue
Service data, 14 percent of all 2004 Michigan moves were to the Sunshine State,
double that of the second and third choices of Ohio and Illinois. It is worth
pointing out that Florida is such a dominant draw for Michigan residents that
there is probably more than retirement-inspired migration occurring here.
Today, Michigan has the worst unemployment rate in the nation at
7.7 percent, but even that figure is masked by the state’s ability to export its
unemployed. Over the past four years the nation has enjoyed significant economic
growth while Michigan has endured a historic decline in economic output and job
The impact of Michigan’s diaspora may be starting to sink in
with lawmakers. State Demographer Kenneth Darga was scheduled to speak at the
state’s annual Consensus Revenue Estimating Conference on Jan. 11, which
prepares the revenue projections that lawmakers use in formulating the next
state budget. This is the first time a demographer has been invited to testify
at this conference since at least 1980. (It may be the first time ever.)
Indeed, if the state’s economic landscape doesn’t change soon it
may need to change its official motto from "If you seek a pleasant peninsula,
look about you" to "If you seek a pleasant peninsula, move to Florida."
Economic history over the centuries and from around the world
makes it clear that only by making the state inviting by lowering the tax and
regulatory burden, and adopting measures like voluntary unionism will restore
Michigan’s status as a magnet for people and commerce. History also shows what
happens to places that fail to attract these.
Michael D. LaFaive is director of the Morey Fiscal Policy
Initiative at the Mackinac Center for Public Policy, a research and educational
institute headquartered in Midland, Mich. Michael Hicks, Ph.D., is an adjunct scholar with the Center and director of the bureau of business research for the Miller College of Business at Ball State University. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.