(Note: This is an edited version of a commentary that first
appeared in The Detroit News on June 11, 2008.)
The Great Lakes State received "gross" news last month. Its
economic performance — as measured by state Gross Domestic Product figures —
declined for the second consecutive year.
Seeds of reform are often planted during times of crisis, but
these reforms are not being advanced successfully. Our Legislature may be among
the worst in Michigan history. It has and continues to impose everything from a
$1.4 billion tax increase to a likely electricity rate hike to a massive
regulatory expansion in the area of groundwater use — all policies that will do
more harm to Michigan’s economy and chase more people from the state. No amount
of cheerleading from Lansing, new exotic subsidies or discriminatory "economic
development" programs will fix our hostile business climate.
The question that apologists for the status quo have failed to answer is why investors and job providers increasingly avoid Michigan.
From 2006 to 2007, Michigan’s economy contracted by 1.2 percent,
besting only Delaware’s, which declined by 1.6 percent. Our nominal per-capita
GDP ranking among the states now stands at 41st, down two spots from this time
last year and down from an all-time high of 16th in 1999. This data comes just
months after the federal government reported that the income of Michigan
residents now stands 9.1 percent below the national average — even worse than
during the Great Depression. The implications for Michigan, which is effectively
suffering from a one-state recession, may be profound.
People are the critical variable for economic growth. People
create, consume, invest and produce, as well as pay taxes that support vital
functions of government. But Michigan’s poor economy is chasing away our human
resources. According to the U.S. Census Bureau, Michigan lost 30,500 residents
and was only one of two states in the union to lose population in net terms from
July 2006 to July 2007. We are not surprised by these departures and, based on
our newest research, believe the problem will get worse.
Research for an upcoming Mackinac Center study demonstrates
that, on average, from 2000 through 2006, Americans tended to move to states
with lower personal tax burdens, more flexible labor laws, abundant sunshine and
higher expected future incomes. Does that sound like Michigan?
Ominously, these numbers were calculated before the state raised
the personal income tax by 11.5 percent. Our model shows that for every 10
percent increase in the average personal tax burden, some 1,900 people leave
their state of residence annually thereafter. Our model also shows that more
than 500 people move to another state for every 5 additional days of sunshine it
can claim over the states from which people depart.
These moves do not occur in a vacuum. They have a real impact on
the future as people pack up their possessions, talent and children and leave
the state. The Niles Public Schools superintendent recently told the Niles Daily
Star that enrollment is down approximately 42 students this year and most of
them moved out of state. The Senate Fiscal Agency projects that the number of
school-age children in Michigan will decline by 25,000 over the next year.
If this weren’t bad enough, the Legislature’s response has been
to stem Michigan’s economic decline with more economic development programs,
such as refundable tax credits for movie makers and other "sexy" businesses. But
Legislators are doing so in the face of significant anecdotal and empirical
evidence that such programs are ineffectual.
In 1999 Gov. John Engler created the Michigan Economic
Development Corp., claiming it would help create and keep good jobs in Michigan.
But that year was the high point of our economic vitality. The state’s jobs
creation department has since presided over one of the worst periods of economic
decline in Michigan history. Moreover, it has done so while the rest of the
nation enjoyed several years of robust growth. From 1999 through 2007, the
United States averaged 2.5 percent real GDP growth. By contrast, Michigan shrunk
by one-tenth of a percentage point.
Yes, the restructuring of the Big Three automakers is hitting
Michigan harder than other states, but the cause of our persistent economic
malaise goes much deeper. The question that apologists for the status quo have
failed to answer is why investors and job providers increasingly avoid Michigan.
Perhaps they view Michigan as a bad place to do business because of its toxic
tax, regulatory and labor climates. Until those are fixed, all the subsidies and
"Pure Michigan" advertising campaigns in the world won’t save us. If Michigan
wants to grow again it should dramatically reduce its tax burden, pass a
right-to-work law, write more rational environmental regulations and adopt
scores of other ideas proposed by Mackinac Center scholars over the past 20
Michael D. LaFaive is director of the Morey Fiscal Policy
Initiative at the Mackinac Center for Public Policy. Michael Hicks, Ph.D., is
director of the Bureau of Business Research at Ball State University in Indiana,
and an adjunct scholar with the Mackinac Center for Public Policy, a research
and educational institute headquartered in Midland, Mich.
Permission to reprint in whole or in part is
hereby granted, provided that the authors and the Center are properly cited.