Contradictions and Spurious Conclusions

In his March 20 response to a Wall Street Journal editorial that cited the Mackinac Center and criticized Gov. Jennifer Granholm’s tax-and-spending plans ("," March 9), Michigan’s State Treasurer Robert Kleine said the following: "After numerous tax cuts, which resulted in dwindling state revenues, it is time to try another strategy: investment." By which he means not "investment," but a massive increase in state taxes and government spending.

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That conclusion is the kind of superficial, unexamined and spurious correlation that has become all too typical of those demanding higher taxes in this state. They make no effort to consider what the state’s economic performance would have been in recent years had Michigan not lowered income and business taxes prior to 2002.

Indeed, Kleine wants it both ways, blaming the Michigan malaise on past tax cuts, while elsewhere boasting that one portion of Gov. Granholm’s business tax proposal "provides a $500 million tax cut for businesses, including a $250 million reduction for small businesses." (Ignore for the moment the reality that the overall proposal would impose a $500 million net tax increase on businesses.) In another paragraph, Kleine shifts the blame in a different direction altogether, referring to a study from the tax-friendly Upjohn Institute which he says, "found Michigan’s economic problems can be explained entirely by its dependence on the Big Three and the fact that the state’s share of automotive employment is almost eight times the national average."

There’s no question that the Detroit automakers' decline is a significant factor in Michigan’s loss of 335,000 jobs since 1999. Between 2001 and 2005 the state grew at an average rate of 0.94 percent in real terms – less than half the national average. The question that Kleine and other tax-and-spend boosters ignore is this: Would Michigan’s job losses and growth deficit have been even worse without those tax cuts of the late 1990s and early 2000s?

Mr. Kleine also said, “Michigan is not a high tax state, and won't be if the governor's plan were to be enacted as introduced.” That is arguable. The Tax Foundation ranks Michigan 24th worst in its State Business Tax Climate Index. That mediocre status takes on a darker shade in the light of also having poor regulatory and labor law climates. In other tax measures, the state does less well. In overall state and local tax revenue (minus federal transfers) as a percentage of state GDP, Michigan is the 22nd worst. In state and local taxes per dollar of personal income, it's the 19th worst. In taxes per job, it's just 14 places from the bottom.

The state treasurer should know that no state or nation experiencing economic decline has ever taxed its way to prosperity - higher government spending does not increase overall employment or create economic growth. Given this, many question what’s really behind the tax-hike push. Gov. Granholm publicly proclaims that without new taxes, closing the gap between desired spending and expected revenue would require measures like shuttering all the state’s prisons or universities. She carefully avoids the dirty little secret that Michigan’s public and school employees benefit from extraordinary compensation packages that greatly exceed comparable private sector positions. Here’s some evidence:

  • Recent Mackinac Center research shows that the average Michigan state employee receives a salary and benefits package worth nearly $75,000. The comparable figure for private sector workers is approximately $58,000.

  • A Detroit Free Press writer recently cited a 2003 survey by the American Federation of Teachers showing that "junior level" Michigan prison guards earned $40,854 on average, compared to a national average for all corrections officers of $31,580.

  • Recent testimony before a state Senate committee indicated that Michigan pays up to $6,000 more to house a state prisoner for a year compared to some other Midwest states.

  • Despite incessant poor-mouthing by the state's public universities, figures collected by the federal government show that between 2000 and 2004, per-pupil expenditures at most of them greatly exceeded the rate of inflation.

  • A 2005 study commissioned by the Legislature from a private consulting firm showed that on average, per-employee public schools health insurance expenditures exceeded even the cost of generous state employee coverage by some $2,100.

  • The same study showed that statewide, schools could save $422 million annually by shifting employees to a preferred provider health plan with modest co-pays.

  • New York’s Manhattan Institute recently released data on the hourly pay rates of public school teachers in 61 metropolitan areas. The Detroit region was the highest in the nation. Grand Rapids came in eighth, and the hourly rate in both exceeded the mean for white collar and even specialty and technical workers by a substantial margin.

  • Failing to repeal an outmoded "prevailing wage" law that requires above-market wages on school construction projects may make the Granholm administration’s union allies happy, but adds an estimated $150 million annually to school construction and repair project costs. Failing to privatize school food service, custodial and transportation services adds hundreds of millions of dollars to education budgets.

In other words, Michigan maintains government and public school establishments whose costs not only far exceed the private sector, but even the public sectors of other states. Given this, the main effect of the massive tax increase Gov. Granholm, Treasurer Kleine and their allies support would be to further insulate a privileged class of government workers from the impact of economic changes that have affected every other resident of the state.


Jack McHugh is a legislative analyst for 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 author and the Center are properly cited.