Alabama UAW shuns rhetoric, gives honest answers
As auto manufacturing has shifted to the south, the UAW has made a push to begin unionizing workers in right-to-work states. The words and actions of union officials are interesting compared to states where workers are still forced to pay money to the union.
On the website for a UAW chapter in Alabama, which is trying to organize workers at a Mercedes-Benz plant, the union writes the following in its FAQ section:
Q: Do I have to join the union?
A: First of all remember Alabama is a Right to Work state; therefore, it is totally voluntary whether or not you decide to join the union and pay union dues. If you think your local union is doing a good job representing you and in negotiations for improvements then we hope you will join. If you feel it isn’t then it is your right not to join.
Q: Alabama is a “Right to Work” state. What does “Right to Work” mean?
A: The law speaks to one narrow issue. The right to work law means that Mercedes employees have the right to join or not join the union. It is the employee’s choice. It does NOT mean that workers in Alabama don’t have the right to form unions. They do. In fact, there are many workers all over the country – including in Alabama – who have strong, effective unions in so-called “right to work” states.
Contrast that with Michigan, where it is said that right-to-work laws “destroy unions,” “eliminates the middle class,” and will lead to “blood.” Where unions harass teachers, intimidate employees who disagree, and freeload off of members with their spending.
As the UAW branch in Alabama notes: Right-to-work laws change nothing about collective bargaining other than making it illegal to fire a worker for not paying money to a union. This choice means the union is more responsive to its membership; if it isn’t, well, “it is your right not to join.”
When prices go up, quantity demanded goes down
The minimum wage has been in the news a lot lately due to proposals at the state and federal levels to hike it and due to a February Congressional Budget Office report on the subject. Among all the policy subjects up for debate, there is perhaps no easier conclusion to draw than that minimum wage mandates are jobs killers.
Both economic theory and empirical evidence — despite some recent claims to the contrary — make it clear that mandating an artificially high minimum wage leads to job losses.
First, consider the theory behind the economics. Basic price theory informs us that there is an inverse relationship between the price of just about anything and the quantity demanded of it.
The graphic below demonstrates a simple demand curve. On the vertical axis is the price of labor, marked by PL1. On the horizontal access is QL1, which is the quantity of labor demanded at that price on the vertical axis.
If the government commands that a higher wage be paid to labor (below) — artificially moving PL1 upward to PL2 — the quantity demanded for labor must by definition fall to QL2.
Second, we have scholarly empirical analyses published in peer-reviewed journals by academics. A 2007 review of this literature by David Neumark and William Wascher supports the contention that minimum wage mandates have a negative effect on jobs. Their review of studies from 1990 forward indicates that some 85 percent “of the most credible evidence” suggests that these higher mandated minimums hurt employment.
Last month the Congressional Budget Office released a report on the economic effects of hiking the federally mandated minimum wage to $10.10. They concluded that from the perspective of the federal budget all the pluses and minuses would net out evenly. That is, no real gains or losses over time.
They observed that about 500,000 people would lose their jobs while another 900,000 would be pulled just a little above the federal poverty line. In other words, for every two people lucky enough to keep their jobs, one would lose their job entirely. Of those 900,000 who do better it is only marginally with the average income of families being lifted “by about 3 percent …”
Writing for the Cato Institute in this month’s “Tax & Budget Bulletin,” economist Joseph Sabia notes that the CBO’s estimate of job losses may be low because it took “a lower bound estimate” of potential changes in employment of lower skilled persons.
The economic evidence in support of a higher minimum wage amounts to pretty thin gruel. Rather than being a help to poor people, on net balance it hurts people and is apparently no great friend to government treasuries, either. The CBO estimates a wash but their estimate of employment losses may be on the low side.
A better solution to helping low-wage earners would include removing obstacles to creating and obtaining jobs, not building more of them.
Mass. losing millions due to smuggling
A Boston Herald editorial on a $1 per pack tax hike on cigarettes in Massachusetts cites Michael LaFaive, director of the Morey Fiscal Policy Initiative, who warned that an increase would lead to more tobacco smuggling and less state revenue.
The editorial references an interview LaFaive did with WBUR last year, indicating that the tax hike would cause the cigarette smuggling rate in Massachusetts to more than double from 18 percent to 43 percent. The state is now reporting that it is losing up to $246 million a year in cigarette taxes and $49 million a year in sales tax due to cigarette smuggling.
Panel discussion in Washington, D.C.
“We’re looking at Ohio. We’re looking at Missouri. We’re looking at Kentucky. The fire of worker freedom is shining brightly, and it is spreading.”
Those were among the comments of Labor Policy Director F. Vincent Vernuccio at a panel discussion on right-to-work Saturday held at CPAC near Washington, D.C., according to Huffington Post.
Vernuccio also said that Ohio Gov. John Kasich is “the biggest impediment” to worker freedom in the Buckeye State, according to Talking Points Memo.
The full panel discussion can be seen here.
State, national media report on RTW win
State and national media are reporting on the victory of two Mackinac Center Legal Foundation clients over the Michigan Education Association in their fight against the union to exercise their worker freedom rights.
The Detroit News, Detroit Free Press, National Review Online, WZZM-TV13 in Grand Rapids, MLive, The National Law Review and the Petoskey News-Review all reported on the union giving up in its battle to force teachers Miriam Chanski of Coopersville and Ray Arthur of Petoskey to pay union dues. Patrick Wright, director of the MCLF, also discussed the matter on “Capital City Recap” with host Michael Cohen on WILS AM1320 in Lansing and on "The Frank Beckmann Show" on WJR AM760, and Labor Policy Director F. Vincent Vernuccio was interviewed about the matter by National Review in Washington, D.C.
Michigan Capitol Confidential reports that about 8,000 teachers have not paid dues to the MEA this year.
Senate Bill 783, Let landlords ban medical marijuana use: Passed 31 to 7 in the Senate
To prohibit the use of medical marijuana on any portion of private property that is open to the public, or where it is banned by the property owner. The bill would also permit a landlord to refuse to rent a residence to someone who uses medical marijuana on the property. Because the bill amends an initiated law adopted by the people, it requires a three-fourths supermajority vote in the Senate and House.
Senate Bill 821, Revise 2012 “personal property tax” reform law: Passed 36 to 2 in the Senate
To revise details of a 2012 law that distributes some state use tax revenue to local governments, as a replacement for revenue they lose due to reductions in the "personal property tax" imposed on business tools and equipment. The bill is part of proposal to essentially replace all of the foregone local government revenue from a 2012 personal property tax reform law, instead of replacing most of it. For any of this to happen voters must approve related changes to the state use tax in an August, 2014 ballot initiative; the current proposal is intended to forestall local government opposition to that measure.
Senate Bill 821, Whitmer amendment to impose "Amazon" internet sales tax: Failed 12 to 26 in the Senate
To "tie-bar" the personal property tax reform bill described above to Senate Bill 658, which would impose state sales tax on catalog or internet purchases made from sellers outside the state that have an affiliation with a different business located in Michigan, in the manner pioneered by internet retailer Amazon.com. The amendment would require the internet sales tax legislation to become law for the personal property tax bill to do so.
Senate Bill 667, Prohibit minors from using “e-cigarettes”: Passed 38 to 0 in the Senate
To prohibit minors form using electronic vapor cigarettes, making it a misdemeanor crime punishable by a $50 fine, community service in a hospice or long term care facility, and being ordered into a health promotion and risk reduction program. Senate Bill 668 bans selling or giving minors e-cigarettes.
Senate Bill 711, Extend Cobo sales tax break: Passed 100 to 10 in the House
To extend for another two years a sales tax exemption for the purchase of tools and equipment by a contractor if these are used to fix or renovate Cobo Hall in Detroit.
Senate Bill 608, Revise Medicaid expansion funding; authorize extra spending: Passed 65 to 44 in the House
To adjust spending in the current year budget to reflect fund source changes triggered by adoption of the federal health care law Medicaid expansion starting in April. The bill also appropriates $215 million in additional spending on roads (including $100 million for extra winter maintenance costs), money for Amtrak-related rail improvements, government pre-school programs, low income heating bill subsidies, veterans programs, marina projects, and much more. The House removed a Senate-passed $5.5 million appropriation involving purchase of the Steelcase "Pyramid" building for a loosely defined, education-related "public/private partnership," along with other spending including more money for "land banks." The bill would also authorize $60.3 million in new debt for state college and university construction projects.
House Bill 4295, Add additional spending to current school budget: Passed 107 to 3 in the House
To appropriate extra money for various school-related purposes, including a $51.7 federal "early learning challenge grant" the state applied for and received. Among other things this will pay for government programs that promote “physical, social, and emotional health...for high-needs children from birth to kindergarten entry,” in ways that are "culturally, linguistically, and developmentally appropriate." The money can also be used to train the employees who perform these activities, and figure out how and what to measure in assessing them. The bill also authorizes (but does not yet fund) contracting for a student nutrition and behavior tracking software program for schools. It would also appropriate $5 million more for transition costs related to dissolving the fiscally-failed Buena Vista and Inkster school districts; $2 million for a year-round school pilot program; $3.9 million for contracts to provide students "information technology education opportunities; and more. Finally, it makes adjustments to the current school aid budget to reflect lower than expected student counts.
SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.
Consumers save $240 annually
What could your household do with an extra $240 per year?
A new study estimates that Illinois electricity consumers have saved $37 billion from 1999 to 2013 as a result of increased electricity and natural gas competition — that works out to a total savings of $3,600 per household, or $240 annually. Illinois now boasts the lowest electricity prices in the Midwest.
The report calls these consumer savings “a triumph of market-based public policy.” It outlines the process by which the Land of Lincoln transitioned from providing electricity through a state-controlled monopolistic system to one centered on competitive, level and open markets. As centuries of research on trade markets would predict, Illinois consumers won when electricity firms competing for their business.
The report notes that Michigan is a state with “extremely limited customer choice.” Not coincidentally, we also have some of the highest electricity rates in the country.
There’s a debate right now inside Lansing about whether Michigan will follow a path similar to Illinois and open up the provision of electricity to more utilities, or whether it will continue using a legal monopoly to guarantee 90 percent of the electricity market to just two firms.
If Illinois is any example, Michigan electricity consumers should favor opening this state back up to the positive cost pressures of a more competitive electricity market.
Not just a Detroit problem
Detroit’s pension woes may be in the news, but municipal employees around Michigan should not presume that their pension systems are secure. Indeed, in most Michigan cities the underfunding problems are worse than those in Detroit.
On paper, the unfunded liabilities for Detroit’s police and fire system are $147 million, and its general employee pension system underfunding comes to $838 million. That translates into 96 percent and 77 percent funded, respectively. That is, for every dollar in pension benefits earned by an employee, the city has an average of 87 cents saved.
That’s not good, but the 2012 financial statements of Michigan’s 35 largest cities found that 90 percent of municipal pension plans were underfunded, with total underfunding stated at $2.1 billion.
It may be even worse. Pension funding policies can mask the magnitude of underfunding. For example, to prevent a single very good or very bad year in the stock market from skewing the value of their investments, pension systems typically use a “smoothing” method to average out the values over a period of several years.
Detroit uses an eight-year smoothing window. This lengthy period means that its pension fund valuations do not yet fully incorporate the effects of the great recession. At current market prices, the system’s assets are $1.35 billion below their “smoothed” values.
Moreover, Michigan’s cities also tend to offer retiree health care benefits to employees, even though few private-sector employers provide such coverage. Unlike pensions, these benefits are not protected by the state constitution; they amount to gratuities that can be revoked at any time. Importantly, these “other post-employment benefits” are rarely prefunded.
With prefunding, employees know there’s some money set aside to pay for what they were promised. Just as important, the cost of each year’s service is largely paid for during the same year. When benefits go without prefunding, the certainty that benefits will be provided as advertised is diminished. This is especially the case in the Michigan cities that have lost residents and jobs. Without prefunding, the costs of long-gone government employees’ service must be paid by a shrinking tax base.
Underfunding is not the only reason Detroit is seeking to trim the pensions of retirees. The city is also insolvent. That is, it lacks the cash to pay its bills when they come due — including constitutionally-mandated pension prefunding contributions. Insolvency coupled with underfunding risks pensions, and the increasing costs of catching up on unfunded liabilities can drive some governments to insolvency.
It wasn’t supposed to be like this. Delegates to Michigan’s 1962 constitutional convention wanted cities to pay for pensions as they are earned, and not defer the costs of current employees to future taxpayers. The provision they wrote into our current state constitution amounts to an instruction to city managers to make good, reasonable assumptions about the future value of investments made today, and deposit enough each year to cover the future costs of another year’s worth of benefits earned. The reality of underfunding shows that they have not made good assumptions, and are still assuming excessively rosy scenarios. As a first step, this should change.
Beyond that, the only sure way to avoid digging even deeper holes in the future is to follow the lead of a handful of municipalities that have closed their conventional defined-benefit pension systems to new members and offer defined-contribution retirement instead.
Focus on smarter spending, not more spending
Special interests battle Rep. Camp's plan
The best tax systems include low rates, a wide base and limited exemptions which minimizes the distortions caused by policy while easing the burdens of paying the tax.
But many of the provisions that make the tax code so complicated are advocated for and relied upon by a variety of special interest groups, meaning changing the system is extremely difficult. But that’s what Congressman Dave Camp, R-Michigan, is trying to do. The chair of the House Ways and Means Committee has introduced a plan which would overhaul the tax system.
While I have not fully reviewed Congressman Camp’s reform, it appears to generally lower rates and expand the base of filers while eliminating or limiting many credits, like deductions for education and housing loans, breaks for state and local taxes, subsidies for ethanol, and write-offs related to oil and gas fuels. The number of individual tax rates is dropped to just three: 10 percent, 25 percent and 35 percent (for a very small number of people). A fuller description can be found here.
But eliminating exemptions means interest groups that receive those special deals are working hard to retain them. An article in the Associated Press features a series of quotes from those who want to keep their tax breaks:
American Fuel & Petrochemical Manufacturers President Charles T. Drevna also thought the proposal needed revising. “Although Chairman Camp’s intent was to make the tax code tax simpler and fairer and to level the playing field, he unfortunately missed the mark. To date, the tax reform debate has been fixated on a one-size-fits-all approach of lowering the corporate rate to a certain percentage across the board, while eliminating various existing deductions. We urge Congress to take a comprehensive look at how different tax structures impact different sectors of the economy and use such analysis to develop a comprehensive tax reform.”
Ray Gaesser, Iowa farmer and American Soybean Association president, issued the following statement: “The farmers of the American Soybean Association commend Chairman Camp for his willingness to tackle the difficult task of tax reform. ... We are significantly concerned, however, in the proposal’s elimination of the biodiesel tax credit. … ASA believes the biodiesel tax credit is worthy of extension given the many benefits it provides, including support for jobs, economic development in rural communities, diversity in our energy sources, and reduction in greenhouse gas emissions, among others.”
"Any proposal that eliminates the deduction for state and local taxes, as the Republican plan would do, is dead on arrival," said Sen. Chuck Schumer, D-N.Y.
The National Association of Realtors issued a statement saying it "supports reforms promoting economic growth, but we strongly oppose altering the rules that govern ownership and investment." That particular embrace of the general and rejection of the specific was a reaction to Camp calling for a reduction in the home mortgage tax deduction, part of his overall plan to reduce or eliminate some breaks in exchange for lowering rates for all.
Clarence Anthony, executive director of the National League of Cities, said Camp's work was well-intentioned, but added: "It will reduce cities' ability to promote construction jobs and build the foundations for future growth. Municipal and private activity bonds are used to build schools, roads, bridges, hospitals, and develop blighted areas of the community."
Part of the economic theory of public choice explains how interest groups have an oversized influence on the political process. In sum, as I have noted in the past, “When a small segment stands to benefit greatly from some policy, they will fight much harder for it than the larger segment that is harmed will lobby against it since the harm is either hidden or so small that it is not rational for the individuals making up the larger segment to spend a lot of time fighting the policy.”
A few years ago, the state of Michigan passed a significant change to its tax system. As in Washington, D.C., the incentive is to begin chipping away at the simplicity by adding more special deductions rather than lowering rates further, which is what the fight is about right now. Principled citizens who want the best overall government should work to hold the line or further simplify the tax system.