Post on 28-Dec-2015
Wrong Turns…
…on the Path to ProsperityDouglas C. Drake
October 2014
First, A Quiz…
• Are Michigan taxes:– A. At or near historic highs? Y_ N_– B. Compared to other states, are Michigan
total state and local taxes:» Among the Highest 10? Y_N_» Among the Lowest 10? Y_N_» Above average? Y_N_» Below average? Y_N_
Why Is This Presentation and the study Important? - 1
• Michigan has been “reforming” its tax structure for decades—some increases, more “reforms” and cuts—personal and business
• Michigan is NOT a high tax state
• Michigan has mostly been an average state, sometimes a little above, now below average & has been over a decade
Recurring Themes of Michigan Tax “Reform”
• “Big” vs “Small” Business– Large Corporations vs Others
• Business vs Individuals
• Michigan vs Other States
• Lower taxes will bring prosperity?
Why Important 2
• Over this whole period, dozens if not hundreds of targeted business tax incentives- on top of big changes
• Individual breaks as well…exemption of large portion of private pension income to match public pension exemption-Repealed under Snyder “reforms”
Proposal A 1994
• Hope was to address relative equity of school finance & it did improve things
• Provisions for assessment freeze and cap on parcel by parcel assessment increases
• Tax cuts and limits on growth for both business and individuals
The Perfect Storm
• 1. 2008 Great Recession a “gift” from Wall Street that still keeps giving.
• 2. Autos, & lots of others, collapsed
• 3. Property values fell nationwide as well as in Michigan
• 4. We are “recovering” but it will be years before we are “recovered” and fully back
Tax Cuts & Investment
• 40 years since PA 198 of 1974, and..• 39 yrs since Milliken SBT “reform”• 20 yrs since Prop A• We’re still dominated by a shrunken auto
industry• We’ve not maintained K-12 and Higher Ed
investment• We’ve not maintained water & sewer
systems, electric grid, and roads
Forty Years of Aggressive Tax Cuts
• Haven’t given us prosperity
• The more we’ve cut taxes, the less prosperous we’ve become as a state
• Taxes lower now, probably lower than at most times in modern Michigan history for businesses and many individuals
• Let’s look back now at some of those changes and benchmarks of burden
Michigan’s Constitutional Revenue Limit1978 “Headlee” Amendment
Figure 2 $ Amounts Over / Under Michigan's Constitutional Revenue Limit
-$526.7
-$1,172.7
-$1,414.1
-$1,321.4
-$244.6
-$6.1
-$844.7
-$1,349.9
-$1,351.6
-$2,150.3
-$3,039.5
-$3,687.3
-$3,148.5
-$2,151.0
$109.6
-$183.2 -$977.9
-$640.1
$21.7
$159.7
-$2,407.8
-$3,917.1
-$4,181.5
-$4,440.7
-$4,215.5
-$4,946.2
-$5,322.3
-$4,651.7
-$7,986.1
-$7,605.7
-$5,580.8
-$5,230.4 -$6,407.8
-$7,039.3
-$373.5
State Fiscal Years
Figure 1 Cumulative Impacts of Major Tax Cut Policies on SAF Revenue, 1994-2012
Income, -$2,271.8Sales, -$2,393.9
Use, -$771.3
Property, -$2,056.1
Assmt Cap, -$8,822.4
AssmtFreeze, -$18,897.6
Initial Prop A Cut, -$9,961.3
Comparing Michigan & US Personal IncomeMichigan and U.S. Per Capita Personal Income 1929 - 2012
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Michigan Per Capita Personal Income US Per Capita Income History
Remember The Good Old Days?
Total Michigan Population, Income and Per Capita Income: % Changes by Decades, 1929 - 2009
-50%
0%
50%
100%
150%
200%
250%
29-39 39-49 49-59 59-69 69-79 79-89 89-99 99-09
Total Mi Pers Income Total Pop Per Capita Pers Inc
Total U.S. Vehicle Sales & Big 3 Share
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Sal
es L
evel
40.0%42.5%45.0%47.5%50.0%52.5%55.0%57.5%60.0%62.5%65.0%67.5%70.0%72.5%75.0%
Mar
ket
Sha
re
Total U.S. Sales Light Vehicles Big 3 Share of Total Sales
Michigan & US Avg Tax Burden As % Of Income
State and Local Taxes As % of Personal Income
9.00%
9.25%
9.50%
9.75%
10.00%
10.25%
10.50%
10.75%
11.00%
Data Source: Tax Foundation Michigan US Average
Michigan & US AVG Tax Burden -Per Capita
Per Capita Taxes, US and Michigan 1977 to 2010
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Tax Foundation US Avg Michigan
Changing Taxes Over Time
• On a Per Capita Basis– From 1977 to 2011, Michigan had THE lowest
increase in burden of all states. (Full report Table 3A)
• On a Percentage of Personal Income Basis– From 1977 to 2011, Michigan had the 42d smallest
increase in burden, DECLINING by 8.1 % from 1977 even though our incomes collapsed more than many in the Great Recession with its impact on autos. (Full report Table 3B)
What About Business Taxes?
• Despite popular belief, our business taxes are far from the highest, and by one measure that accounts for benefits to business we’re among the best deals in the country.– TAX FOUNDATION
• 14th overall 2014, 2d best in Great Lakes,
– ERNST & YOUNG/COST- includes benefits• Only 2 states a better deal (CT & MD)
Comparisons to other States-1
• Be Careful! This is almost always apples and oranges!
• Walmarts and McDonald’s everywhere don’t mean economies and political cultures are the same
• Big differences come from:– Population size & geography– Agriculture– Mining (including oil)– Manufacturing-lots of different stuff gets made, with
differing economic cycles (oil refining is manufacturing in the data)
Comparisons to other States-2
• Size of federal government presence in some: MD,TX(bases and NASA) and VA-and Gov contractors, esp in MD & VA
• Overall size of economy—small states are different than big states
• Mich is still the primary home of autos
Comparisons to other States-3
• Political cultures are also different
• Local governments vs state government
• Degree of local control of schools and state share of financing
• See pages 26-31of the full report and especially Tables 6 &7 for more on some of these differences
What About Michigan’s Future? I
• Proposal A and the entire school finance system is broken. Time for a re-do!
• I’ve often said that school finance systems are “generational” in the sense that they only seem to work for about 20 years or so
• Then they need major tweaking to address demographics, economic changes, and the relative roles of state and local control
What About Michigan’s Future-2
• We’re on the wrong path if we want to get to a more prosperous future.
• We need a long term commitment to INVESTMENT – not disinvestment
• We should look at states like Minnesota, which is one of the highest tax state in the region, and the most prosperous…….
• See many excellent articles on Minnesota and other related materials at: www.michiganfuture.org
• Also recent 10 part series on Michigan taxes the Center for Michigan’s Bridge Magazine: www.cfmbridge.org