Think you know what ails Michigan's economy? You may be wrong.

| Wednesday, April 14, 2010
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Most of us seem to think that all we need to do in Michigan is prune taxes and business costs, and the state's economy will magically blossom.

Why? Because conservatives and business lobbying groups have repeated the low-tax mantra for so long we've come to believe it must be true.

Most recently, Business Leaders for Michigan, formerly Detroit Renaissance, has been getting lots of media love for its Michigan Turnaround Plan, which calls for reducing the size of state government and cutting the cost of doing business in the state.

But there are some serious contrarian voices out there that also deserve a hearing.

Lou Glazer, president of Michigan Future Inc., has been saying for years, rather convincingly, that the evidence of a link between low taxes and a strong economy is lacking.

Lately, Glazer has been writing about how the most important measure of a state's economic health is per capita income. By that measure, Michigan isn't very healthy. It ranks 37th in per capita income, according to the latest federal figures.

How do we improve? Glazer says Michigan must create more knowledge jobs and increase the education level of its work force. He criticizes a benchmarking study from Business Leaders for Michigan that says the state must cut the cost of doing business, among other things, to revive its economy.

Comerica Bank chief economist Dana Johnson struck a similar note in a conversation I had with him earlier this week.

Johnson said Michigan's poor economic performance in the past few years has caused people to think Michigan's tax and government structures are out of whack and need to be reformed.

But it was the implosion of the auto industry, not high taxes, that torpedoed the state's economy, Johnson told me.

"It may be that there was just no avoiding this period of a poor economy," he said. "It was not the infrastructure of the state did this, it was the negative performance of the auto industry.

"The conclusion that we need wholesale reform of all the processes in the state may not be true."

Johnson noted that the conservative Tax Foundation ranked Michigan's tax burden 17th lowest among the states in its latest study. That's much better than what many people think.

"There's a belief that the tax structure is worse than it is," he said. "It's not so much that Michigan has a terrible tax structure, it's that the state's economy has not been performing well."

It should be noted that the Tax Foundation ranked Michigan's business tax as the third-highest in the country. Nevertheless, there's emerging evidence that state government tax policy has little sway over the economy.

As Detroit News business columnist Daniel Howes recently noted, Michigan's private sector is beginning to recover from the Great Recession even though state tax rates remain unchanged.

3 comments:

skipper the moose said...

Hi Rick. Gotta disagree with you buddy. I do not agree that most of us "seem to think that all we need to do in Michigan is prune taxes and business costs, and the state's economy will magically blossom." It goes much deeper than that. There was an editorial in a Detroit paper that said we had to diversify the Michigan economy. The editorial was written fifty years ago!! The State was late to the green party and it is only the past few years it has gotten on-board, while others (i.e. Iowa) have been attracting Green businesses for a couple of decades. Michigan has become very aggressive, which is good. Michigan has high business taxes, a reputation for unionism and high utility rates than nearby states and Ontario. These are competitive disadvantages, sorry.

Anonymous said...

I am going to have to take a degree of exception as well, Rick. I do agree that our problems are more than taxes and the cost of doing business and "skipper" is right, a diversified economy is crucial. The issue of taxes however has to be addressed as well. There is no rational counter to the notion that Michigan's economy tanked due to the collapse of the auto industry, that is a fair and accurate assessment. I think the state's tax strategy has failed us however, and is counter to a productive recovery due to the fact that once the auto industry did collapse, there was a clear and distinct need to react and adjust tax strategy to aid recovery, not further burden businesses that were already under incredible stress. Instead, the status quo continues. Sure we are rebounding somewhat but I am not sold on the notion that we are on mend. Too many sour indicators yet. We need aggressive tax strategy and incentives for business to remain in Michigan. Mr. Glazer had some good ideas but the "knowledge" economy only takes you so far and I see some using it as an excuse to not further explore recovery efforts in blue collar sectors.

That's my two cents worth but maybe it aint worth two cents.

Anonymous said...

It's interesting that people who don't run businesses are the ones saying that Michigan's business tax structure is not too high. But those who ARE surviving in Michigan and running businesses almost unanimously claim that Michigan's business taxes are out of whack. Perhaps we should pay less attention to talking heads, and a bit more attention to those business leaders (such as Business Leaders for Michigan, which don't seem to have a partisan axe to grind) who have the expertise, and have made the commitment to stay and fight it out in Michigan. If these businesses have survived in Michigan, then these are individuals who have experience from which the state can benefit. Perhaps this column would be better served by talking to business executives outside of Michigan and asking them if Michigan's taxes are higher than other states.

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