Growth doesn’t mean taxes
If Michigan could wave a magic wand and make the wish list from Gov. Gretchen Whitmer’s growth council come true, it likely would create a more pleasant state in which to live and work. But the ambitious proposal won’t come to life magically. It will require massive tax hikes that will offset any benefits that might be gained. Or it will demand a top-to-bottom reprioritizing of current spending to free up the necessary funds to finance the improvements and reforms.
The draft recommendation from the Growing Michigan Together Council suggests a revamping of both Proposal A and the Headlee Amendment, which put the brakes on the ability of local governments and school districts to raise property taxes.
“That should be a huge warning flag for taxpayers,” says economist Patrick Anderson.
And it should prompt them to seriously weigh whether making it more expensive to live and do business in Michigan is worth the bet that all the shiny new things the growth council promises will actually come in return.
A draft proposal released late last week focuses on improving schools, creating high-paying jobs and building “vibrant and inclusive communities.”
Many of its ideas are hard to argue with, particularly addressing the chronic underperformance of the education system and finally fixing the state’s crumbling infrastructure. Others, such as bringing mass transit to Michigan’s cities, have proven elusive, despite expensive past initiatives.
The ideas are not the problem, though; it’s how to fund them. The proposal doesn’t come with a price tag. An estimate from Fund MI Future, a coalition of progressive groups that was not involved in the council’s work, pegs the cost of upgrading Michigan’s schools and infrastructure at $10 billion annually.
To put that number in perspective, it is roughly equal to the revenue raised each year from the 6% sales tax.
Whitmer’s council has the growth equation backwards in assuming higher taxes will produce an environment that will lure younger residents and job creators to the state. There’s no model to support that premise. To the contrary, Tennessee is the nation’s 9th fastest growing state; it has no income tax, yet sharply improved its schools despite spending about $1,700 less a year than Michigan per pupil. Tennessee’s 7.6% state and local tax burden is lower than Michigan’s 8.6%.
With Nashville, it is home to one of America’s fastest growing and most vibrant cities. And its business attraction efforts were superior enough to lure Ford Motor Co.’s $5.6 billion electric vehicle investment away from the automaker’s home state.
So, what’s Tennessee doing? Lowering taxes even further. In May, Republican Gov. Bill Lee signed the largest tax cut in the state’s history, returning $400 million to residents and businesses.
That’s the competition. Grand Rapids restaurant owner Johnny Brann Jr., writing for the West Michigan Policy Forum, says “tax hikes will make me wonder whether it’s worth raising my family here. If I were younger, the decision would be a no brainer: Leave. That’s what countless young people are already doing. They’re looking for greener pastures.”
Brann is expressing the reality, proved by New York, Illinois and California, of what motivates the decision making process on where to live, work and do business.
What Whitmer’s growth council is engaged in is a well-intentioned fantasy.