Since the turn of the century, our state has experienced a precipitous decline in economic prosperity relative to the rest of the country. In 1999, Michigan ranked 16th in per-capita income. In 2024, we ranked 39th. What we have been doing over the past 25 years isn’t working. We need a new approach.

Yet every year the same topics seem to dominate the agenda in Lansing, many of which have no hope of restoring Michigan to high prosperity.

The latest example is roads.

Road funding is a central topic of discussion in Lansing today. Fixing the damn roads appears to be a priority for both parties. But fixing the damn roads is not at all related to revitalizing the state’s economy.

In today’s economy, the only thing that is predictive of economic growth is the share of adults – and young adults in particular – that have a bachelor’s degree or more. As we often say, if Michigan does not get younger and better educated, we will get poorer.

But when it comes to getting younger and better educated, fixing the damn roads is not the answer.

In a 2023 report, the Citizens Research Council includes a top and bottom ten list of state road conditions compiled by the U.S. Government Accountability Office. The top ten states in order are Nevada, North Dakota, Florida, Georgia, Idaho, South Dakota, Missouri, Indiana, North Carolina, and Utah.

Does Michigan have awful road conditions? Yes, it is ranked the fourth worst. Is fixing the damn roads worth doing? Of course. Does fixing the damn roads have anything to do with reversing Michigan’s decades long brain drain? The evidence says absolutely not.

A 2022 report from the National Bureau of Economic Research (“Grads on the Go”) calculated the number of recent graduates from every state’s two-year and four-year colleges and universities and compared that figure to the number of recent college graduates living in the state. This allowed them to determine which states were net gainers and which states were net losers of college graduates. Here is how the top ten road conditions states perform:

• Nevada -9.4%
• North Dakota -31.6%
• Florida -11.3%
• Georgia +14.5%
• Idaho -30.0%
• South Dakota -17.9%
• Missouri -2.2%
• Indiana -30.4%
• North Carolina -5.5%
• Utah -19.6%

So only one state––Georgia––on the top ten road conditions list is a brain gain state. All the others have fewer recent college graduates living in their state than they have recent graduates from the state’s community colleges and universities.

Michigan is also a net loser of college graduates –– an unacceptable -13.7% percent. Is this because of our poor roads? No. Three other states at the bottom of the road conditions ranking — Washington, Illinois, and New York — are brain gain states. It turns out that despite their poor road conditions, young college graduates still find these states desirable places to be.

The Citizens Research Council report includes another ranking of state roads from the Reason Foundation, which publishes an annual report on the quality of highways across states. The same pattern holds true with these rankings. Georgia is the only brain gain top ten state, while four bottom ten states are brain gain states: Colorado, Washington, California and New York. (Michigan ranks 23rd.)

What does matter in attracting young talent?

So if road conditions have nothing to do with retaining and attracting young professionals, what does? An article on the “Grads on the Go” study from the Washington Post concludes the “winners are primarily states with cities (that are) large, dynamic, and regionally vital…That would include New York, Washington, California, Illinois, Georgia, Texas, Minnesota, and Massachusetts.” (Colorado is the ninth brain gain state, home to the talent-magnet city of Denver).

Exactly! All of the evidence we have seen is what matters most to attracting and retaining young professionals, by far, is transit rich, vibrant central cities. There were 18.3 million 25-34 year olds with a BA or more in the US in 2023. 4.6 million of them live in the central city of the 58 metros with working age populations of 500,000 or more. Of the nine brain gain states in the U.S., all have transit rich, vibrant central cities.

If you care about getting younger and better educated, the top ten list you want to be on is the cities with the most 25-34 year olds with a B.A. or more. That list is: New York, Los Angeles, Chicago, Houston, Austin, San Diego, Philadelphia, Seattle, San Fransisco, and Boston.

Of the 58 regions with working age populations of 500,000 or more Detroit ranks 47th, Grand Rapids 50th. Detroit has 25,000 young professional residents, Grand Rapids 22,000. New York is by far the nation’s leader with 796,000. Chicago is the Great Lakes leader with 323,000.

So state leaders may be right to focus on transportation infrastructure – it’s just that they’re focusing on the wrong kind. The transportation infrastructure that does matter to concentrating young talent is transit. Add to that walkable neighborhoods that give priority to pedestrians, not cars. So infrastructure/the built environment does matter. But it is infrastructure designed for Generation Z.

Fixing the damn roads is just one of many good to do policy ideas that have little or nothing to do with retaining and attracting young talent. If we fix the roads but don’t have vibrant cities, we will not attract young talent at any scale.

Getting younger and better educated requires strengthening and creating more transit rich and vibrant neighborhoods in our central cities and small towns that can attract and retain young talent. These neighborhoods vary in many ways, but all share common characteristics: they are dense, walkable, high-amenity neighborhoods, with parks, outdoor recreation, retail, and public arts woven into residents’ daily lives. And they offer plentiful alternatives to driving.

The post Fixing the roads doesn’t drive state prosperity appeared first on Michigan Future Inc..

How can this be when unemployment is again near record lows, workforce participation is up, and inflation is coming down? These glowing measures, that are touted by politicians, businesses, and economists, are clear indications of a strong economy and reasons for workers to celebrate.

Yet these traditional measures of economic well-being are simply not telling the real story of the working Michigander. A much better measure, and the one that begins to shine a light on the disconnect between “strong economic signals” and what is really happening inside our homes, is per capita income.

Per capita income – big words to describe what a working adult brings home to the kitchen table to pay bills, secure housing and childcare, tuck something aside for retirement and have a little something left over to enjoy life.

Economists use per capita income to understand the overall level of economic prosperity of a particular geography. The measure is simply all of the income received by all of the people in a particular region, divided by the total number of people.

Here in Michigan, our per capita income has been growing more slowly than the national average for the past 20 years. Today, Michigan’s per capita income is 13 percent below the national average, the lowest we have ever been compared to the rest of the country. On this measure, our state ranks 39th, just one spot above the bottom 10.

Michigan is now structurally one of the nation’s poorest states.

But what does this mean for kitchen table economics? What does it mean for the working family? Across the US, from 1999 to 2022, per capita income rose by nearly $37,000; here in Michigan, per capita income grew by roughly $28,500. That’s $8,500, per person, for all 10 million Michiganders (or $85 billion in all), that we don’t have to pay the bills, invest in the future, and save for retirement.

Things look far worse when we look at the most prosperous and fastest growing states. In 1999, per capita income in Michigan was roughly $6,000 below that of Massachusetts. Today, our per capita income sits $27,500 below the Bay State. This is a dramatic difference that is felt dearly by our working families.

This is why Michigan’s low unemployment rate has not meant what it used to – a glowing, satisfied workforce. This is why feelings of dissatisfaction and fear for the future persist against declining inflation.

Because there is less money on the kitchen table to do the basic things every working family needs to do.

Why does it matter what we measure? Because these measurements drive policy, business decisions, and education choices. When we measure per capita income and make “Rising Income for All” our primary political, regional, and statewide goal, we make decisions that work for everyone.  We invest in our people to grow our talent, which attracts high wage employers and fills current employers’ needs.  We invest in our communities to keep our talented people, which leads to higher quality of life and more Main Street business opportunities.

Sounds crazy, right? But states like Minnesota, Colorado, and Massachusetts have seen per capita income growth over the past twenty years not by resorting to large business tax incentives, but by investing in people and place. Michigan can too – we just need to judge ourselves by the right measure.

The post We’ve been measuring the wrong things – and workers are fed up appeared first on Michigan Future Inc..

The Growing Michigan Together Council should look to Minnesota for the cold weather state population growth playbook. Conventional wisdom has had it for decades that Americans were abandoning cold weather states for the Sun Belt and the Mountain West. By and large that conventional wisdom is accurate, but not for Minnesota.

Minnesota has not lost a congressional seat for six decades. Each decade from 1960 on Minnesota has had 8 congressional seats. In 1960 Michigan had 19 congressional seats, today it has 13. Michigan has lost at least one seat in Congress each of the last five decades. The last time Michigan had as few as 13 congressional seats was the 1920s.

It’s not just Michigan, all the other Great Lakes states have lost congressional seats since 1960:

• Illinois from 24 to 17
• Indiana from 11 to 9
• Ohio from 24 to 15
• Wisconsin from 10 to 8

As have the other states that border Minnesota:

• Iowa from 7 to 4
• North Dakota from 2 to 1
• South Dakota from 2 to 1

Not losing a congressional seat since 1960 means Minnesota’s population has grown at near the same rate as the nation’s for the last six decades. Its 2022 population is 167 percent larger than it was in 1960. Over that same time period Michigan’s population has grown 128 percent. If Michigan’s population growth since 1960 had been the same of Minnesota’s, Michigan population would be around 13 million rather than the 10 million it is today.

Minnesota also is a national leader in retaining and attracting recent college graduates. The cohort that matters most to state’s and region’s future prosperity. A recent study found that Minnesota is one of only nine “brain-gain” states with 8 percent more recent college graduate residents compared to those who graduated from its college and universities. Michigan is a “brain-drain” state with 14 percent fewer college graduate residents compared to those who graduated from its college and universities.

So there is a cold weather state population growth playbook for Michigan policymakers to emulate. Which raises the question: What has Minnesota done to buck cold weather state depopulation?

In 2014 we asked Rick Haglund to answer that question. His report, State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Helped it Achieve the Best Economy Among Great Lakes States, is as valid today as it was nine years ago. Yes the data in the report needs updating, but Rick’s description of the path Minnesota has taken for more than five decades is still accurate today. Rick’s conclusion:

Lawmakers and governors in many states, including Michigan, have focused primarily on cutting taxes and shrinking the size of their governments as the path to prosperous economies. As this report has shown in detail, Minnesota has traveled a different path. There is no question Minnesota is a high tax state—as stated earlier, its residents paid $2,145 (updated for 2021) more than Michigan residents in state taxes alone.

But it has largely invested that additional revenue in services and investments that matter in a knowledge-based economy. An educated workforce, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net for those making the transition to a global economy all matter in creating a prosperous state.

Minnesota has made those necessary investments and enacted policies making the state welcoming to all. It really shouldn’t be surprising, then, that it has the strongest economy in the Great Lakes region and one of the most vibrant in the country.

Maybe most important is what isn’t part of the Minnesota playbook:

• Minnesota did not lower taxes. In fact as Rick documents, in 2013 when Michigan was slashing business taxes, Minnesota raised taxes on companies and the wealthy. In 1980 Minnesota had the 6th highest state taxes per capita in the country. Michigan ranked 13th. Minnesota’s state taxes per capita were 122 percent of Michigan’s. In 2021 Minnesota had the 5th highest state taxes per capita in the country. Michigan ranked 28th. Minnesota’s state taxes per capita were 163 percent of Michigan’s.
• Minnesota did not slash its safety net. As Rick wrote: “Many states have cut benefits to the poor and unemployed in the belief that these payments dissuade people from looking for paid work. Minnesota takes a different view. It has created one of the strongest safety nets in the country, spending generously on benefits to help those who have lost jobs or been stricken by poverty get back on their feet. That protective net has not trapped Minnesotans and turned them into a bunch of government-dependent slackers. Far from it.”
• Minnesota does not offer big incentives for economic development projects. Read the Minnesota Economic Development Resource Guide and you will not find any big incentive program like SOAR, Michigan’s new billions of dollars business incentive program.

Michigan has, of course, done the exact opposite. On a bipartisan basis accepting that high taxes, particularly on businesses are job killers, the state has anchored its economic development playbook on cutting taxes for at least three decades. And, also on a bipartisan basis, enacting one version after the other big economic development incentive programs. As well as slashing the state’s safety net in part on the belief that a more generous safety net discourages people from working.

At its core the Minnesota playbook for economic and demographic success has been higher taxes used for public investments to compete for talent by offering good schools from birth through colleges and creating places where people want to live by offering high quality basic services, infrastructure and amenities.

Minnesota has not only been a Great Lakes demographic success it also is a high-prosperity state. In 1979 Minnesota’s per capita income was one percent above the national average, Michigan was three percent above. In 2022 Minnesota’s per capita income is four percent above the nation’s; Michigan’s is 13 percent below. So as Michigan’s state taxes per capita declined from 13th highest in the nation to 28th the state’s per capita income declined by fifteen percentage points compared to the nation. While Minnesota gained three percentage points while staying a high tax state.

Minnesota focus on making public investments in education from birth through college and creating high quality of living communities combined with being welcoming to all is the foundation for its population and economic well being success. Minnesota has developed a policy playbook that makes preparing, retaining and attracting talent its economic development priority #1. That is exactly what is needed in today’s economy where talent attracts capital.

The post The cold weather population growth playbook appeared first on Michigan Future Inc..

Minnesota is a high tax state. Has been for decades. Minnesota is the Great Lakes States best in economic well being and demographic outcomes. Has been for decades.

Michigan is not a high tax state. Its taxes per capita far lower than Minnesota’s. Minnesota is far ahead of Michigan in all well being and demographic outcomes.

Minnesota has been a successful high tax state for decades. The Census Bureau reports in 1980 Minnesota had the 6th highest state taxes per capita in the country. Michigan ranked 13th. Minnesota’s state taxes per capita were 122 percent of Michigan’s. In 2021 Minnesota had the 5th highest state taxes per capita in the country. Michigan ranked 28th. Minnesota’s state taxes per capita were 163 percent of Michigan’s.

There is no question Minnesota is a high tax state––its residents paid $2,145 more in 2021 than Michigan residents in state taxes alone. So for decades Michigan chose lower taxes as its prime lever to compete for economic growth and population. While Minnesota for decades chose to use its higher taxes for public investments in good schools and high quality communities as its prime lever to compete for economic growth and population.

When you combine state and local taxes per capita in 2020 Minnesota was the 7th highest in nation, Michigan was the 10th lowest. State and local taxes per capita in Minnesota are $6,507, 116 percent of the national average. State and local taxes per capita in Michigan were $4,263, 76 percent of the national average.

As reported by the Tax Foundation, on all the major state taxes Minnesota has substantially higher rates than Michigan:

Minnesota has a graduated individual income tax, with rates ranging from 5.35 percent to 9.85 percent. Minnesota also has a 9.80 percent corporate income tax rate. Minnesota has a 6.875 percent state sales tax rate, a max local sales tax rate of 2.00 percent, and an average combined state and local sales tax rate of 7.49 percent.

Michigan has a flat 4.25 percent individual income tax rate. There are also jurisdictions that collect local income taxes. Michigan has a 6.00 percent corporate income tax rate. Michigan has a 6.00 percent state sales tax rate and does not levy any local sales taxes.

We have been told over and over again for decades that high taxes leads to economic decline and depopulation. Think again!

• Minnesota has not lost a congressional seat in six decades while Michigan’s congressional delegation since 1960 has declined from 19 to 13.
• A recent study found that Minnesota is one of only nine “brain-gain” states with 8 percent more recent college graduates residents compared to those who graduated from its college and universities. Michigan is a “brain-drain” state with 14 percent fewer college graduates compared to those who graduated from its college and universities.
• In November 2022 Minnesota was tied for the second lowest unemployment rate in the country, Michigan was tied for 43rd.
• In November 2022 Minnesota was fifth in labor force participation, Michigan was 40th.
• In 2021 per capita income in Minnesota was three percent above the national average, ranking 13th. Michigan was 12 percent below the national average, ranking 35th.
• In 1979 Minnesota per capita income was one percent above the national average, Michigan was three percent above. So as Michigan’s state taxes per capita declined from 13th highest in the nation to 28th the state’s per capita income declined by fifteen percentage points compared to the nation. While Minnesota gained two percentage points while staying a high tax state.

Why is the conventional wisdom that high taxes leads to economic and population decline so wrong? Former New York City Mayor got it right when he wrote in a Financial Times op ed:

Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent. I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent. … Economists may not say it this way but the truth of the matter is: being cool counts. When people can find inspiration in a community that also offers great parks, safe streets and extensive mass transit, they vote with their feet.

At its core the Minnesota playbook for economic and demographic success has been higher taxes used for public investments to “compete for the grand prize: intellectual capital and talent” by offering good schools from birth through colleges and creating places where people want to live by offering high quality basic services, infrastructure and amenities.

Minnesota has used those higher taxes for services and investments that matter in a knowledge-based economy. An educated work force, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net.

The Minnesota good schools and quality communities strategy has paid off in the best in the Great Lakes economic and demographic outcomes. Michigan’s low tax/low public investment strategy has been accompanied by a decades long decline compared to the nation in both economic and demographic outcomes.

The post Minnesota is a successful high tax state appeared first on Michigan Future Inc..

For nearly two decades we have urged Michigan economic policy makers to use Minnesota as a model. Because Minnesota across the board has the Great Lakes best economic outcomes. From low unemployment to high labor force participation to better than the nation personal income and education attainment Minnesota is far ahead of Michigan.

We also chose Minnesota because it is a cold-weather, non-coastal, neighboring state. Taking off the table that Michigan’s poor and declining outcomes are because of the weather or the apparent advantages of states on the two coasts.

Now that demographic challenges––more Michiganders leaving than entering the labor market––are becoming policy priorities, once again Minnesota is a model. With by far the best results for decades in the Great Lakes.

Highlighted by Minnesota being the only Great Lakes State that has not lost a congressional seat from 1960 on. Each decade from 1960 on Minnesota has had 8 congressional seats. In 1960 Michigan had 19 congressional seats, today it has 13. Michigan has lost at least one seat in congress each of the last five decades. The last time Michigan had as few as 13 congressional seats was the 1920s.

Not losing a congressional seat since 1960 means Minnesota’s population has grown at near the same rate as the nation’s for the last six decades. Its 2020 population is 167 percent larger than it was in 1960. Minnesota’s population growth is concentrated in metro Minneapolis. The region’s population in 2020 is 217 percent of what it was in 1960.

Over that same time period Michigan’s population has grown 128 percent. If Michigan’s population growth since 1960 had been the same of Minnesota’s, Michigan population would be around 13 million rather than the 10 million it is today.

It’s not just Michigan, all the other Great Lakes states have lost congressional seats since 1960:

• Illinois from 24 to 17
• Indiana from 11 to 9
• Ohio from 24 to 15
• Wisconsin from 10 to 8

Minnesota’s population growth demonstrates that much of what passes for conventional wisdom when it comes to where people are choosing to live post pandemic is not accurate. So much for the conventional wisdom that people are fleeing cold weather places. So much for the conventional wisdom that people are fleeing high density places––particularly big cities. So much for conventional wisdom that people are fleeing high tax places.

Rick Haglund’s conclusion in our Minnesota case study describes Minnesota’s decades-long strategy that has led to its Great Lakes leading economic and demographic outcomes:

Lawmakers and governors in many states, including Michigan, have focused primarily on cutting taxes and shrinking the size of their governments as the path to prosperous economies.

As this report has shown in detail, Minnesota has traveled a different path. There is no question Minnesota is a high tax state—as stated earlier, its residents paid $2,145 (updated for 2021) more than Michigan residents in state taxes alone.

But it has largely invested that additional revenue in services and investments that matter in a knowledge-based economy. An educated work force, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net for those making the transition to a global economy all matter in creating a prosperous state.

Minnesota has made those necessary investments and enacted policies making the state welcoming to all. It really shouldn’t be surprising, then, that it has the strongest economy in the Great Lakes region and one of the most vibrant in the country.

The post Minnesota has not lost a congressional seat in six decades appeared first on Michigan Future Inc..

Before the pandemic, almost 38% of us were unable to pay for basic needs like housing, food, childcare and transportation according to the Michigan Association of United Ways ALICE data.  That number includes almost one million children who are growing up in households with limited opportunities and often going to bed hungry. It’s not an issue of working hard for a solid day’s wages.  Michigan has too many low-paying jobs with almost 59% paying less than it takes to reach the middle class for a three person household.  It’s limiting our kids’ potential and part of the reason we are losing population as families leave our state for better paying work.

At Michigan Future, we believe that there are structural issues in our economy that will take bold and transformative action to mitigate the impact of growing up in poverty and address the labor shortage that is strangling our recovery, particularly for the small businesses that fuel our communities.  The labor shortage poses a very real risk to small businesses in particular, many closing or limiting hours because they simply don’t have the workers to operate normally. It is time for Michigan to step up with a large expansion of the Earned Income Tax Credit (EITC).  Now.

We are not alone in calling for an expanded EITC.  Republicans and Democrats alike are advocating the use of the EITC to help decrease poverty. An op-ed published last month in The Hill written by Kevin Seifert, a former staff member to Former Republican Speaker of the House, Paul Ryan advocates for a substantial increase in the EITC  to cut poverty in America. We agree.  

According to the CDC, the EITC has kept more children living above the poverty line than any other program in our history.  And it’s more than that.  The EITC rewards work and has a proven track record of incentivizing people back into the workforce.  

Recent jobs data suggests that nationally we have almost two million more jobs than we do workers actively seeking them. There are a lot of reasons for that in Michigan including a lack of jobs paying livable wages but disproportionately the people not returning to workforce are women.  Often they are caring for children with no available childcare or a loved one at particular high-risk in the pandemic.  An increase in the EITC will provide a powerful motivator and adequate resources to help with these hurdles.

Who usually gets the EITC? The typical recipient is a single mother in her early thirties with a high school diploma and fewer than two children. That’s who we are talking about. Evidence consistently suggests that an expanded EITC leads to higher employment rates.  According to the National Bureau of Economic Research, (NBER.org) almost 60% of the increased employment of single moms between 1984-1996 can be attributed to the EITC.  We have a road map for this.

The Michigan legislature and governor are currently evaluating how to appropriate the billions of dollars of funding from the American Rescue Plan Act (ARPA) and a general fund surplus. Michigan has the opportunity to turn the curve in our steadily rising poverty rates with a major investment of our ARPA dollars.  Rather than funding hundreds of programs with discreet impact, let’s invest $1 billion a year and increase the EITC to 60%.  This will take the existing benefit from $150 a year to almost $1500.  An amount that will make a real difference to working families. 

We learned from the rounds of stimulus payments, low-income workers use the money for important stuff like food, education and child care. It enables work and goes right back into our economy, fueling future growth.  It’s time to be bold and plan for the long road to an economy that benefits everyone. 

The post Everything is Not Fine. appeared first on Michigan Future Inc..

For the first time in a generation Michigan, its schools and local units of government have new revenue for public investments. An unprecedented amount of new money, anchored by the American Rescue Plan funding.

Which, of course, raises the question “how can those new funds be used to best help improve the well-being of all Michiganders?”

For us at Michigan Future, Inc, the prime economic challenge of our times is having an economy that provides family-sustaining jobs––not just any job––so that all working Michigan households can raise a family and pass on a better opportunity to their children.

We should not and cannot ignore that our economy structurally is leaving too many behind. This was the reality before the pandemic across all of Michigan and across all races and ethnicities. It was the reality during the pandemic-driven lockdown. And will be the reality going forward until and unless we change our approach to the economy.

We need to figure out how you get an American capitalism that as it grows benefits all. This is the time to make fundamental change in the state’s playbook to increase the economic well-being of all Michiganders. To achieve the goal of rising income for all.

We believed before the onset of the pandemic––and even more so now––that this is the time to make fundamental change in the state’s economic policy playbook. To us mid-course adjustment in what we have been doing is not the path to achieving rising income for all.

Our policy recommendations are explicitly designed to rethink what is foundational to state policy and programming to achieving rising income for all and go big in building that foundation. To identify the state policy levers that can have the highest impact on ending Michigan’s two-tier economy.

Achieving rising income for all requires both raising income of low-wage workers and growing high-wage jobs by preparing, retaining and attracting talent. Our recommendations are designed to do both at scale.

The state and its local governments should use the once in a generation American Rescue Plan funding, as well as other new sources of revenue, first and foremost, to lay the foundation for that transformative redesign of economic policy. Specifically we recommend using American Rescue Plan funds, as well as other sources of new revenue to:

• Greatly expand the Earned Income Tax Credit. The EITC is pro work and an incentive to go back to work. Nearly six in ten Michigan jobs pay less than what is required for a family of three to be middle class ($47,000). The pandemic made clear that these low-wage workers live paycheck to paycheck not because they are irresponsibly buying “unnecessary” luxuries, but because they are in low-wage jobs that leave them struggling to pay for the necessities. The reality is that most of those struggling economically, in good times and bad, are hard-working Michiganders who like us get up every day and work hard to earn a living. What these hard- working lower-wage workers need most is income, not programs.

(As an example of doing something substantial, $1 billion annually would expand the average state EITC benefit to $1,500 from a current average of $150.)

• Provide an annual government payment, above and beyond current education funding, for each child 0-21 growing up in an ALICE household. We strongly believe Michigan under invests in its children. Particularly its non-affluent children. There is no path to a rising income for all that does not include, front and center, far better education outcomes.

We believe that under investment starts at birth and continues through college. So we propose Michigan substantially increase its investment in the education of every child growing up in a household struggling to pay for basic necessities each year from birth through college. These payments would be both pro growth and pro shared prosperity by increasing the human capital of children growing up in non-affluent households.

We recommend, above and beyond fiscal year 2022 education funding, providing an annual government payment directly to ALICE households for each child from 0-21. Think of this as something that operates like a health savings account: where parents and students have the resources to make their own education spending decisions. Including the option of utilizing those funds for extracurriculars and out of school programming.

(As an example of doing something substantial, assuming one million children in ALICE households, $1 billion dollars a year would provide a $1,000 payment per child.)

• State match for regional American Rescue Plan spending on retaining and attracting talent. Our economic development priority should be high-wage job growth. Labor markets are regional and talent now is what attracts capital. So the way to achieve high-wage job growth is by creating regions where high-skill working age adults choose to live, play and work.

We propose the state offer matching funds to provide local governments a substantial incentive to use their American Rescue Plan funds, and other new revenue, to develop and implement regional strategies to retain and attract talent. Where funding can be used for all modes of transportation; water and sewer; broadband; housing; parks and outdoor recreation; and arts and culture.

Enacting these recommendations will put Michigan on a new path of economic policy making: one that both provides higher income for today’s low-wage workers and grows high-wage jobs by preparing, retaining and attracting the high-skill workers that matter most to high-wage employers. This is the recipe for creating an economy that as it grows benefits all. That achieves rising income for all.

The post Michigan Future’s American Rescue Plan priorities appeared first on Michigan Future Inc..

In a terrific Washington Post op ed Neel Kashkari lays out Great Recession lessons that should guide us in dealing with our current pandemic-driven economic collapse.

Kashkari is president and chief executive of the Federal Reserve Bank of Minneapolis and oversaw the Troubled Asset Relief Program during the Great Recession for Presidents Bush and Obama.

Kashkari’s Great Recession lessons summary:

I oversaw TARP during the George W. Bush and Barack Obama
administrations, and my experience underscores that if there is a principle policymakers need to keep in mind going forward, it’s this: Err on the side of helping as many workers and businesses as possible rather than on prudence. This is not the time to worry about moral hazard or whether people are incentivized not to work. When the covid-19 crisis is behind us, if our biggest complaint is that some workers and small businesses got help when they didn’t really need it, that would be a wonderful outcome for our country.

Exactly! We provided too little aid and what we did provide came with way too many strings attached. Kashkari writes:

Policymakers should learn from perhaps the biggest mistake we made in 2008: We targeted our programs too narrowly, and they ended up being less effective than the country needed. Being prudent stewards of taxpayer resources is, of course, always important, but when a crisis is raging, the speed and scale of interventions are paramount. Congress and the Bush and Obama administrations enacted multiple programs to help homeowners avoid foreclosures. None of them was highly effective because they were all targeted to homeowners who needed only a little help. Americans were angry at the thought of their “irresponsible” neighbors getting a bailout. By applying numerous criteria to make sure only “deserving” families received help, we narrowed and slowed the programs dramatically, resulting in a deeper housing correction, with more foreclosures than had we flooded borrowers with assistance. The American people ultimately paid more because of our attempts to save them money.

What does this mean today? Think of firefighters putting out a fire. If their primary aim is to conserve water, they increase the odds of losing control of the fire.

The $2 trillion legislation includes many provisions to help both businesses large and small and the millions of Americans who are losing their jobs. As implementation begins, officials will be tempted to develop complex rules to decide who will qualify. For example, if each of the thousands of struggling small businesses needs to be individually vetted, the program is likely to be too slow to meaningfully help the economy. While the U.S. economy can bounce back from a crisis fairly quickly, it took more than 10 years after the 2008 crisis to rebuild the labor market. We can’t let that happen again. Let’s learn from history and douse the raging fire — before it becomes uncontrollable.

Unfortunately, our initial response in both Washington and Lansing, looks like we did not learn Kashkari’s Great Recession lessons. Although substantial, the aid has been too little and too time limited to deal with the hardships that workers and small business owners are experiencing now and for years to come. And the aid clearly comes with way too much red tape.

The economic harm of the pandemic-driven lockdown is going to last far longer than the currently available aid. And to make matters worse, even if the available aid was designed right, it is not very effective because households and small business can’t get the aid.

As we explored in a previous post what way too many Michigan workers and small businesses are going through today to get safety net benefits make clear that we need to go to no red tape cash benefits.

The main reason for how difficult it is to get much needed benefits is that the system is designed to catch those who don’t “deserve” public benefits. So we end up with an application process that takes way too long to help people who need benefits to pay the bills now. Not to mention has long and confusing applications that are difficult for many to complete so that it, almost certainly, keeps benefits from far more who are eligible than screens out those who aren’t.

Today’s economic reality should make clear to all of us that a vast majority of those struggling economically and without any safety net to deal with emergencies are hard working Michiganders. Who, like us, get up everyday and work hard to earn a living. That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it was booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

As Kashkari wrote what we need now from policymakers in both Washington and Lansing is to “Err on the side of helping as many workers and businesses as possible rather than on prudence.”

The post Great Recession lessons: More government aid, less red tape appeared first on Michigan Future Inc..

Bob Emerson and John Walsh in a guest column for Bridge lay out a set of principles that should guide Michigan policymakers as they deal with an unprecedented shortfall in state revenue this fiscal year and next. Worth reading!

Both are former legislators and state budget directors. Emerson is a Democrat, Walsh a Republican.

What I want to focus on in this post is their approach to revenue, or more bluntly raising taxes. And to focus on not further shredding the safety net when the inadequacy of the current Michigan safety net is crystal clear to everyone.

Emerson and Walsh ask “Given that budgets have two sides, income and expenditures, should we consider tax increases to help with the pending deficits?” They answer:

We believe it is premature to consider general tax increases to address the immediate deficit. Individuals have lost jobs and incomes, businesses have been temporarily closed, and some will never reopen. Now is not the time to burden individuals or businesses with the additional financial obligation any tax increase would impose.

To their credit, Emerson and Walsh make the case that preserving––if not expanding the safety net––should be a priority in deciding where to make budget cuts. They write:

We know that the pandemic has hit lower income and communities of color more severely, so we should also review our social safety net, understand its failings, and strengthen it where necessary. A thorough review should be made of federal waivers to maximize money coming into Michigan to support this safety net.

The reality is if you take raising taxes now off the table, it is almost certain that an already inadequate safety net will be shredded more. Leaving those who have been burdened most by the economic collapse with both a loss of employment income and benefits and a reduction in safety net income and benefits.

Emerson and Walsh argue that “Now is not the time to burden individuals or businesses with the additional financial obligation any tax increase would impose.” One can make a strong case that now also is not the time to burden individuals and businesses with the additional financial obligation any reduction in safety net benefits would impose.

Another reality of our pandemic-driven economy is that it is some, but not all, individuals who have lost jobs and incomes, and some, but not all, businesses who have been temporarily closed with some never reopening.

So if the goal is not burdening those individuals and businesses who have been harmed by the pandemic-driven economic collapse, raising taxes on those who have not been hurt economically in the collapse needs, at least, to be on the table.

Of course, as Emerson and Walsh, recommend we should eliminate spending on unnecessary activities, push for increased federal funding and use rainy day funds to shore up the safety net. But given the size and duration of the budget shortfall, it is not realistic to think you can without raising taxes provide the safety net benefits needed to help those individuals who, through no fault of their own, are bearing the brunt of the economic collapse.

As we explored previously the purpose of setting a state budget is not simply to reduce the deficit but to insure prosperity. If you use that frame, raising taxes must be on the table now.

Emerson and Walsh write “Given our caution about general tax increases in the short term because of the uncertain economic environment, we do believe that tax policy should be reviewed.” The mechanism Jim Blanchard used to consider tax policy in the severe economic downturn of the early Eighties was a bi-partisan blue ribbon commission. That commission recommended a combination of higher taxes and spending cuts temporarily to both balance the state budget and preserve prosperity.

Seems like now is the time to convene a similar group, hopefully with Emerson and Walsh as members, to recommend how the state can in this unprecedented economic downturn not simply reduce the deficit but insure prosperity.

The post Raising taxes now should be on the table appeared first on Michigan Future Inc..

As Michigan, almost certainly, faces its most serious economic challenge since the Great Depression, it is worth recalling how Michigan has dealt with previous economic downturns.

What follows is a rerun of a post I did in 2012 entitled Jim Blanchard, Jobs and Taxes. It has been lightly edited and the data brought up to date.

As many of you know I worked for Governor Blanchard, I thought then – and even more so now – he was real good for the people of Michigan. His administration was about one thing: jobs. His record is exemplary.

What follows are the facts on the economic results during his eight years in office and the fiscal policies he put in place to grow the Michigan economy.

First, Governor Blanchard inherited a Michigan economy in worse shape – one can make a strong case far worse shape – than Governor Snyder. We have short memories. The story we have told ourselves over and over again that Governor Snyder inherited the worse economy in Michigan since the Great Depression is not true.

Jim Blanchard took office in January 1983. The month before (December, 1982) the state’s unemployment rate was 16.8%. And going up. That month was the peak unemployment rate during the serve downturn of the early Eighties. For all of 1982 the unemployment rate was 15.6%.

Rick Snyder took office in January 2011. The month before (December, 2010) the state’s unemployment rate was 11.2%. And going down. The peak Michigan unemployment rate during the Great Recession was 14.2% in August, 2009. When Governor Snyder took office the Michigan unemployment rate had been falling for 16 consecutive months. For all of 2010 the unemployment rate was 12.7%.

Lets turn our attention to what Governor Blanchard did to grow the Michigan economy and what the results were. First and foremost Jim Blanchard raised taxes. He cut spending as well to deal with a huge budget deficit he inherited along with a horrible economy. Governor Blanchard defied the conventional wisdom of his day – and far more so today – that believed low tax states had the best economies and, even more so, you never raise taxes in an economic downturn.

The income tax went from 4.6% to 6.35%. You read that right: 6.35%. Only one Republican in the state House and Senate – Senator Harry DeMaso – voted for the tax increase. The rest predicted economic ruin. The income tax rate was 6.35% for calendar year 1983 and through August, 1984. When it was reduced to 5.35% through March 1986. When it went back to 4.6% for the remainder of the Blanchard Administration. (The income tax history comes from the Citizens Research Council.)

This was a period not only of higher income tax rates, but the dreaded Single Business Tax – the so-called job killer – was in full force with a rate of 2.35% for the entire Blanchard Administration.

Economic ruin? Hardly!

During the eight years of the Blanchard Administration employment in Michigan went from 3,193,000 in 1982 (the year before he took office) to 3,946,000 in 1990 (the year he left office). An increase of 753,000 jobs. The biggest annual job gains occurred in the three years when the higher income tax rates were in full effect: 1983-5. Job growth in those three years was from 3,193,000 to 3,561,000. An increase of 368,000, an average of almost 123,00 per year. Over the eight years the state’s annual average unemployment rate went from 15.6% in 1982 to 7.7% in 1990.

As the table below makes clear the Blanchard years saw greater growth in payroll jobs than either the Engler years or the Snyder years. Michigan governors who cut taxes as the center piece of their economic growth strategies.

The first Blanchard Administration––when the highest income tax in Michigan history was in effect––had the largest gain in payroll jobs. The annual average payroll job growth in the Blanchard years was 94,000; in the Engler years 45,000, and in the Snyder years 69,000.

So much for you can’t raise taxes and get job and economic growth!

Having said that I don’t believe that the Blanchard tax increases were a major reason for Michigan’s growth in the Eighties. Anymore than I believe the Engler tax cuts were a major reason for Michigan’s economic growth in the Nineties. Or the Snyder business tax cuts had much of anything to do with the growth we experienced in the 2010s.

The evidence is overwhelming that what drives Michigan’s economy is the national economy and, most importantly, the domestic auto industry. State policy is at best a weak lever in driving the economy.

But what the Blanchard years demonstrate is that you can raise taxes and have strong growth. When you both raise taxes and control spending during a severe downturn you can both grow the economy and improve the standard of living and quality of life of all Michiganders by having adequate funds for a decent safety net and public investments in education, quality of place and infrastructure.

The post The Blanchard recipe for economic revival appeared first on Michigan Future Inc..