When it comes to determining which states are prosperous four year degree attainment is highly predictive of which states have high per capita income. As the table below depicts there are three states in the top 15 in per capita income that are energy-driven. Of the other 12 all are in the top 15 in the proportion of adults with a four year degree or more.

Source: Bureau of Economic Analysis, REIS. American Community Survey, Decennal Census. Accessed February 17, 2017.

Michigan is 32nd in per capita income and 32nd is four year degree attainment. If the state doesn’t substantially increase the proportion of adults with a four year degree or more we almost certainly will be a low-prosperity state long term. End of story!

What about low taxes as a path to prosperity. As we documented in our State Policies Matter report, Minnesota has the Great Lakes best economic outcomes and the highest taxes in the Great Lakes. They are third in the proportion of adults who work, 14th in per capita income and eighth in employment earnings (wages and employer paid benefits) per capita. Michigan on those measures ranks 40th, 32nd and 36th.

Michigan’s experience over the last twenty years provides ample evidence that cutting taxes is not a way to increase state prosperity. In 1993 Michigan taxes (state and local combined) per capita were three percent above the national average and the state’s per capita income was three percent below the national average. In 2004 the state’s taxes per capita had fallen below the national average by three percent but we had fallen even further behind the nation in per capita income, trailing the nation by six percent. And in 2013 (the last year for which tax data is available) the state was twelve percent below the national average in taxes per capita and twelve percent below the national average in per capita income. (The tax data comes from a  Citizens Research Council report.)

So as our tax burden has gotten lower and lower Michigan has gotten poorer and poorer compared to the nation.

Despite all evidence to the contrary, Michigan continues to have a tax-cut-driven economic development strategy. It hasn’t worked in the past, it almost certainly won’t work in the future. The new reality is that this is a human-capital-driven economy. Employers––particularly high wage employers––are locating where talent is concentrated. Its the asset that matters most to them. That means rather than low taxes, Michigan’s economic success strategy has to be preparing, retaining and attracting talent––particularly those with a four year degree or more.

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The editorial makes the case that: … Without an educated population, our state will never have the resilience or enjoy the kind of economic growth other states have. And that’s regardless of Gov. Snyder’s proposed elimination of the business tax and other measures intended to make Michigan more attractive to employers. The editorial goes on to advocate for a tax increase (using either the income or sales tax) to make college education more affordable, if not free.

They are exactly right. Michigan’s fundamental economic problem is that we are now 36th in the proportion of adults with a four year degree and 37th in per capita income. There is little prospect that we will get more prosperous compared to the country as long as we are in the mid 30s in college attainment. Of the 15 states with the highest proportion of adults with a four year degree, 13 are also in the top 15 in per capita income. The two are inextricably linked and will become even more so in an increasingly knowledge-based economy.

Over the past decade on a bi partisan basis and now under three Governors higher education funding has been on the chopping block. It makes no sense. When college attainment didn’t matter so much to economic success in the 20th Century Michigan built arguably one of the great systems of colleges and universities on the planet. Now when it may well be what matters most to economic success we have spent a decade and our continuing to disinvest in that system. Really bad policy!

The sooner we learn the lesson that the Saginaw News has learned: that investing in higher education, even if it means raising taxes, is essential to growing the Michigan economy, the better off we will all be.

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Gov. Rick Snyder has laid out one for Michigan citizens to use, to measure progress. It has 21 items on it, including many that are outcome driven (children in poverty) and many that are input driven (state and local spending as a percent of gross state product). Business Leaders for Michigan has a giant “benchmarking study” that has even more dashboard gauges to watch.

It’s a lot for a citizen to keep his or her eyes on – sort of like the busy cockpit of a jet liner.  But despite the dozens of instruments a pilot can watch, most keep their eyes on three: air speed, compass and altimeter.

My dashboard would come from the land of Mr. Spock. The Vulcan salute was simple: Live long and prosper. I bet that’s the main goal of almost every Michigan citizen: To live long and be prosperous.

Here’s my simple set of dashboard-ready outcomes most citizens could watch to see if we are making real progress: We want a Michigan where people have long life expectancy, with high per capita incomes and low poverty rates (I’m assuming we don’t want to have five billionaires and the rest of us living on minimum wage. A prospering society, it seems to me, has a fair amount of wealth spread relatively widely around the populace.)

What states have the longest life expectancy: Hawaii, Minnesota, Connecticut, North Dakota, Massachusetts, California, Vermont, New York, New Hampshire.

What states have the highest per capita incomes? Connecticut, New Jersey, Massachusetts, New York, Wyoming, Maryland, Virginia, Alaska, California and New Hampshire.

Lowest poverty rates:  New Hampshire, Connecticut, Alaska, Minnesota, New Jersey, Maryland, Vermont, Massachusetts, Virginia.

We see a few consistent big state winners here. Connecticut. Massachusetts. California. New York. Minnesota. These are the states we should emulate.

What do winner states have in common? Well, readers of this blog should have guessed by now. They are among the nation’s leaders in education attainment. They grow, retain and attract college graduates. They use brains as a magnet for knowledge industry businesses. Smart people earning good money in the knowledge industry hire plumbers, build new homes and shop in retail stores, benefiting all. And college attainment is a decent proxy for long lives.

Unfortunately, it seems that Michigan is doing all it can to ignore the policies of these states. Instead, we are focused on cutting taxes, cutting education, and becoming a so-called “economic growth” state. The problem is that those states tend to look a lot like Mississippi (dead last in per cap income for generations, shortest life expectancy, high poverty rates) than Minnesota (very low poverty rates, top 15 per cap income, one of the leaders in long lives.

Preparing, retaining and attracting college graduates will help get you the Vulcan ideal: Live long and prosper.

Low taxes will get you Michissippi.

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Not surprising it is a list that aligns with the best educated states in the country. All but Texas are also top tier states in the proportion of adults with a four year degree. Maybe most interesting is that the list sure doesn’t align with the low tax, small government, weak union states, that we are constantly being told are the model for Michigan. Nor does it fit with the South is winning mantra. Turns out upper income Americans don’t think so.

So much for the argument that upper income Americans are fleeing high tax states – many with graduated income taxes. If anything it is the opposite. They are over concentrating in higher tax state. Assuming that Virginia, New Hampshire, Colorado and Texas are the low tax states on this list, in the other 11 reside 2.45 million of the nation’s 4.5 million highest earners, 55% of the total nationally.

And I am sure if the data were available by metropolitan area the proportions would be even higher in the big metros in those states: DC, New York, LA, San Francisco, San Diego, Chicago, Seattle, Denver, Minneapolis, Boston, Dallas, Houston and Austin. These big metros with vibrant central cities are both the places where the high wage knowledge-based economy is concentrated and where talent wants to live and work.

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Why those two areas? Because they are where policy makers the last decade, on a bi-partisan basis, went over board. That’s right tax cuts and higher compensation, not spending – other than corrections and Medicaid – are the actions that have left us with a structural deficit of something like a billion and half today and likely to grow.

As Olson points out the average total cost of a state employee, a figure that includes benefits, rose 58.2 percent from $54,412 to $86,100 from 1999-2000 to 2009-10. Over the same period, the average personal income for individual Michigan residents grew 24.1 percent. On taxes – contrary to all you read and hear – it was a decade of tax cuts. Largely because of special tax breaks. Olson calculates during that same 10-year stretch, the amount of tax expenditures the state distributed to businesses and individuals – which includes tax breaks, credits and deductions – rose from $14.1 billion to $26.2 billion. So that Michigan’s total tax revenue which equaled 9.55 percent of residents’ personal income in 1999-2000 by 2009-10 was down to 6.96 percent.

With few exceptions Michigan is not providing too many public services. If anything we have cut too much the last decade. Particularly support for basic local services and higher education – the items in the budget that we believe are most important for growing the Michigan economy. Olson offers a path – by focusing on compensation and taxes – that can get us back to a structurally balanced budget and the ability to provide both public services that improve the quality of life of Michiganians and public investments that help grow the economy. It’s a path worth pursuing.

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State A is Minnesota and state B is Alabama. Far too many – of all political persuasions – start with a preconceived agenda of policies that make a strong economy. And never test their assumptions against the reality. Or worse don’t care about the results as long as the polices are aligned with their ideology.

Its not the way we develop our recommendations. We start with “if we could choose, what kind of Michigan economy would we want?” And then identify the states that come closest to that outcome and see what are their common characteristics. To us the answer to both questions in the thought experiment is a no brainer. Michigan should want to be more like Minnesota and less like Alabama. No matter what the policy regime!

Minnesota and Alabama are not outliers. Their experience is the basic pattern. Higher tax states and non right to work states more times than not have higher income than lower tax and right to work states. But more importantly, the basic pattern is that prosperous states have a high proportion of their residents with a four year degree. Minnesota ranks 10th, Alabama 45th. In an increasingly knowledge-based economy, it’s human capital that is driving state economic results.

Michigan’s fundamental problem is that we are 34th in college attainment. Almost end of story. So we are 36th in per capita income. And unlikely to go up much unless we get better educated. If you look at the facts first the policies we should be focused on are preparing, retaining and attracting talent. That is the new path to prosperity.

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As they report, when they asked what state had lowered unemployment with lower taxes, the candidate, John Hune, answered Minnesota. First congratulations to the Daily Press and Argus for asking the question. By and large the media does not ask for evidence that low taxes lead to stronger economies. But to their credit they didn’t stop with reporting the answer, they checked how Minnesota’s taxes compared to Michigan.

Their conclusion: So just how attractive are Minnesota’s taxes? If he thinks Minnesota has the model tax structure, then Hune — who brands himself as the conservative anti-tax avenger — is actually favoring higher taxes. While it is true that Minnesota has a lower unemployment rate than does Michigan — at about 7 percent, it’s nearly half Michigan’s current rate — it hasn’t come about because of low taxes. By almost any measurement, Minnesota taxes its residents and its businesses at a higher rate than does Michigan.

We couldn’t have said it better. For years we have cited Minnesota as the Great Lakes state that Michigan should pattern itself after. Why? Not because of a predetermined set of “good” policies, but because they have the highest per capita income (our goal) by far of any Great Lakes state. They also have the lowest poverty rate, the lowest unemployment rate and the highest employment rate. They have the economic outcomes that all residents of Michigan want. They have achieved those outcomes with the highest taxes in the region.

Strong evidence that either state and local taxes are largely irrelevant to a state’s economic performance or that the public services paid for by those taxes are an asset to economic growth. Our best guess is it is a bit of both.

What Minnesota does have – that, by far, trumps a state’s level of taxes and spending – is the highest proportion of adults with a four-year degree in the region. That allows them to more concentrated in the knowledge-based sectors of the economy. The sector where both the highest wages are and most of the country’s job growth. How to increase the education attainment of Michiganians should be what candidates are debating. It is the path back to prosperity.

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