So if public investments are the key to better position Michigan to prosper in a knowledge-based economy what should policy makers do? The framework for action was spelled out by the Milliken/Blanchard panel in 2007. A group of bi partisan heavyweights convened by Governor Granholm. They wrote a terrific report which the Governor and the legislature – both parties – have ignored.
The framework for action has four parts:
1. Restructuring the Michigan tax system so that it produces adequate revenue now and most importantly grows with the Michigan economy long term. That means increasing income taxes and expanding the sales tax to consumer services. It should be done in a way that eliminates the MBT surtax and possibly lowers other business taxes.
2. Restructuring state and local spending. The deficit Michigan faces is more structural, than cyclical. Although, the current great recession makes it much worse. Over the decade we have gotten poorer. Falling from sixteenth to thirty third in per capita income. Getting poorer means you can afford fewer publicly funded service. No matter what you do with taxes, we need to cut low priority services and reduce compensation to state and local public employees and retirees. Hard to do, but essential.
3. But stopping there would not do much to grow the economy. If you only do items one and two you are managing decline: adjusting to the new realities of a low prosperity Michigan. That would be a big mistake. We need to pursue an agenda to regrow a high prosperity Michigan. That is where public investments come in. We need to do items one and two in a way that create enough revenue to invest in things like education and quality of place that are key to preparing, retaining and attracting talent.
4. Increasing transportation taxes. Ultimately through a mileage tax. Combined with a restructuring of transportation priorities. Including fixing roads, rather than building new; quality transit systems in all our big metros; high speed rail; rail over trucks for freight movement and support for biking and walking as alternatives to driving. All are key amenities that will characterize successful new economy regions and states.