In preparing for a presentation to the Michigan Society of Association Executives I took a look at what has happened to state taxes and spending this decade. Boy is convention wisdom wrong!
To listen to the chatter from Lansing, despite an economic collapse, state government continues unrestrained taxing and spending. Many make the case if we had been restrained our economy would have done better. Turns out to be total malarkey!
Lets start with taxes. The Headlee Amendment restricts state revenue to a fixed percentage of personal income. In 2000 state revenue was a little above the allowed maximum at 9.55% of personal income. In 2010 its estimated to be 6.93%. Something like nine billion dollars below the allowed maximum. So taxes are taking a far smaller proportion of our income today than a decade ago.
What is most important to the current debate in Lansing is that the state’s economy was booming in 2000. An unemployment rate of 3.7 percent. And we were the eighteenth most prosperous state. So when our taxes were higher we had a far better economy.
So how about spending? Same story. Convention wisdom: politicians of both parties unwilling to restrain spending. Think again! At Michigan Future we believe investments in education and quality of place are the key levers state policy makers have in regrowing a prosperous Michigan. So I looked at spending in the kind of public investments that matter: universities, revenue sharing and transportation. The figures are not corrected for inflation. The facts for each for 2000 and 2010:
• State appropriations for universities down from $1.78 to $1.54 billion.
• Revenue sharing down from $1.47 to $0.99 billion
• State Transportation Fund revenue about constant from $1.87 to $1.84 billion.
So we have followed for the last decade the recipe the lower taxes/small government crowd currently is pushing as the way to grow the Michigan economy. It didn’t work this decade. It won’t in the future!
