Archive for the ‘Michigan’ Category

States such as Illinois, California, New York, Connecticut, and New Jersey have very serious structural problems because of high tax burdens and unsustainable spending levels (often associated with excessive pay and benefits for bureaucrats).

I frequently write about those big issues, but I also like to periodically share examples of other bone-headed policies at the state level. These are not the types of policies that threaten bankruptcy, but they illustrate why it’s not a good idea to give power to politicians and bureaucrats.

Here are some new examples.

We have a column in Forbes about the dangerous plague of unlicensed and unregulated (gasp!) cakes in New Jersey.

At first, she sold her baked goods to support her son’s school fundraisers. …Soon Heather started receiving requests from family, friends, sports fundraisers, and even a wedding venue. …With this business, Heather hoped she could pay for her son’s college education and one day open her own brick-and-mortar cake pop shop. Unfortunately, her dreams were dashed thanks to a law that exists only in New Jersey. Unlike 49 other states, selling baked goods made at home is illegal in the Garden State. Baking and selling just one cake, cookie or muffin risks fines as high as $1,000. When Heather learned she had to shut down her cake pop sideline, the news was “crushing,” she said.

As is so often the case when governments are suppressing liberty, “health and safety” is the excuse.

New Jersey’s main justification for the ban is to protect the public’s health and safety—a claim that’s belied by the fact that nearly every other state has a “cottage food” law on the books, which legalizes the sale of homemade cakes, cookies, jams and other food deemed “not potentially hazardous.” …In order to sell cake pops, cookies or other shelf-stable treats in New Jersey, Heather must either build a licensed “retail food establishment” separate from her home kitchen or she can rent a commercial kitchen, which can easily cost $35 an hour.

Fortunately, the Institute for Justice is fighting to overturn the law.

Heather and two other home bakers joined with the Institute for Justice and filed a lawsuit against the state earlier this month. …A similar IJ lawsuit has already defeated a pastry prohibition in Wisconsin. Over the summer, a Wisconsin judge struck down the state’s ban on selling home-baked goods because there was “no real or substantial connection” between the law and public safety. …In his ruling, Lafayette Circuit Court Judge Duane Jorgenson noted that the ban protected established businesses from greater competition, which is why groups like the Wisconsin Bakers Association heavily backed the law. …Those rulings followed a 2015 IJ court victory on behalf of home bakers in Minnesota, which galvanized the state to expand its cottage food laws. Now the state boasts over 3,000 cottage food producers.

Notice, by the way, that protecting an established interest group was the real purpose of the law. In other words, the law was basically similar to schemes for occupational licensing.

This next item is so strange that I wonder whether it is somehow fake. But I also suspect it’s too bizarre to be fake. In any event, I wonder about the reason for this government-mandated notice?!? And if you find a (gasp!) vending machine without the notice, what purpose is served by calling the number? And do the bureaucrats expect people to memorize the number in case they stumble upon a rogue vending machine?!?

Oh, and how long before some people figure out how to remove the notice and then call the government in hopes of getting the “cash reward”?

If anybody knows the answer to any of these questions, feel free to share your thoughts. In the meantime, I’ll simply assume that the notice presumably isn’t as pointless and stupid at this pedestrian sign and definitely not as creepy and malevolent as this “public service” notice.

Next, we have a story from ABC News about taxpayer-funded generosity to pets in Michigan.

A dog in western Michigan has been approved for unemployment benefits — and he’d be bringing in a cool $360 a week. Michael Haddock, of Saugatuck, Michigan, says he received a letter on Saturday from the State of Michigan Unemployment Insurance Agency (UIA) addressed to Michael Ryder, according to Grand Rapids ABC affiliate WZZM. Michael is his name. Ryder is his dog’s name. …Haddock says the employer listed on the letter was a restaurant chain in Metro Detroit. After receiving the letter, Haddock contacted the restaurant chain and the state unemployment office. …The Michigan UIA announced Tuesday it was creating a special investigative unit to handle the recent increase in fake unemployment claims. The agency attributes many of the claims to recent data breaches. Haddock isn’t sure how scammers got his dog’s name.

I’m clearly behind the times. I have some cats that need to sign up for handouts!

On a more serious note, I confess that I’m not aware of the degree to which unemployment benefits are fraudulent. Hopefully it’s not as bad as the EITC, though I’m confident that problem is bigger than politicians and bureaucrats would ever admit.

And why would folks in the government even care? After all, it’s our money they’re squandering rather than their own. And Milton Friedman educated us on what that means.

From the perspective of good public policy, though, the real problem with such benefits (as personalized here and here) is that they lure people into extended periods of joblessness.

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Perhaps because there’s no hope for genuine Obamacare repeal and limited hope for sweeping tax reform, I’m having to look outside of Washington for good news.

I wrote the other day about the very successful tax reforms in North Carolina. So now let’s travel to the Midwest.

The Wall Street Journal‘s editorial page has a very upbeat assessment of Michigan’s turnaround, though it starts by noting that many states teach us lessons on what shouldn’t happen.

…states can provide instructive policy lessons for better and sometimes worse—see the fiscal crack-ups in Connecticut and Illinois.

I definitely agree about the fiscal disasters of Connecticut and Illinois. And Michigan used to be in that group.

Former Michigan Democratic Gov. Jennifer Granholm was a progressive specialist in using the tax code to politically allocate capital, which depressed and distorted business investment. Between 2002 and 2007, Michigan was the only state to experience zero economic growth. …misguided policies were arguably bigger contributors to Michigan’s slump. Between 2002 and 2007, Michigan’s manufacturing grew at a third of the rate of the Great Lakes region. …In 2007 Democrats increased the state income tax to 4.35% from 3.9%. They also enacted a new business tax with a 4.95% tax on income, a 0.8% gross-receipts tax, plus a 21.99% surcharge on business tax liability. …Michigan’s economy plunged amid the national recession with unemployment hitting 14.9% in June 2009.

But Michigan has experienced a remarkable turnaround in recent years.

Michigan…offers a case study in the pro-growth potential of business tax reform. …Mr. Snyder’s first major undertaking with his Republican legislature was to replace the cumbersome state business tax with a 6% corporate tax and trim the individual rate to 4.25%. Michigan’s corporate-tax ranking jumped to seventh from 49th in the Tax Foundation’s business tax climate rankings. …They also reformed state-worker pensions. After the 2012 midterm elections, Republicans passed right-to-work legislation that lets workers choose whether to join unions. In 2014 state voters approved a ballot measure backed by the governor to repeal the personal-property tax for small businesses and manufacturers.

These reforms already are paying dividends.

In 2011 Michigan added jobs for the first time in six years, and it has since led the Great Lakes region in manufacturing growth. Unemployment has fallen below the national average to 3.9% even as the labor-force participation rate has ticked up. …Unemployment in the Detroit metro area has fallen to 3.2% from 11.4% six years ago. Businesses in Ann Arbor and Grand Rapids say they can’t find enough workers. Perhaps they should try recruiting in Chicago or New Haven.

As a fiscal wonk, I’m delighted by tax cuts and tax reform. That being said, I want to specifically focus on the reform of bureaucrat pensions in the Wolverine State.

It was mentioned as an aside in the WSJ editorial, but it may be even more important than tax changes in the long run. We’ll start with a short video the Mackinac Center produced to helped stimulate debate.

Here’s some of what Investor’s Business Daily wrote about the recent reforms.

We’ll start with a description of the problem that existed.

For years, Michigan had been racking up pension liabilities for public school teachers that it had no money to pay for. By 2016, the state’s unfunded liability had reached $29 billion — which meant state was funding only 60% of its pension obligations. …Michigan is hardly the only state to have made this mistake. Pressured by public sector unions, state lawmakers boosted retirement benefits, using wildly unrealistic forecasts for investment returns and wage growth to justify them.

And here are the admirable reforms that were enacted.

So what did Michigan do to avoid Illinois’ fate? It embraced bold pension reforms that will protect taxpayers and provide a solid retirement benefit to teachers. …it’s shifting its public school teachers toward defined contribution plans. All new hires will be automatically enrolled in a 401(k)-type plan with a default 10% contribution rate. Teachers will still be able to opt for a traditional defined benefit pension, but one that splits costs 50-50 between workers and the state, and includes safeguards that will prevent the funding ratio from dropping below 85%.

The experts at Reason also weighed in on the topic.

Pension analysts from the Reason Foundation (which publishes this blog and advocated for passage of SB 401) say no other state in the country has embraced reforms that go as far as Michigan’s. …new hires will be enrolled in a 401(k)-style pension plan, giving those workers the chance to control their own retirement planning while removing the threat of future unfunded liabilities. …What makes the Michigan proposal unique is it allows future hires to choose a so-called “hybrid” pension system retaining some elements of the old system with a provision requiring pension system to be shuttered if the gap between the fund’s liabilities and assets falls below 85 percent for two consecutive years. The mixed approach, allowing teachers to choose between a traditional pension and a 401(k)-style retirement plan, could be a model for other states to follow as they grapple with similar pension troubles.

Though the bill isn’t a panacea.

Paying down those obligations will take time—all current teachers and public school employees will remain enrolled in the current pension system and retirees will continue to collect benefits from it—but [it]…would make a big difference in the state’s long-term fiscal outlook.

Here’s a chart from the Mackinac Center showing how pensions became a growing problem. Unwinding this mess understandably won’t happen overnight.

But at least Michigan lawmakers took a real step in the right direction.

The same principle applies in Washington. Reforms to Medicare and Social Security wouldn’t change payments to existing retirees. And older workers generally would stick with the status quo.

But proposed entitlement reforms would lead to substantial long-run savings as younger workers are given the freedom to participate in new systems.


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