Brief commentaries and opinion pieces on issues of the day. Published periodically, sometimes in conjunction with Michigan Roundup.

Written by various staff members.

The Legislature and Deadlines: Can’t Live with ‘Em, Can’t Live without ‘Em - May 25

May 25, 1995

The Legislature and Deadlines:
Can’t Live with ‘Em, Can’t Live without ‘Em

With almost as much fanfare as has been accorded the O.J. Simpson double murder trial and recent revelations of shadowy antigovernment groups in “Militia-gan,” the Newt Gingrich–inspired GOP “Contract with America”—like it or loathe it—continues to enjoy a long run on center stage in the hearts and minds of our citizenry and media.

Last fall, in the (ultimately successful) attempt to wrest partisan congressional control from Democrats, Republican campaign strategists devised a disarmingly simple plan: spell out ten public policy issues then promise to do something about them in a timely fashion if given the chance. At the time, the Democrats—asleep at the wheel—dismissed the ploy as simplistic and/or dangerous to the well-being of the nation. The Republicans—deftly tapping into seemingly endless disenchantment with things political—hit the electoral jackpot.

How much of the credit for the shift in partisan political fortunes can be attributed to the Contract per se is open to speculation. Prior to November 8 (as opposed to every day thereafter), the media did not generally go out of their way to emphasize its existence. Polling following the election indicated that the general public was mostly unaware of the document and its contents.

But for most of the past seven months the Contract and its ten hot-button items have assumed a larger-than-life profile and have been masterfully transformed by spin doctors, political actors, and the media into the public policy equivalent of the Ten Commandments. “The American people clearly demanded last November that they want to see [agenda item of your choosing here] enacted,” said Congressman Blather. Well, maybe; maybe not. But the device did serve to stimulate discussion.

The downsides of spin aside, part of the appeal of the Contract was that it carried with it a self-imposed deadline for House action. While the 100-day deadline was met—enabling GOP congresspeople to declare an early public relations victory—the fate of the majority of the agenda items continues to be played out.

Still, the deadline helped focus, as at no other time in recent memory, the attention of the media—and arguably more of the general public than is normal—on a variety of policy issues. More than the usual suspects got active and weighed in with their opinions. Could it be that the judicious—and highly publicized—use of self-imposed legislative deadlines to consider key controversial issues may be beneficial to a process too often mired in partisan gridlock?

Copyright © 1995

Presidential Politics: Will 1996 be a Repeat of 1948? - June 2

June 2, 1995

Presidential Politics:
Will 1996 Be a Repeat of 1948?

On election day the Republicans took control of both houses of Congress. Democrats blamed the disaster on an unpopular Democratic president whose administration was marked by conflict between party liberals and moderates. Many Americans believed the president would be easily defeated in two years. Bill Clinton in 1994? No, Harry Truman in 1946.

The parallels between the predicament facing Bill Clinton today and the one Harry Truman faced in 1946 are striking. Just two years later Harry Truman pulled off the political upset of the century by winning the presidency in his own right. Truman’s stunning comeback offers Democrats hope of a similar resurrection for Bill Clinton in 1996. For Republicans that victory is a sobering reminder that their long-sought realignment may not be at hand.

The seeds of Truman’s triumph were sown nearly a year before the election in a memorandum from presidential legal counsel Clark Clifford in which he outlined a comprehensive strategy for Truman’s conduct both as president and as a candidate. Strict adherence to this strategy, as well as a little good fortune, combined to create the stunning victory.

Clifford’s memorandum described the Democratic coalition—an alliance of southern conservatives, western progressives, and big city labor—and prescribed policies to gain their support. Most important, Clifford advised Truman to adopt a policy of confrontation with the Republican leadership in Congress. Compromise was to give way to conflict. Clifford also drafted a speech accusing Republicans of supporting the “gluttons of privilege.” His strategy was for Truman to run not against his opponent (the popular former governor of New York, Tom Dewey) but against Congress. Finally, Clifford advised Truman to use the office of the president to stay in the limelight.

Truman followed the script to near perfection. When, in the summer of 1948, Truman called a special session of Congress to deal with pressing issues the Republican leadership played into his hands. Having no interest in granting Truman a legislative victory a few months before the election, Congress failed to act, allowing the president to label the session the “do-nothing Congress.” He stuck to this theme throughout the fall campaign.

In addition to a flawlessly executed campaign strategy, Truman benefited from two important bits of good fortune. The first was entry into the race of two additional parties: the Dixiecrats, led by Strom Thurmond, and the Progressives, led by Henry Wallace, both former Democrats. Thurmond’s candidacy allowed Truman to run as more of a liberal than would have been possible had he been courting southern conservatives, thus solidifying his support among progressives and labor. Henry Wallace’s refusal to denounce the Communist Party brought anticommunist liberals into Truman’s camp.

The second stroke of luck was the incompetence of the Dewey campaign. Dewey ran as the presidential heir apparent, not as a candidate seeking support, allowing Truman to define the campaign.

Can Clinton repeat the Truman miracle? In 1948 Truman could contrast himself with Congress because voters understood that the president was setting the agenda. In 1995 the congressional leadership has set legislative agenda not President Clinton. By engaging in continual conflict Clinton risks being viewed as an obstructionist, making it far more difficult to run against a “do-nothing Congress.” Furthermore, it is unclear whether linking the Republicans with the wealthy will have the same effect in 1996 as in 1948. Today, the middle class appears less moved by this kind of rhetoric.

In addition, Bill Clinton cannot count on certain strokes of good fortune. The most likely third-party entry, Ross Perot, has lost much of his luster since the 1992 election. And Clinton cannot expect the Republicans to run an incompetent campaign. In 1948 Republicans had not won a presidential election in twenty years and few Republican leaders had any notion of how to run a winning national campaign. In contrast, despite Clinton’s 1992 victory, Republicans have dominated national elections since 1968.

In pursuing a repeat of the Truman upset victory of 1948, Clinton must remember that only Harry Truman himself ever performed such an electoral feat. Whether Bill Clinton is another Harry Truman will be decided by the voters on election day.

Copyright © 1995

Whose Litmus Test Is It, Anyway? - June 9

June 8, 1995

Whose Litmus Test Is It, Anyway?

A May 19 article in the Washington Post quotes a letter to corporate executives across the country from U.S. House Majority Leader Richard K. Armey (R-Texas), in which Armey chastises U.S. corporations for being “firmly behind the welfare state.”

Citing Patterns of Corporate Philanthropy, a study by the conservative Capital Research Center, Armey (who otherwise has stimulating ideas about fixing the tax code) wants American corporations to reduce their contributions to organizations that don’t toe a conservative line.

The problem is defining “conservative.”

The study ranks groups in eight categories, from “radical left” on one end of the spectrum to “conservative” on the other (there is no “radical right” category).

One of the groups that ended up in the study’s “center left” category is Ducks Unlimited. Now, the last time we checked, Ducks Unlimited’s role in life is to raise money to buy (not regulate) wetlands, to increase the number of ducks and geese in North America. It is an organization principally composed of hunters, most of whom happen to be Republicans. How the notion of paying market value for a piece of property can be viewed as anything left of center totally escapes us.

Another organization in the center-left category is the National Geographic Society, the same group that tapped Michigan’s conservative governor, John Engler, to head its committee on non-point pollution. The society publishes a beautiful magazine that is used as a resource by school kids across America. Apparently, teaching people about other cultures and other ecosystems now is regarded as “pink” by some.

Among organizations listed in the “liberal” category are the American Cancer Society and the Nature Conservancy. The former apparently has committed the unpardonable left-wing sin of telling people about the dangers of smoking. And since the Nature Conservancy raises money to buy land in fee simple on a world-wide scale (much worse than Ducks Unlimited’s focus on just the western hemisphere), it clearly must be part of some worldwide left-wing conspiracy to buy land so the right wing can’t own it.

C’mon. In an era in which people seem to be becoming increasingly intolerant of any political philosophy that is not somewhat right of center, the conservatives run the risk of making their litmus test so narrow that they will alienate those who otherwise would support their cause.

Thank you anyway, Mr. Armey, but the gun-owning business executive who supports Ducks Unlimited prefers to make his/her own decision about what is conservative or liberal.

Copyright © 1995

Renaissance Zones and the Rediscover of Community - June 16

June 16, 1995

Renaissance Zones and the Rediscovery of Community

Governor John Engler proposes Renaissance Zones—free of nearly all state and local taxes—in select, economically distressed areas of Michigan. Jobs Commission CEO Doug Rothwell believes the zones, by waiving property, income and business taxes, will encourage urban villages—that is, cities within a city.

Engler and Rothwell share their view of urban villages with visionary development planners, as highlighted in a May Newsweek cover story, entitled “Bye-Bye, Suburban Dream.” These planners believe suburbia one will day be replaced by small communities, built both in new developments and within old urban areas, that resemble old-time villages, not unlike those that dotted New England in the 19th century.

Picture clusters of homes—with small yards and front porches that encourage neighbors to socialize—surrounding a central civic park and playground. Picture proprietors establishing corner shops and businesses that blend into the area’s motif, toning down out-dated, obtrusive signs.

But the idea of villages likely extends beyond a simple housing trend; it constitutes an essential part of a changing society. If the “devolution revolution,” or “third wave,” will profoundly affect the way we live, as such futurists as Alvin Toffler believe it will, the urban village will be a part of that transformation.

Customized homes in unique districts may replace standardized suburban neighborhoods. Self-contained communities—each with grocers and dry cleaners who serve area residents—may complement the centralized shopping and strip malls on the outskirts of cities. Village-based industries or offices, quaintly mingled with the neighborhood landscape, may supplant the vast specialized industries and huge office complexes found in urban centers or suburban office parks.

The urban village may affect local politics as well. Vast, representative city governments may fade as citizens reclaim control over local policies in democratic town meetings—the kind Tocqueville praised in Democracy in America. Residents will design local solutions to local problems. They may tax themselves for police, fire, and garbage services tailored to their own needs. And then, evaluating the daily quality and value of these services, they hire and fire personnel as needed.

The Industrial Age spawned the densely packed cities of the world in which live people who delegated responsibility ever upward, to bigger government and corporate enterprise. Feeling the loss of control, people have moved out of the cities and into suburbs, where they thought they could gain greater mastery over their children’s education, physical environment, and personal safety. But the sprawling, untamed, and unplanned suburbs, increasingly plagued with the ills afflicting cities, have offered no more independence than did the cities from which the people fled.

Bottom-up rather than top-down decisions are part and parcel of a chaotic shift away from the Industrial Age and toward a new economy and social order that prizes customized answers, personalized services, and extraordinarily democratic power. Renaissance zones could be the first step, although not the only impetus, toward restructuring society. Safe streets, policed locally. Great schools, managed locally. Neighbors who watch out for you. A rediscovery—a renaissance—of American community.

Copyright © 1995

West Michigan’s Political Supremacy - June 23

June 23, 1995

West Michigan’s Political Supremacy

West Michigan is feeling its political oats. Its Republicans control key positions in Lansing when, for the first time since 1967, the GOP holds the governorship as well as majorities in both legislative chambers.

Draw a line vertically through the lower peninsula, tracking U.S. 27/69 from the Ohio border, joining U.S. 75 at Grayling, and travelling north to Mackinaw City. West of that line lives one in four Michigan residents (almost 2.4 million). So does virtually the entire political elite of state government.

From the west comes the heads of all three branches of Michigan government: the governor and lieutenant governor, the Speaker of the House, the majority leader of the Senate, and the chief justice of the supreme court. Since the legislature has just finished writing the coming year’s $27-billion state budget, let’s mention too that the chairs of the Senate and House appropriations committees also live in western Michigan.

Compare the west to the three big counties of southeast Michigan: Wayne, Oakland, and Macomb. There are almost 4 million people in the southeast, nearly double the number of westerners. The tri-counties’ representative power in Lansing resides in our new secretary of state, the minority leaders of both legislative chambers (along with chairs of two or three important committees in the House), and four members of the supreme court.

If power in state government has anything to do with how the cards are dealt geographically (and it does), western Michigan ended up with a royal flush.

What is the west doing with its power? Shaping the state budget, for one thing. Nearly every thorny issue in developing the 1995–96 state budget pitted west against southeast. Among them were Tiger Stadium, arts funding, university appropriations (Grand Valley, Western Michigan, and Michigan State versus the University of Michigan and Wayne State), and Detroit’s revenue-sharing allotment.

And there is more to setting policy than just money. While casino entrepreneurs compete to land a Detroit franchise, west Michigan’s political leaders know that they—not Detroiters—will determine whether any expansion of gambling takes place. The signature of the governor (a western Michiganian) and possibly passage of legislation (in chambers lead by other western Michiganians) will be needed for any movement on casino gaming.

Like a mistreated stepchild who just won the Lotto, west Michigan is grinning from ear to ear in the face of what it perceives as the tyrannical stepparent—the southeast. Trying to win a few political victories, Detroit-area business, civic, and political leaders grovel in door-to-door visits to the legislative offices of westerners.

To the victor belongs the spoils. Yet, for both altruistic and selfish reasons, west Michigan will be well served to wield its new-found political power carefully.

First, 3.5 million Michiganians—almost 40 percent of all state residents—live neither in the west nor in the Detroit area, and their educational, environmental, economic development, and cultural fortunes are embroiled in the clash between the titans of west and southeast. Most recognize that if Grand Rapids prospers, so will Ann Arbor, so will Saginaw, and so on. But time spent feuding with another Michiganian (be it a person or a region) diverts all of us from successfully competing in the world marketplace.

Second, no area of the state was more hospitable to setting term limits than was west Michigan, and no area faces greater threat to its power because of them. Come January 1, 2003, time runs out constitutionally for the present governor, the Senate majority leader, and the chair of the Senate Appropriations Committee; but even before then, on January 1, 1999, the current Speaker and chair of the House Appropriations Committee must pack up and leave the chamber.

How you treat people when you are at the top of the ladder generally is a pretty good predictor of how they will treat you when you are coming down. By all means, west Michigan, be proud of what you have accomplished in state politics. But be magnanimous, too.

Copyright © 1995

It's Not as Easy as It Sounds [federal deficit reduction] - June 23

June 23, 1995

It’s Not as Easy as It Sounds

Deficit reduction is the main topic in Washington this year. After President Clinton’s 1993 deficit-reduction plan was enacted, federal red ink took a back seat to the health care debate. But it’s back and likely to be the number one issue in the 1996 presidential campaign.

President Clinton took the lead in reducing the deficit during his first year in office, but now he seems uncertain where he stands—partly because he has received so little credit for his 1993 accomplishment.

Until recently, the president’s strategy on the issue had been to attack the Republicans for proposing to cut Medicare, Medicaid, and other important government programs and for supporting tax cuts for the rich. This approach apparently didn’t hold water with the public, however; he clearly has lost the initiative there. A recent Wall Street Journal/NBC poll finds that 37 percent of Americans now say Republicans would do a better job of reducing the deficit; only 16 percent pick Democrats. Shortly after the president took office, the poll showed the opposite: 39 percent picked the Democrats, and 16 percent the Republicans.

The turnabout in public opinion may explain Mr. Clinton’s recent about-face—he now proposes to balance the budget in ten years, with cuts in Medicare and Medicaid. This has enraged many Democrats, who believe their strategy of blaming the Republicans for cutting popular programs was a winner.

The Journal/NBC poll also indicates that the public clearly is unaware of what it takes to balance the federal budget. There is solid public opposition to any substantial cuts in Social Security, Medicare, and Medicaid, but large majorities also oppose eliminating the three departments targeted by the Republicans—Education, Energy, and Commerce.

After resisting deficit reduction for years because it was too difficult, Washington politicians now are guilty of making it appear too easy—all we have to do is slow the growth in spending—not touching Social Security, of course, which is 26 percent of federal spending (excluding interest on the debt). If it were that easy, it would have been done years ago. Spending rises because of inflation, higher caseloads, and the demand for more services. Even slowing growth in programs such as Medicaid and Medicare will require real cuts in benefits.

The right time to balance the federal budget is during periods of economic growth, but it nevertheless will be painful—economic growth will be dampened in the short run, state and local governments will lose billions, life will be tougher for the less affluent, and the middle class will lose benefits they have come to expect. It is time for the politicians to admit this and for the rest of us to understand that life involves choices—many of them very difficult.

Copyright © 1995

Engler for Veep? It's All in the Numbers - July 14

July 14 ,1995

Engler for Veep? It’s All in the Numbers
. . . the electoral college numbers.

Here’s a scenario that unfolds at midnight on November 5, 1996.

Bill Clinton must win at least 270 electoral votes to be reelected in 1996. He cannot accomplish that without carrying Michigan. Which is precisely why Bob Dole picked John Engler as his running mate.

A strong economy and pro choice vote puts all New England states into Clinton’s camp. Clinton sweeps the region’s 35 electoral votes. In theMid-Atlantic region, Dole wins New Jersey. Clinton counters with New York, Pennsylvania, Delaware, and the District of Columbia. Coming out of Yankee country, the electoral college vote tally favors the president:

Clinton 97
Dole 15

It’s not a pretty sight for the president in the South, where Dole’s margins are overwhelming. The Republican gobbles up 98 electoral votes. The race tightens as we head into the Border states. Dole picks off Kentucky and Missouri, Clinton carries Maryland, West Virginia, and Arkansas, but due entirely to Gore’s home-state popularity, Clinton ekes out a win in Tennessee. Adding the South and Border states to the tally, the candidates are in a virtual dead heat:

Clinton 129
Dole 132

Word arrives that the Plains and Northern Rocky Mountain states solidly line up for Dole, giving him another 51 electoral votes. Dole carries that momentum into the Southwest, where Texas, Oklahoma, New Mexico, and Arizona deliver an additional 53 votes to the GOP:

Clinton 129
Dole 236

Dole is close to hitting the magic number of 270, but among the Pacific Coast states carries only Alaska. Clinton wins Hawaii, Washington, and Oregon and clinches California by a margin smaller than would have been the number of job losses if McLellan Air Force Base had been closed. Clinton’s 76 votes from the region narrow the gap:

Clinton 205
Dole 239

Everything hinges now on the Great Lakes states. Clinton takes Minnesota (10 votes), but Dole takes Indiana (12 votes) and Wisconsin (11 votes). Down to three states, with results still too close to call, the nation holds its breath:

Clinton 215
Dole 262

We are at the cul-de-sac of the 1996 presidential campaign. Clinton clings to one hope. To hold the White House, he must carry all three states that remain unclaimed: Ohio (21 votes), Illinois (22), and Michigan (18).

It is 12:45 a.m. on Wednesday, November 6. From his hotel room, Senator Dole calls his running mate.

Can we measure for new curtains at the White House, John?

No problem, Mr. President-elect, responds Michigan’s Governor John Engler.

The final tally:

Clinton-Gore 258
Dole-Engler 280

Copyright © 1995

Alternatives to Taxing the Income of Poor Families - September 18

September 8, 1995

Alternatives to Taxing the Income of Poor Families

A recent issue of State Tax Notes carried an article entitled “State Income Tax Burdens on Low-Income Families and Opportunities for Relief.”1The authors examine the extent to which state income taxes are levied on poor families, and they conclude that eliminating such levies can boost the incentive to work and prevent these families from being driven into even deeper poverty. The shoe fits, and Michigan should wear it.

Excessive Burden

Although the federal income tax liability for poor families was eliminated in 1986, many states still impose the tax on those below the poverty line. Doing so precludes two potential benefits of taxing income—the ability to offset regressive taxes elsewhere in the system and the potential to stimulate people to work. This occurs because the taxation threshold—the income level at which families begin to owe taxes—is below the poverty line (the exemptions, deductions, and credits a state allows determine its threshold). A majority of the forty-one states that levy an income tax have a threshold that is below the poverty line for families. In Michigan the threshold for a single-parent family of three is $6,300 (in other states it ranges from $3,000 to $22,600).

To illustrate, in 1994 a Michigan two-parent family of four with poverty-level income of $15,141 owed the state $301. (In other states the range was a $499 tax bill to a $449 refund.) A single-parent family of three in which the taxpayer earned the minimum wage owed $114 on an income of $8,840, ranking Michigan 34th among the 41 income-tax states. (In other states the range was $269 to a refund of $499.) The tax is a real hardship in both cases, and, in fact, both families probably would do better on welfare. Reducing the tax liability or even providing a refundable tax credit (discussed below) would provide an incentive to work.

Fixing Low Thresholds

There are several strategies available to states to boost the income tax threshold, and they often are used in combination. Principal among them are allowing personal and dependent exemptions, increasing the standard deduction, and setting no-tax floors (earning levels below which no tax is paid). All leave more income in the hands of the poor. Michigan employs one of these strategies, the personal/dependent exemption of $2,400 per person.

The recent Republican proposal (Bullard-Perricone) to raise the state tax threshold to $6,000 for an individual and $12,000 for a married couple is a step in the right direction, but it is not enough.

A promising approach is to allow an earned-income credit, as is done by seven states and the federal government. Such a credit allows poor families to keep a fixed amount of the tax that they normally would owe on their earnings. If it works out that a family’s earned income credit exceeds its tax liability, some states and the federal government give the family the difference, in effect supplementing its income.

Conclusion

Although no state will admit to embracing a tax policy that contributes to keeping families poor, this is exactly the effect of some state tax systems—including Michigan’s. This is one of the states that impose a heavy tax burden on those who can least afford it. Common sense suggests that Michigan’s state’s tax threshold must be raised and an earned income tax credit enacted; these steps will reduce poverty and make work pay, and these results are both vital to the state’s prosperity.

1Cohen, Carol E. and Richard B. May, “State Income Tax Burdens on Low-Income FAmilies and Opportunities for Relief,” State Tax Notes, August 21, 1995.

Copyright © 1995

If It’s Vice President Engler, Who Leads Michigan? - September 29

September 29, 1995

If It’s Vice President Engler, Who Leads Michigan?

by Christine Fedewa, Vice President for Operations & Senior Consultant for Public Policy

At last weekend’s Republican Leadership Conference on Mackinac Island, there was much speculation about Gov. John Engler being on the short list for the vice presidential nomination in 1996. What happens in Michigan if he pursues national office?

If the governor is tapped for the second spot on the national GOP ticket, he will be expected to campaign nearly full time around the country. The Michigan Constitution says that when the governor is absent from the state, the person next in line of succession shall assume the powers and duties of the office. First in the prescribed line of succession is the lieutenant governor, followed by the secretary of state, and then the attorney general. Thus, in the governor’s absence, Lt. Gov. Connie Binsfeld assumes the governor’s duties. (Earlier this year she underwent heart bypass surgery but is fully recovered and considered to be in excellent health.)

If the GOP wins the White House in November 1996, and Engler is on the ticket, he will resign as governor with two years left in his term. According to the state constitution, the mantle of top state leadership passes to the lieutenant governor for the remainder of the term, through 1998. If she declines, the mantle moves to Secretary of State Candice Miller. Would Miller be interested? Being a long-time Republican party faithful, not to mention an astute and ambitious politician, one can hardly imagine her saying no and thereby letting a Democrat, Attorney General Frank Kelley, take control. Under either scenario, Michigan has its first female governor.

And what of the lieutenant governor’s seat if Binsfeld steps up or aside? It will be vacant, and the constitution makes no provision for a successor. A proposed amendment to establish a procedure to fill a vacancy in the office was rejected by voters in 1980. Thus, Michiganians will be without a lieutenant governor until January 1999, and when Governor Binsfeld is absent from the state, Secretary Miller will assume all gubernatorial duties. (The lieutenant governor’s other chief responsibility, presiding over the state Senate, will be assumed by the chamber’s president pro tempore.)

Barring some unforeseen circumstance, if John Engler is part of a successful presidential ticket, Connie Binsfeld will be the next Michigan governor. Her skills in policy, communication, politics, and administration are commendable. She would become Michigan’s first female governor, capping a long and distinguished career in public life.

Conclusion

Although no state will admit embracing a tax policy that contributes to keeping families poor, this is exactly the effect of some tax systems—including Michigan’s. This is one of the states that impose a heavy tax burden on those who can least afford it. Common sense suggests that Michigan’s state’s tax threshold must be raised and an earned income tax credit enacted; these steps will reduce poverty and make work pay, and these results are both vital to the state’s poverty.

Copyright © 1995

Making Tax Decisions in a Vacuum - October 6

October 6, 1995

Making Tax Decisions in a Vacuum

by Robert J. Kleine, Vice President and Senior Economist

Last week the House Fiscal Agency (HFA) prepared an analysis, under a number of different scenarios, of the potential effect on the budget of several tax cuts currently being discussed by the legislature. This analysis has been assailed by several legislators who argue that the HFA projections do not take into account the economic activity generated by tax cuts and also that such projections are always wrong. According to Rep. Kirk Profit (D-Ypsilanti), economic forecasts are worth no more than weather forecasts.

It appears that Representative Profit would like to make tax policy without the benefit of information about the potential effect of the tax changes. It is irresponsible to enact changes without developing some estimates, or projections under likely scenarios, of the effect on the budget, the taxpayer, and the economy. Of course, such estimates and projections (and there is a difference), may be wrong, but a careful analysis of projections made by the fiscal agencies over the last 25 years will show a considerable degree of accuracy.

The assertion that the projections should be “dynamic” rather than “static,” to account for the effect of tax cuts on the economy, also is being made by many Republicans at the national level . The dynamic approach has not even been accepted by the Congressional Budget Office, the director of which was recently appointed by the Republican-controlled Congress. There is even less reason to accept this type of analysis at the state level, as almost all states are required to have balanced budgets. Cuts in state taxes almost always result in offsetting expenditure reductions, resulting in no new infusion of money into the economy. At the federal level increased economic activity can be produced by deficit spending.

If one assumes that state tax cuts do result in increased economic activity, and I believe that this does occur in certain situations, it never can be sufficient to pay for the tax cuts. For example, the Department of Treasury estimates that the proposed change in the single business tax apportionment formula will cost about $290 million annually after it is fully implemented in five years. To pay for itself, this tax cut would have to generate about a $3 billion increase in the state tax base. Based on the average income per wage and salary job (1994 data), this would require the creation of about 100,000 new jobs. The entire Michigan economy has produced that many jobs only three times since 1980. A more reasonable expectation is about 5,000 jobs ($290 million represents only .13 percent of Michigan personal income), which would produce about $15 million in tax revenue, reducing the cost of the tax cut to $275 million.

State tax cuts do not come close to paying for themselves. The reason state revenues have been increasing and exceeding estimates, even after tax rates and bases have been cut, is that the economy has been stronger than expected, largely due to the strength of the automobile industry. There are clear signs that the economy is slowing down; at some point there will be another recession. At that time revenues could even decline, as happened in FY 1990–91, and then any tax cuts will appear to cost more than estimated. Rep. Don Gilmer (R-Augusta) is correct: Caution is in order, or the hard-earned fiscal gains of the last four years will be squandered.

Copyright © 1995

Health Maintenance Organizations: Neither Evil Nor Panacea - October 13

October 13, 1995

Health Maintenance Organizations: 
Neither Evil Nor Panacea

by Peter Pratt, Ph.D., Vice President & Senior Consultant for Health Policy

Now that the O.J. Simpson trial has concluded, Americans will need a new controversy to occupy their voluminous free time. Facing 60 Minutes’accusations of murder and neglect, HMOs have been cast into the breach. Sure, there is no football hero on which to focus our sights, but 60 Minutes (which follows pro football, O.J.’s earlier medium, on Sunday nights) has come down squarely against HMOs.

60 Minutes presented the HMO industry as a for-profit monolith, unconcerned about patient care. This is a vast oversimplification, evidence of the sorry state of what passes for debate on major public policy in America. The more that people talk about an issue, the more superficial their positions become. The opposite should take place. A prominent Michigan policy maker once said to me, “Managed care is bad, isn’t it?” Yes and no answers do not suffice in complex health policy issues.

The irony of this surge in bad publicity is that, in the Republican Congress and the Democratic White House, few doubt that HMOs are an integral part of addressing the insistently rising cost of health care. Last year the Republicans lambasted the Clinton Plan for its reliance on managed care to hold down costs; this year, Newt Gingrich is managed care’s champion. In fact, Washington’s determination to present managed care as a panacea, trumpeting its benefits without facing its liabilities, contributes as much to the absence of sound debate as 60 Minutes.

At the risk of stating the obvious, HMOs in general are not good or bad. They have gained momentum because of the pressure to cut costs, which has two potentially opposite effects: on the one hand, it can sometimes create financial incentives for doctors and other health care providers to deliver less care than is necessary for the well-being of a patient. On the other hand, cost-cutting can force groups of providers to rethink the way that they deliver health care, perhaps by focusing more on keeping people healthy, which most people agree is better than the old way of waiting for people to get sick and then treating them. Some care up front can prevent the need for much more care later on.

How can you tell if an HMO is more committed to the latter than the former? How can you tell now if your family doctor is good? The answer to both questions is the same: You can’t. Long-standing personal relationships, and the comfort they breed, count for much between a family and a doctor. But the truth is that most people have no other way of evaluating whether the care they receive is appropriate and of good quality.

Accountability is the key to the future of our health care system. If patients (now also known as consumers) and purchasers (the businesses that pay for most private insurance) have good information to make decisions about the health care providers they see, higher quality care will be rewarded, regardless of whether it is provided by an HMO or not. HMOs and providers that cut corners to keep down costs will lose ground to those who can deliver health care in which cost control and quality go hand in hand.

Copyright © 1995

Taxes and Economic Growth - October 13

October 13, 1995

Taxes and Economic Growth

by Robert J.Kleine, Vice President & Senior Economist

A recent study by Regional Financial Associates attempted to identify the factors responsible for state economic growth. The study covered the 1984-1993 period and used regression analysis to test the effect of a large number of variables on growth in state employment.

The statistically significant factors and the percentage of variation they contributed in the ten largest states were: other or unexplained variation (21.8%), growth in retirement–age population (19.4%), energy costs (18.3%), labor costs (15.3%), oil and gas dependency (10.4%), industry mix (8%), and tax burdens (6.8%). The growth differentials (from the U.S. average and the variations for 14 states including Michigan) are shown in Exhibit 1.

In the period under study, Michigan employment growth was 0.7 percentage points higher than the U.S. average. The major factors holding back growth were labor costs (-3.5%) and energy costs (-2.2%). The major factor contributing to economic growth was other or unexplained (8%). This may reflect the recovery from the deep recession of the early 1990s and the boom in the auto industry in the 1991–1993 period resulting from pent-up demand and the increased market share captured by domestic producers, factors not measured in the study. A portion of this recovery effect may have been captured by the industry mix factor, which contributed 0.9 percentage points to Michigan’s relative employment growth. The tax burden was a small negative factor (-1.0%).

These data, if the results are to be believed, have several policy implications. First, a key contributor to economic growth in many states is the retired population, which was a small negative for Michigan. In 1993 the state eliminated the inheritance tax in an effort to make Michigan a more attractive location for retirees. However, if you look at the states that benefit from retirees, California, Florida, Nevada, North Carolina, Texas, and Utah, you might conclude that sunshine is more important than taxes. Second, the study confirms our long-held view that labor costs are clearly the major negative for economic growth in Michigan. Labor costs tend to adjust over time as has been happening in Michigan recently, to the state’s benefit, at least in employment if not in per capita income. The state has a limited ability to affect labor costs, but can reduce costs by reforming unemployment compensation and workers’ compensation, which has been done in recent years. The recent legislation to remove these factors from the base of the single business tax will have a very minimal effect on labor costs. Third, energy costs have been a significant negative for economic growth in Michigan. State regulators can have an influence here without affecting state and local budgets. However, this is a highly charged issue politically as higher commercial rates often subsidize lower residential rates. Fourth, the tax burden appears to have a small negative effect on economic growth, but it is much more a factor in states with well-above-average tax burdens. The total Michigan tax burden is about at the national average, and the business tax burden is slightly above the national average according to a recent study by Peat Marwick (Michigan’s effective business tax rate is 9.74% of investment, lower than Ohio and Indiana).

Although we do not believe it has had much effect on the economy, we find little fault with the size of the Engler Administration’s tax cuts in recent years, as the cuts have largely been financed out of strong revenue growth. However, we are more critical from a tax policy standpoint. We do not believe the SBT cuts for small business, the elimination of the inheritance and intangibles taxes, the increase in personal income taxes (although it improves the equity of the tax), nor the tax cuts offered by the Michigan Economic Growth Authority (MEGA) have much to do with economic growth. The best approach is to simplify the tax system, reduce overall tax rates (when it does not result in a reduction in critical public services), reduce the property tax on machinery and equipment, and provide increased incentives for firms located in Michigan to expand in Michigan, such as low-interest loans and expanded-investment credits. Gimmicks such as the proposal to change the SBT apportionment formula to a 100 percent sales factor are unfair, possibly illegal, and could backfire by encouraging retaliation from other states. The most positive tax change in recent years was the substitution of the sales tax for school property taxes, as high property taxes were a major negative for Michigan, and the higher sales tax is hardly noticed by most individual and business taxpayers.

The Michigan economy has made great strides in recent years, although we are still vulnerable to economic downturns, and many of the recent tax changes have made the state revenue system more unstable. Future tax changes need to be evaluated more closely in terms of their contribution to economic growth, simplicity, fairness and stability.

Copyright © 1995

A Look into the 21st Century: What Kind of Jobs Will There Be? - October 20

October 20, 1995

A Look into the 21st Century: 
What Kind of Jobs Will There Be?

by Tim Vogus, Research Assistant

During the past decade the structure of the U.S. economy has changed substantially. Gone are the days of economic hegemony fueled by a dominant manufacturing sector. Today the pressing question is how workers will cope with this structural transformation as we approach the 21st century.

Peter Passell in his September 3 New York Times article “Job Advice for 2005: Don’t Be a Farmer, Play One on TV,” takes a look at the recently released Federal Bureau of Labor Statistics (BLS) study outlining job trends for the next ten years. Specifically, the BLS forecasts, to the year 2005, the 25 fastest-growing and 25 fastest-declining jobs (assuming moderate economic growth).

According to the BLS model, the economic losers of the past decade—unskilled workers—will continue to suffer into the next millennium. Several factors make these workers increasingly expendable. In the manufacturing sector, productivity continues to outpace product demand, and high value-added industries (e.g., apparel, shoes) remain vulnerable to imports and lower-wage labor abroad. Other occupations populated by low-skill workers will be decimated by cost cutting and by efficiency-maximizing machinery. Telecommunications and office employees (e.g., switchboard operators, word processors, data processors) are particularly at risk, because their services easily can be automated or distributed among other employees.

Although news will remain grim in the manufacturing sector, several service sectors, including health and human services and computer services (provided by engineers, scientists, and systems analysts) will prosper, because they will be meeting the needs of the changing composition of the population. For example, with the aging of the U.S. population, the next decade will see explosive growth in the health and human services industries. In the medical sector, however, to contain escalating costs, physicians’ and dentists’ services increasingly will be out-sourced—to a host of home-care aides, physical therapists, medical assistants, medical secretaries, registered nurses, and dental hygienists. Therefore, jobs in this sector, although expanding, will predominantly be lower wage than in the past.

In the face of such an ominous future, can at-risk workers be saved? The answer is yes—if business and government will cooperatively formulate a plan to provide workers with basic quantitative, computer, and analytical skills. Such training will give threatened workers the key to a workplace that requires technical aptitude and adaptability, rejuvenating their employability. Without it, economic hardship unfortunately will continue to be their lot.

Copyright © 1995

If Tobacco Killed Kids More Quickly . . . - November 3

November 3, 1995

If Tobacco Killed Kids More Quickly . . .

by Martin Ackley, Consultant for Health Policy

It takes too long for teenagers to kill themselves. That’s the problem.

If teenagers could die in one night from tobacco poisoning, as they can from too much alcohol, or if when they light up a cigarette and get behind the wheel of dad’s Oldsmobile, they become a lethal threat to themselves and everyone else on the road, then we’d have something.

There would be such a public outcry that the Michigan Legislature wouldn’t have time to lunch and schmooze with Joe Camel. Michigan finally would get a law that really prevents minors from smoking.

But the problem lies in the fact that there is no imminent danger from teenagers smoking or chewing tobacco. It takes decades for young smokers to develop cancer, emphysema, or heart disease. By then they are adults, deemed responsible for their own actions, and thus are off limits to a legislature wanting less government intrusion into people’s private lives.

Michigan currently has a law prohibiting the sale of tobacco products to minors. The penalty for breaking it is a criminal misdemeanor, which seems harsh enough—but it isn’t enforced. Except for a few counties actively committed to the cause, there is virtually no interest in enforcing this law. Again, the legislature doesn’t see minors using tobacco as a public threat big enough to take seriously.

With law enforcement resources stretched thin and no additional funding coming from Lansing to bird-dog tobacco retailers, it’s no surprise this issue is at the bottom of law enforcement’s priority list. Neither have the courts shown much interest in convicting a store owner of a criminal offense for selling a pack of cigarettes to a teenager.

If legislators truly were concerned for teenagers’ health, they would pass a law that would make a difference. If it wished, the state could give local health departments the authority and funding to enforce the law and, as an incentive, a percentage of the fines levied and collected. Initial enforcement funding could come from the new tobacco tax increase.

For such a law to be effective there must a hammer big enough to get the attention of the retailers. Licensure is the biggest hammer there is: Without a license to sell cigarettes, stores couldn’t make money. It has worked with liquor—bar and party-store owners panic at the thought of losing their liquor license if they sell liquor to minors. It can work with tobacco, too.

House Bill 5200, introduced by Rep. Michael Nye, takes a step in that direction. It does not establish a licensure system, but it penalizes retailers that sell tobacco products to minors, by forcing them to take the products off their shelves and prohibiting them from tobacco sales for one to six months.

It is obvious that the elementary principle at work here is money, not health. A study published in the February 1994 issue of the American Journal of Public Health estimates that there were 111,568 Michigan children aged 12–18 who smoke cigarettes. A great number of teen males use smokeless tobacco. And what do we see a special legislative task force studying? the smuggling of cigarettes into Michigan. Cha-ching!

Copyright © 1995

Low-Level Radioactive Waste Disposal - November 10

November 10, 1995

Low-Level Radioactive Waste Disposal

by Michele VanAllen

This past summer, the Board of Governors of the Low-Level Radioactive Waste Institute publicly debated the issue of low-level radioactive waste (LLRW) disposal in Michigan. At its last meeting, the board issued a report that advocates for a process whereby municipalities could volunteer a site within their boundaries that is suitable for hosting a waste isolation facility in return for compensation from the state. This process for the first time gives local communities the ability to control decisions surrounding the siting of a waste facility.

Low-level radioactive waste is a by-product of nuclear power generation, university and government research, industrial production, and medical care. It has a longevity of anywhere between one hour and one thousand years. Unlike some types of hazardous waste, LLRW cannot be destroyed. Appropriate management involves long-term storage and containment in a modern, technically superior disposal facility.

Environmental activists and local citizen groups believe that, if such a facility is built in Michigan, its presence will only encourage the continued use of nuclear power as an energy source and will endanger public health and safety as an additional radioactive threat. However, other groups believe that LLRW is a benign substance in controlled circumstances and that permanent storage is needed.

Despite its potential threat or lack thereof, almost everyone agrees that LLRW disposal is a critical problem because such waste is sitting in 50 temporary storage sites across the state and only one commercial disposal facility in the nation is open (for an unknown time period) to Michigan waste generators.

One solution to this dilemma is for the State of Michigan to build a facility guided by the volunteer host process. Michigan waste generators would then have a permanent place for their waste and likely would be required to dispose of it at the facility. The size of the facility would be based on the total projected volume of waste that would be shipped to the facility over the next fifty years; to cover the cost of the facility, operators could charge customers disposal fees that are linked to the customers’ volume of waste.

As these real costs are passed down to the direct and indirect consumers of radioactive materials, the true cost of using radioactive material would be realized and limits on its use established. Waste generators will get the facility they need, and activists will be reassured that the volume of materials going to the facility will never go beyond a fixed amount.

Copyright © 1995

An Easier Way to Roll Up Your Sleeves - December 15

December 15, 1995

An Easier Way to Roll Up Your Sleeves

by Christa A. Rosenberg, Senior Consultant for Health Policy

We all depend on volunteers—either directly, when they provide services to us personally, or indirectly, when they provide services to others. As government continues to reduce funding for social programs, our cities and neighborhoods increasingly will depend on the “generosity of strangers” to help meet the needs of those who cannot meet their own.

More than half the U.S. adult population volunteers. In 1993, 48 percent of adults aged 25–44 reported having volunteered at least once during the preceding year; of adults aged 35–44, 55 percent had volunteered. (Although there is not a figure at hand for the 55+ age group, I believe I am safe in assuming that their percentage is even higher.) They donate millions of hours to various causes: homeless shelters, crisis hotlines, food pantries and soup kitchens, hospitals, schools, literacy programs, children’s mentor programs—the list goes on and on. Corporate America also contributes to volunteerism: Companies fund nonprofit causes, and they allow employees to use company time and resources in direct volunteerism and in serving on committees and boards of nonprofit organizations.

Where will more volunteers come from? And can they handle more needs—needs that are becoming increasingly complex and whose root causes are not easily understood or resolved? Will the traditional sources of volunteers be able to handle the additional demands?

Just as in most other aspects of modern society, innovation is going to be needed. One resourceful approach to volunteerism began in New York City in 1986. Currently known by its national umbrella organization name, “City Cares of America,” the program is noted for its flexibility and noncommitment to particular projects. Rather than recruiting volunteers for specific projects and obtaining commitments from already busy people, the program is a clearinghouse, linking potential volunteers to projects around a city. Volunteers are not committed to a certain number of hours or any particular projects; they simply are informed, by way of monthly newsletters, about upcoming activities in need of people who will help out. People work when and where they wish, and the projects in need welcome them.

The program’s success lies in its large number of volunteers and its “guiltless” approach to recruiting and retaining them. Nationally, more than 75,000 people are members, and the model has been replicated in 26 cities. The Atlanta chapter boasts a mailing list of 11,000 volunteers, while the New York chapter has a mailing list of 13,000. Even in the smallest “Cares” city—Greenville, South Carolina—400 volunteers have enrolled, and membership is growing 10 percent monthly.

ertainly, all community nonprofit programs need some committed people who will provide ongoing, regular assistance. But if they are to meet increasing demands during this time of decreased government funding, they are going to have to look toward nontraditional ways to get volunteers. The Cares program shows such a way.

Background for this Periscope came from the November 24, 1995, New York Times.

Copyright © 1995

Binary Politics - December 22

December 22, 1995

Binary Politics

by Craig Ruff, President, Public Sector Consultants, Inc.

A National Public Radio commentator coined the term binary politics to describe America’s two-party political system. Two choices in the voting booth or between federal deficit reduction and spending plans do not cut it in a society thirsting for customized choices and answers.

Flooded with a cornucopia of choices in every marketplace except politics, America’s consumers typically face a restricted choice of only 0 or 1—Democrat or Republican—on election days. Maybe that is why political participation itself is binary: Half of eligible citizens don’t bother to vote. Among voters, only about half call themselves Democrats or Republicans.

As civilization advances, it delivers ever-expanding choices, ranges, and customized goods and services in all things except the commodity of politics. James Madison and other engineers of American governance feared and sought to constrain the selfishness of self-interested Americans. They could hardly have imagined the Balkanization of consumer interests and appetites today. By restraining political choice, our system now leaves little but disappointment. Our political system’s fear of the tyranny of minority interests starves the entire public.

Picture the frustration of a car shopper with a choice only between a Model T or a Chevy. You have a sense of why, in part, Americans do not traffic political showrooms—polling places. When they do, they leave disappointed.

Americans have lost interest in politics in part because of restricted choice. The model of two political parties contesting one post, to the victor the spoils, rarely satisfied the white, property-owning men who lived off the soil in the 1800s; it is fanciful to think that the two-party system satisfies the thirst for customization in today’s diverse society and electorate.

You don’t find many people popping champagne at the thought of choosing between Bill Clinton or Bob Dole eleven months from now. Given such a restricted choice, the media and the public savored the entry of Colin Powell, Bill Bradley, Ross Perot, Jesse Jackson, and Ralph Nader.

Americans should take a careful look at the multiple party and proportional representation systems of democracies around the world. Let us consider more extensive gerrymandering of legislative districts around communities of interest. How about allowing both the winning and losing candidates to be seated in a legislature, with their shares of a legislative vote equal to their share of popular vote? The winner-takes-all electoral system works for the successful politician, not the public. Neither a conservative living in John Conyer’s U.S. House district nor a liberal living in Dick Chrysler’s district contributes more than a peep to public policy making, for example, the debate over the national budget.

In the end, a budget settlement between President Clinton and the U.S. Congress will arise out of a compromise between binary partisan fears rather than among the public’s disparate interests. As Washington editor Michael Kelly writes in the December 4 New Yorker:

The two primal fears in American politics are: (1) that Democrats will perpetually increase taxes to the point where they drive the nation and you into penury because they cannot stop spending money on utopian dreams and vote-buying schemes; and (2) that Republicans will happily sacrifice your health, education, and welfare in order to enrich themselves and the other fellas down at the country club.

Polarized policy choices like the Clinton or Congressional budget plans would be fine if all Americans sat at one end or the other of a continuum of needs and interests, defined by politicians in partisan terms. Polarizing politicians, as conservative strategist William Kristol says, boil the policy equation down to “whether bankrupting our children trumps throwing Grandma out in the street.” Most families enwrap grandparents and children and should resent the binary budget choice thrust at them.

America is a land of bounty and diversity. We are a people who deserve expanded political and policy choices. The tchotchkas of American politics—our way or hell rhetoric, overnight polls, and reelection strategies—grossly underestimate the complexity of our society, our abundant choices, and thirst for answers customized to each family’s needs.

Binary politics and binary policy choices don’t cut it anymore.

Copyright © 1995

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