For a Richer State, Add Investments Into Budget

February 26, 2011

Gov. Rick Snyder’s budget seeks to find the bottom of Michigan’s fiscal freefall by creating a simpler, fairer tax system, forcing action on long-standing legacy cost structures, and signaling that Michigan has a good business climate. He also proposes to tax retirement income like other income, rightly noting that a robust Michigan economy is more about making sure our children and grandchildren have a state in which they want to live, work and make their entrepreneurial careers than whether Michigan is a Cayman Island for retirees.

Yes, there is much to admire in Gov. Snyder’s budget. But a good business climate and low taxes do not necessarily a richer state make.

Evidence is overwhelming that the richest states, with growing per capita income, are the ones that are the best educated. Eight of the 10 highest per capita income states have the highest education attainment rates.

Michigan is not one of these states, ranking 37th in per capita income and 34th in education attainment. On balance, “winning states” also invest more in education, infrastructure, research and development, cities and their natural assets.

Austin, Texas, is today the nation’s best-performing metro economy. Why? Texas has poured billions of its oil money into making the University of Texas a world-class institution — with all the “spillovers” for new firms, and creating a dynamic, creative community vibe that attracts yet more talented people.

Look, too, at North Carolina and its Research Triangle. Public-private partnerships and shared investment in education and higher education brought North Carolina into the front ranks of new economy states.

Ditto Pittsburgh, where, like Detroit, a dominant industry, steel, was a middle class job generator. It tanked in the ’70s and ’80s. Incomes in Pittsburgh plummeted. Thousands, young and old, fled the region.

Today, Pittsburgh’s incomes are soaring, and young people are returning. Why? They built out Carnegie-Mellon and the University of Pittsburgh with new medical, life sciences, clean energy and IT firms, and spruced up their special “river city” location.

Michigan has similar assets: World-leading universities. Historic cities and towns. A beautiful outdoors, water and the Great Lakes. And great, hard-working people.

These assets ultimately matter more to job creation than business climate.

What have we been doing to these assets in Michigan? In recent years, Michigan is last among the states in its support for higher education, pricing these great schools out of reach of working-class Michiganders. We’ve cut support for roads, bridges and infrastructure. Revenue sharing to cities and towns has been slashed. Capital expenditure on Michigan parks has plummeted.

The governor’s 2012 budget proposal, while hinting at better things to come, continues these trends.

Low taxes alone do not make states prosper. Even before the governor’s proposed changes take effect, the Tax Foundation 2011 Business Climate index rated Michigan 17th in the country in business climate. Minnesota — the most prosperous Great Lakes state, with more job creation and higher incomes than Michigan — is 43rd in the same ranking.

Reliable studies suggest that investments in early childhood education yield $2 in long-term economic impact for every dollar invested. Ditto for expenditurers on transportation infrastructure and Great Lakes cleanup. Every dollar dedicated to getting a higher education degree versus a high school diploma nearly doubles lifetime earnings — and taxpaying.

How do we pay for these investments? Notably lacking from the governor’s “fairer, more efficient tax system” is taxing the law firms, the doctor’s partnerships, the insurance agencies and the consultants that constitute the bulk of today’s knowledge services economy. Shouldn’t they contribute, too?

We need a good business climate, for sure. We also need, even more, investment in the things that make Michigan’s economy grow.