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Archive | Viewpoint

Gas tax and fee discussion worth having

By Michael D. LaFaive, Mackinac Center for Public Policy

Michigan’s roads must be addressed, but the state government must first properly raise the funds.
Gov. Rick Snyder has proposed increased spending on Michigan roads, which is surely a discussion worth having. The Mackinac Center has long said the state should place a higher priority on roads and has authored two lengthy studies on the subject, in 1995 and 2007, respectively. But the question of how to go about raising the needed revenue to fund $1.2 billion in additional road spending needs to be answered.
It is wise to tie additional road funding to something akin to a true road user fee, but the hikes should be offset with dollar-for-dollar cuts to other financial burdens on taxpayers, such as state personal income taxes.
Last year, Gov. Snyder floated the idea of a tax on the wholesale price of gasoline and a major hike—67 percent increase by one accounting—in auto registration fees. These ideas remain on the table in 2013.
Two points about these proposed tax and fee increases must be stated up front.
First, gas taxes and car registration fees are very close to a true user fee and much better than funding road improvements through, say, a general sales tax hike. A user fee attempts to more closely tie the cost of a government service to those who most enjoy its benefits. Other related options, such as toll roads or some odometer-based user fees, have great merit, but probably not in the short-run. Michigan needs more and better infrastructure investment and making this policy a priority is a sound decision.
Second, a net tax and fee increase simply isn’t necessary. It is wise to tie additional road funding to something akin to a true road user fee, but the hikes should be offset with dollar-for-dollar cuts to other financial burdens on taxpayers, such as state personal income taxes. Ideally, the net result of such tax changes will be a cut in the burden, not merely a shift. Gov. Snyder has a record of such dramatic tax changes. It does not strain credulity to suggest that he could do so again.
Revenue losses from offsetting a personal income tax cut would require reducing government spending, but as the Center has pointed out time and again, the money is there to be had if only lawmakers are willing to make the cuts happen.
Let us start with one simple idea: Eliminate Michigan’s department of corporate welfare and crony capitalism, otherwise known as the Michigan Economic Development Corp.
The state could save a conservative $118 million by reducing MEDC expenditures and redirecting 21st Century Jobs money and Indian Gaming revenues to personal income tax relief (though this money will run out in 2015). The great irony in this is that investing these savings in state roads and bridges might actually produce a positive return on investment.
This is just one idea and it gets us almost 10 percent of the way to the $1.2 billion in road repair dollars Gov. Snyder is seeking. The fact is the Mackinac Center has made hundreds of suggestions over the years for saving (and in some cases, generating) billions of dollars in savings.
The Center has authored three formal budget studies, the last of which recommended more than 200 ideas for saving $2 billion without reducing the School Aid Fund. Since the last was published we have suggested even more ideas, big and small, controversial and not.
Two ideas for saving money listed in our 2007 transportation study include repealing the state prevailing wage law and competitive contracting for road maintenance. Prevailing wage laws artificially raise the cost of government construction projects. One conservative estimate published by the Center in 2007 was that the repeal of this law in 2002 could have saved Michigan taxpayers some $107 million in public construction costs that are not related to schools. Savings like that are worth chasing.
Michigan’s infrastructure system needs repair. We have been saying that in print for almost two decades. Tying the repairs, however, to a net tax increase is unnecessary. The best alternative is to offset hikes a fuel tax with spending and tax cuts elsewhere.
Michael D. LaFaive is the director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.

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The Good, Bad and Ugly of Gov. Snyder’s First Budget

By Michael D. LaFaive | Mackinac Center for Public Policy

Gov. Rick Snyder’s first budget fell short of the “atomic bomb” promised by Lt. Gov. Brian Calley, in part due to the fact that a megaton of further spending and tax cuts were left on the table. Overall, however, the budget moves the state in a positive direction with greater tax simplicity, more transparency, less corporate welfare and fewer discriminatory tax policies.

This comparison shows the inequity between public-sector and private-sector employees for overall compensation.

Among the lost opportunities is the fact that the net effect is a tax shift, not a tax cut. Yet as Mackinac Center analysts have shown, by bringing government employee benefits in line with private-sector averages, $5.7 billion in savings could be made available for real tax cuts without reducing programs or laying off employees.

That said, there’s plenty of good news here: Gov. Snyder intends to scrap the complicated and hated Michigan Business Tax and surcharge, replacing it with a simpler corporate flat tax of 6 percent. The Washington, D.C.-based Tax Foundation estimates this will move Michigan from 48th place in its business tax rankings to 22nd, even without a net tax cut.

Also positive is Gov. Snyder’s intention to eliminate the Michigan Economic Growth Authority and other discriminatory tax breaks. Given that the governor was once the vice chair of the Michigan Economic Development Corp., which presides over the state’s current corporate welfare regime, this has a certain “Nixon goes go to China” aspect. It’s not quite the “fair field and no favors” recommended by Mackinac Center scholars, because special treatment for certain firms won’t be eliminated entirely, but the process will henceforth be done through straightforward legislative appropriations, bringing a huge leap in transparency.

And there are real cuts in this budget, including revenue sharing haircuts of up to $300 million, trimming school grants by $300 per pupil from current year levels, and $280 million from higher education spending. However, there are devilish details that may partially undercut potential savings—schools, universities and local governments may be able to reclaim some of those dollars by agreeing to reforms in their own governance, for example.

The most unfortunate part of the budget is the proposal to raise taxes on pensions. While the tax fairness and simplicity arguments are not invalid, it’s still a very large tax hike, and one that’s totally unnecessary — those $5.7 billion in potential government employee fringe benefit savings would save several times the estimated $700 million in new revenue from this tax. It’s worth noting that such a hike could be far more tolerable if the offsetting personal income tax cut was deeper. Currently, the personal income tax is scheduled to drop in Fiscal 2012 by one-tenth of 1 percent. In revenue terms, that’s about $161.8 million. A proper tradeoff for the pension tax hike would be an income tax cut of at least $700 million.

It’s worth mentioning, too, that the pension tax revenue projections may assume that taxpayers are just sheep who will stick around to be sheared, but many won’t. In effect, the move charges a retiree with a $40,000 annual pension about $1,700 a year for choosing to remain in Michigan rather than move to sunny, income tax-free Florida.

In his essay “How to Save $2.2 Billion,” my colleague Jack McHugh points out that just requiring school employees to pay 25 percent of their own health insurance premiums could save $650 million annually. Other ideas abound too. The state could devolve state police road patrols to county sheriffs and save $65 million. Mackinac Center analysts have published literally hundreds of ideas for saving more than $2 billion from the state budget since 2003, and many of the ideas have not yet been adopted or adapted by the state.

The governor also let slip an opportunity to call for even bolder reforms in government employee relations, such as those recently seen in states such as Wisconsin and Ohio. That may come in the future, but meanwhile, there’s much to like in this budget and tax proposal. In effect, it represents a huge change from an opaque and dishonest tax-and-spend system to one that’s transparent and forthright.

Michael LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.

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Health care

Take a closer look at issues with

Canadian health care

By Janet Neilson

By now, Americans are familiar with the stories of Canadians who would have died because of their government’s health care rationing had they not been able to get care in the United States. Perhaps just as troubling, however, are the less dramatic but much more common instances of minor indignities, inequities and inconveniences imposed by the Canadian health care system.

Nearly every Canadian has such stories. Even the experiences of those satisfied with the country’s health care system show that residents have resigned themselves to accepting as “normal” the systemic dysfunctions that would deeply trouble most U.S. citizens.

A typical story comes from Tim Hodges of London, Ontario, who has been taking Ibuprofen for nine months to deal with pain in his arms. He made an appointment to see his primary care physician, who said that Ibuprofen should not be used consecutively for more than two weeks. When X-rays revealed no obvious problems, the doctor asked whether the pain was unbearable. Tim said no and was told to make a new appointment if it worsened — and meanwhile keep taking the Ibuprofen he’d been scolded for relying on!

A minor gripe, but vaguely disquieting given that the doctor is essentially a government functionary. Actually, Tim is fortunate even to have a primary care physician, because the inability to obtain one is among the system’s most glaring shortcomings. These doctors act as “gatekeepers,” and finding one is a critical first step for obtaining any care outside of emergency rooms or specialized clinics targeted at certain populations.

I’m from Windsor and am lucky not to be among the ranks of the 4.1 million Canadians (about 12 percent) who don’t have a primary care physician. The reason I have a doctor and they don’t, frankly, is because I have connections.

When my mother began working with a woman whose husband works in the same building as a large medical clinic, this colleague (via her husband) was able to get my mother an appointment with a doctor there. After about a year, my mom managed to get me a spot in the practice, too.

My doctor is a wonderful physician, but she’s terribly overburdened. Like most Canadian doctors, she must limit patients to one problem per visit, in part to cope with the sheer volume, and in part because the Ontario Health Insurance Plan only reimburses her on a per-visit basis. This is an example of how government price controls that limit the compensation to health care professionals can create shortages among providers.

So even though I’m one of the lucky ones who has a primary care physician, except for emergencies I still can expect to wait two months or more to get an appointment.

What’s troubling is that situations like mine are accepted as “normal” under Canada’s single-payer health care system. Even as they defend their system, many middle-class Canadians recount similar tales of using social networks to secure access to timely care, while resigning themselves to long waits for “non-necessary” medical care and diagnostic medicine.

Even more disturbing is the impact of this system on people who lack the ability to use social connections to get around the queues – typically the disadvantaged members of Canadian society.

For years the United States has served as a relief valve for the overburdened Canadian health care system. If a patient’s wait time is longer than the legislated maximum, then Canadians are allowed to seek care at American facilities — but only ones that government bureaucrats deem appropriate. This means that a person from Windsor might have to travel to Buffalo for a surgery that could be done in Detroit.

Backers of a single-payer system in the United States should never forget that “coverage” under a government plan is not the same thing as “access to health care.” This leads to a disturbing thought. When the Canadians’ system fails them, they come to the United States for health care. If a “public option” leads to a single-payer, government-run health care system in the United States, where will Americans go?

Janet Neilson is a health policy communications associate for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Neilson writes a daily blog with the latest developments on health care. Her blog can be found at www.MIHealthFacts.com.

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