Separating Fact From Fiction, Michigan’s Governor Rick Snyder

It was a long drive yesterday from Mid-Mississippi to Chicago. I am back in town, but have a guest blogger taking the reigns today. Illinois has terrific problems that the governor refuses to confront, we know other midwestern states are confronting them. Here is a piece on Michigan.

In the press these days, newly elected Republican Governors around the country have taken a beating. Ohio and Wisconsin have made national headlines but the theme is the same in Michigan. There has been non-stop picketing outside the Lansing capital by union members, retirees and students who are in opposition to Governor Snyder’s proposal to balance the budget. Just listening to the media, one would believe three things about Snyder: 1) He hates the old and middle class 2) Doesn’t believe in education and 3) Wants to run business out of the state. It is hard to believe that six short months ago, Snyder won the Governorship by a 58% to 39% margin.

So, what is going on? Why is everyone in such a fuss? Were voters lied to during the campaign? No. Like many of the Republican Governors voted into office around the country in the last election, Snyder is following through on his campaign promises to balance our state budget and kick-start our depressed economy.

Here are some FACTS to go along with all the media FICTION.

FICTION #1: Governor Snyder’s plan to tax pensions will force old people to eat dog food to survive and inequitably hurt the middle class.

FACT: Currently, public pensions are exempt from income tax while private retirement accounts (401K) are exempt up to $41,200 for single filers and $90,240 for joint filers. Only Michigan, Alabama, Mississippi and Pennsylvania exempt most or all public pension and private retirement account income from taxation. Governor Snyder is only asking citizens with public pensions pay a small portion of their pension in taxes just like the citizens with private retirement accounts. While I realize that paying any tax would mean pensioned retirees would have less disposable income, currently the entire tax burden is being place on the private sector.

To illustrate the current salary and tax disparity between public and private sector workers in Michigan, let’s use an example of a teacher from suburb outside Detroit, West Bloomfield, and a private sector worker making the same amount of money in 2010. (Please note the math has been simplified.)

Per the West Bloomfield school district, in 2010, the average starting gross take home pay for a West Bloomfield teacher = salary + pension benefits + paid insurance benefits: $85,800 (salary) + $16,850 (pension)+ 19,300 (insurance) =$122,000. Not a bad pay for someone who only works 9 months out of the year!

A person working in the private sector gross take home pay making the exact same salary would be salary – 401K contribution (max) – insurance costs (national avg): $85,800 – $16,500 – $13,400 = $56,000.

Upon retirement, when the private sector employee withdraws money out of his 401K, he pays tax based on their income bracket. Assuming a 25% tax bracket, he nets $12,375 of the $16,500. If we add this back to the $56,000, his total gross take home income is $68,300, or about half that of the teacher. Oh, and the private sector employee is working about 11 ½ months of the year.

Asking all of the citizens of the state to contribute is reasonable. In examining the question “Why does Governor Snyder hate old people?” I would ask why does the media and the Democratic party hate young people? They are the ones that are shouldering the inequitable tax burden.

FICTION #2: Governor Snyder doesn’t value education because he is slashing K-12 school funding, crumbling school districts. The Superintendent in the largest school district in the state, Walled Lake, has been sending letters to parents telling them that the actual impact of the Governor’s proposed budget on the school district will be $1,559 per pupil. She is encouraging parents and students to storm the capital in Lansing and flood the Michigan legislature with letters.

FACT: Governor Snyder is proposing a 4% cut in funding to public schools (an average of $470/per pupil statewide) and a 22% cut to universities. The goal is to incentivize schools to become more efficient and eliminate unnecessary spending. In the proposed budget, school districts that mandate teachers and employees to pay 20 percent of their health care costs and cut 10 percent of their non-instructional spending will continue funding without any cuts. Universities that keep tuition increases below 7% receive only a 15% cut in state aid.

This is another example of the Governor asking for a more equitable distribution of costs. Even at these levels, teachers would be contributing less than private sector workers to their healthcare and retirement.

What’s in that $1,559/pupil reduction in the Walled Lake budget anyway? It is the Governor’s proposal of $470/pupil cost reductions + $694/pupil increases that are completely unrelated to the students’ education. The $694 breakdown is as follows:
- Retirement Rate increase $260
- Health Insurance increase $187
- Enrollment decline $44
- Additional Unemployment $39
- Special Services Reduction $152
- State-funded programs $12

The Superintendent is insinuating that Governor’s proposal would reduce the quality of education by $1,559/pupil. The more likely impact on student performance will be zero. That is, unless, having teachers pay for some of their healthcare costs would reduce their ability to teach. If the school district could be treated like the private sector, it would have the flexibility to look across its entire budget to find the most efficient and least intrusive way of making a 4% cut. But, that is not how school districts work. Most spending cannot be cut due to contractual obligations with the unions. So, instead, they pull at the emotional strings of parents, make it sound like student’s performance will suffer when in reality, when the vast majority of cost increases are due to retirement and healthcare benefits.

FICTION #3: Governor Snyder wants to run businesses out of state by eliminating tax loopholes for businesses.

FACT: Governor Snyder wants to eliminate the Michigan business tax and our current business tax structure, replacing it with a flat corporate income tax. Michigan is one of only three states with a business tax. Our current structure allows the Michigan legislature to cherry-pick businesses to receive excessive incentives, while the rest pay exorbitantly high taxes. The problem is that eliminating taxes for some businesses drain state revenues and create a “house of cards” that eventually fall when another state offers higher incentives. In Michigan, the most recent example is the movie industry. Former Governor Granholm encouraged it to come here from Chicago by providing seductive taxes incentives. While the movie industry did bring some low paying jobs to our economy, the increase in jobs did not balance out the decline in government revenue. By eliminating the business tax and creating a flat tax for all companies, Michigan will create a more stable environment and encourage a larger variety of industry.

What has happened in Michigan, has happened across the country. It is classic crony capitalism. Tax favors to the cronies have created an unfair burden on the non-cronies (non-union workers and businesses) in the state. This unlevel playing field creates an anti-business climate and prevents the creation of new jobs. The tax-burdened groups eventually seek other states or countries that treat their citizens more equitably. Nationwide, the pendulum has swung so far to the left that union employees believe that paying ANY tax is too much, even when they make, on average, double that of the private sector.

In November, the people of Michigan, Wisconsin and Ohio all voted to change the way their states operate. The left is fighting extremely hard to keep status quo. I hope that the Governors in these states continue to push pendulum, even if it the tiniest bit, back towards the middle. In order to change the direction of a state and make it successful, all of its citizens need to contribute.

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