Lopsided income growth hurts Michigan

The top 1% in Michigan earned 25 times the income of the bottom 99%, a new report from Economic Policy Institute concludes.

The report ranks Michigan as the 15th most unequal state in the country and offers new evidence on why Michigan policymakers should refuse more tax cuts so that they can invest in building the skills of a 21st century workforce.

In Michigan, inequality looks like this:

•    $942,993 a year on average for the top 1% of taxpayers.
•    $37,324 average annual income for the rest.

And what does it take to be a top 1% in Michigan? An income of $300,570 lets you in. It’s much harder to get to the very top – 0.01%. For that, you have to have income of nearly $7 million a year or more.

The report for the Economic Analysis and Research Network looks back to 1917 to find that income inequality – measured from the top to the bottom – is as large has it has been since 1928.

Since the Great Recession ended, incomes for the top 1% grew faster than the incomes of the bottom 99% in every state except West Virginia. In Michigan, the top 1% percent captured 82% percent of income growth in the period following the Great Recession.

“This is clear evidence why the economic recovery has not been felt by all  families in Michigan — only those who were already doing well,’’ said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy, an EARN affiliate, said in today’s news release on the report. “Our lawmakers should look to this as they create the next budget. They should resist more tax cuts so that Michigan can help struggling families and grow the skilled workforce we need.’’

The lopsided growth is not new. From 1979 to 2012, the top 1% in Michigan saw a 115% jump in income. Meanwhile the bottom 99% realized nearly a 17% decline. Overall, income declined by 5%.

The report comes on the heels of a forum I attended last week hosted by the Institute for Public Policy and Social Research at Michigan State University. At the forum, I was reminded that it could have been far worse in our state.

Charles Ballard, MSU economics professor and vice chair of the League’s board of directors, cited research estimating that without the successful rescue of the auto industry, 1 million more jobs would have been lost in the Great Recession – most of them in Michigan and Ohio.

Michigan has 500,000 fewer jobs today than it did at the peak employment year in 2000, Ballard noted.

As the EPI report concludes, Michigan already has a large and growing income inequality problem. It’s hard to imagine what that would look like if tens of thousands or even hundreds of thousands of good-paying auto manufacturing jobs disappeared in addition to the 850,000 Michigan jobs that evaporated between 2000 and 2010.

– Judy Putnam

Tax policies gone wild

Shortsighted tax policy decisions by Michigan lawmakers have created a budget shortfall of $325 million in the current fiscal year, despite growth in the state’s economy.

Because Michigan must balance its budget every year, cuts will be made in the state’s General Fund, the major source of funds for health and human services, higher education and public safety – before the end of September. The 2016 budget, scheduled to be released by the governor on Feb. 11, has an additional revenue shortfall of $532 million.

This was the consensus of state economic and fiscal experts who met with lawmakers last week to determine how much the state has to spend for the remainder of this year and the upcoming year. They all agreed that although the economy is growing, revenues are not following suit.

At first blush, it is difficult to understand how state revenues can be dropping so quickly in a time of economic growth. One of the justifications for the 80% cut in business taxes approved by the Legislature in 2011 was that lower taxes would attract new businesses, create jobs, and ultimately increase state coffers by spurring economic growth.

So what happened? Why the budget gap?

  • Business tax cuts don’t grow the economy. With the 2011 changes, taxes on businesses were cut by $1.6 billion, placing Michigan 49th in the U.S. for business tax contributions to the state. Michigan businesses are now the source of only 2% of total state revenue, despite the fact that employers rely on many essential state services, including police and fire protection, the roads and bridges needed to transport their products, and a good educational system that can create the workforce they need. A major cause of the state’s current budget problem was the deep cut in business taxes in the face of known outstanding business tax credits that are expected to be a drain on the budget for many years to come. Net business refunds could exceed $680 million in 2015, and rise to more than $800 million in 2016.
  • Tepid economic growth. Michigan suffered a 10-year recession from 2000 to 2010, and while the state economy has strengthened in the last several years along with the rest of the nation, we have not yet regained lost ground. The state has recouped less than two-thirds of the jobs lost during the recession, and too many of those jobs are low-wage. And, while Michigan’s unemployment rate has dropped significantly, much of that decline can be attributed to nearly 90,000 discouraged and other workers leaving the labor force.

The state budget director has made it clear that there will be “real cuts.” We should be clear when we talk to our lawmakers that those cuts are the result of tax policies that have benefited Michigan businesses, but have not led to economic recovery for all of the state’s citizens. Government restructuring and efficiencies, while commendable if they can increase opportunities for families who are struggling to make ends meet, are not going to fill the gap.

– Pat Sorenson

Children thrive when parents succeed

Roughly half of Michigan’s young children ages 0-8 live in low-income families where meeting basic needs is a daily challenge.

Living in a financially stressed family during childhood has a long-term impact on education and employment. A child who spends the critical early years in poverty is less likely to graduate from high school and remain employed as an adult. To be more effective in assisting these families, public and private programs need to address the needs of both parents and children.

In the majority of Michigan’s low-income families with young children no parent has a year-round full-time job (56%) nor a credential beyond a high school diploma (79%) severely limiting their opportunities to secure well-paid job, according to the latest policy report, Creating Opportunity for Families: A Two-Generation Approach, from the Annie E. Casey Foundation.

Getting access to higher education as a nontraditional student has become much more difficult at a time the state needs a more educated workforce. Over the past decade Michigan policymakers have eliminated all public university and community college grants for older students. Most (85%) parents of young children in Michigan families with income below 200% of the poverty level (roughly $47,000 for a family of four) are over age 25.

Not only does the state not offer financial support to help with college costs for older adults, the state’s woefully inadequate child care subsidy fails to meet the needs of low-wage workers and students. It offers payments substantially below the market rate and only on an hourly basis — severely limiting child care options for families in need of care. Furthermore, eligibility for the subsidy ends when parental income rises only marginally above the poverty level where absorbing the cost of care, which averages over $500 a month, would not be feasible, thus disrupting the stability of care.

One of every eight parents in the state’s low-income families with young children reported that problems with child care resulted in changing, quitting or not taking a job.

Employer practices impose additional stress on working parents who struggle to meet their responsibilities as parents. Parents in part-time, low-wage employment typically lack benefits, as well as flexible and predictable schedules. The constant juggle of changing work schedules and family responsibilities exacts an emotional as well as a physical toll.

Unfortunately programs targeted to assist low-income families rarely address the needs of both parents and children in the family. For example, job training programs do not focus on the quality or accessibility of child care. This latest Casey report makes several recommendations on strategies to strengthen the whole family, including:

  • Providing parents with multiple pathways to family-supporting jobs and financial stability through access to employment and training programs, and state and federal assistance such as the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program.
  • Structuring public systems to respond to the realities of today’s families through interagency collaboration and streamlined application systems.
  • Using existing neighborhood programs and platforms to build evidence for practical pathways out of poverty.

In order for children to thrive, their parents must have access to the tools and supports they need to be successful as parents, as well as workers in an economy that requires postsecondary training or education for a job with a family-supporting wage. We cannot afford to delay addressing these issues. The future of over half a million of the state’s young children is at stake.

– Jane Zehnder-Merrell

Oh Michigan!

From the First Tuesday newsletter
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Ready for some numbers?

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From the League’s First Tuesday newsletter
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