A model for the 21st century - welfare reform in Michigan

USA Today (Society for the Advancement of Education), May, 1997 by John Engler

As we approach the millennium, the other 49 states can learn much from Michigan's experience in cutting both taxes and welfare.

"It's the economy, stupid." The slogan is as fresh today as it was during the 1992 presidential campaign that cost Republicans the White House. Despite White House press releases to the contrary, the performance of the American economy in the 1990s continues to be of concern. For example, the U.S. Commerce Department reported that the nation's gross domestic product (GDP) expanded by a mere 2.3% in the first quarter of 1996. Stephen Moore of the Cato Institute observes that, if the GDP sputters ahead at this pace through the year 2000--which is what most economists are forecasting--the 1990s will go down as this century's second poorest decade for economic and income growth. Only the Depression-era 1930s were worse.

Moreover, the American middle class is feeling the pinch. According to the Bureau of Labor Statistics, real average weekly wages are 5.5% lower than during the Reagan Administration, so many families are in debt. Spouses are entering the workforce to help make ends meet, raising total family income by about one-third. Yet, these same families must pay almost 28% of their income to the Federal government. In effect, mothers are having to work just to pay off Washington.

It is useful to put the burden on American families in historical perspective. Washington has not always been so greedy. In 1954, the last year Republicans were in control of the White House and both houses of Congress, Federal taxes amounted to less than the tithe to one's local church--eight percent of total family income. Quite often, both parents did not have to work unless they chose to do so, and that's the point--families were free to choose.

Given the tough going for many middle-class families, what can be done? At the very least, we should take note of the ideas that do work. As National Center for Neighborhood Enterprise founder Bob Woodson says, "We must study success." There is no better place to do so than in the states, those laboratories of democracy where ideas can be tested.

Perhaps no state in the 1990s has had more success in solving its economic woes than Michigan. The "old" Michigan of the 1970s and 1980s could have been the poster child of the Rust Belt. Unemployment was above the national average for 192 consecutive months (1978-93). By contrast, it has been at or below the national average since then. Now, Michigan is being hailed as the center of the nation's "Growth Belt." A Wall Street Journal headline summed up the turnaround: "Go Midwest, Young Man!"

Over the last five years, Michigan has made a dramatic comeback by eliminating a $1,800,000,000 deficit, balancing the budget five years in a row, cutting taxes 21 times, downsizing state bureaucracy while improving services, and eliminating regulatory red tape. Michigan is living proof that what the liberal establishment has decreed is impossible is possible. We aren't just talking about "supply-side success."

One of our most popular and innovative projects is the Office of Regulatory Reform, which in its first year cut 1,000 obsolete, burdensome, and often contradictory rules and regulations from the roll books of state government, with another 1,000 scheduled for the chopping block.

Of the 21 tax cuts in my first 60 months in office, the most dramatic was reducing school operating property taxes from an average 36 mills to six. This was the biggest tax cut in Michigan history, amounting to $3,600,000,000. Associated with this cut is a cap that keeps assessments from rising more than the inflation rate. When I took office in 1991, our property tax burden was the third worst in the country. Now, property taxes are below the nation's and the average millage rate is the lowest it has been in three decades.

We axed Michigan's erstwhile "intangibles tax" because it was really a capital gains tax and, as such, had a serious negative impact on savings, dividends, and investment. When we first proposed reducing this tax, liberals went on the attack. Across the state, newspaper, magazine, and television editorials accused Michigan Republicans of trying to help the rich at the expense of the poor and the middle class. They failed to mention that one of their patron saints, Pres. John F. Kennedy, supported tax cuts because, he said, "a rising tide lifts all boats."

It is reality, not rhetoric, that has proved the liberals wrong. Michigan's experience has demonstrated that, when citizens pay lower taxes on dividend income, they invest more. Their investment pumps additional money into the economy and spurs banks to cut interest rates, since there is more cash chasing new projects. When the cost of borrowing money is cheaper, manufacturers not only create more jobs and hire more workers, they can buy better equipment, which increases productivity. Greater productivity results in lower costs for consumers and higher wages for workers.

Have Michigan's 21 tax cuts helped or hurt our economy? You be the judge: