Did the Engler Tax Cuts Work?

One Michigan public school superintendent questioned whether Gov. Snyder’s business tax cut will improve the economy. Charlie Glaes, superintendent of Vicksburg Community Schools made the statement last week in the Kalamazoo Gazette in a story about the cuts to public schools proposed by the governor.

“The governor says we must make decisions based on data. What data is he using?” Glaes said in the Kalamazoo Gazette. “Tax cuts under Gov. Engler didn’t work.”

Under Engler there were cuts to the income tax and the state’s main business income tax in 1993, 1994 and 1999. And during the era, a key economic statistic had Michigan ranked in the top 20 nationally for the first time since the mid 1980s.

Michael LaFaive, director of the Mackinac Center for Public Policy’s Morey Fiscal Policy Initiative, said the tax cuts were good for Michigan residents.

“The money doesn’t belong to the government,” LaFaive said. “And Michigan climbed the rankings among the 50 states in economic performance like we have not seen since the late 1960s.”

LaFaive pointed to the state’s Gross Domestic Product, which measures the value of all goods and services produced in Michigan.

From 1993 to 1997, Michigan ranked 23^rd to 27^th nationally in GDP. In 1999, the state peaked at 19^th nationally, the best national ranking since 1986’s 18^th place.

But by 2009, Michigan had dropped to 42^nd in the country in the GDP ranking, according to the U.S. Bureau of Economic Analysis.

There was a change in methodology in national GDP rankings in 1997, making it more difficult to do past year comparisons, said James Hohman, fiscal policy analyst at the Mackinac Center.

“There is more to what goes into a state’s growth rate than tax rates,” Hohman said. “But tax rates can have a substantial impact on a state’s economic performance.”

Also, the state’s unemployment rate was 9.2 percent in 1992, Engler’s second year in office. The unemployment rate dropped to 7.4 percent in 1993, 3.8 percent in 1999 and rose to 6.2 percent in 2002. Michigan’s unemployment rate for this April was 10.2 percent.