Snyder’s former budget chief points to Michigan’s way forward

budgeting

A Q-and-A with John Nixon, Gov. Rick Snyder’s lauded budget guru before he left in 2014.

When John Nixon signed on to become Gov. Rick Snyder’s budget director in 2011, Michigan had a “rainy day” fund of about $2 million, enough to cover the state’s bills for less than an hour.

His team avoided quick fixes and adopted fiscal discipline while plugging a $1.5 billion deficit. Three years later, the state’s finances had improved markedly and the rainy day fund approached $600 million. Nixon has since returned to Utah for an executive post at the University of Utah.

At a leadership conference in April put on by Business Leaders for Michigan, Nixon gave a presentation on the need for transparency and gimmick-avoidance in the state budget process. Afterward, Nixon spoke to Mike Wilkinson of Bridge Magazine about Michigan’s fiscal path forward.  

On balancing the call for tax cuts with the financial cost of effective government

“I think you’ve got (to have a) holistic approach but also a realistic approach, right? You’ve got to fund the K-12 system, right? You want to have a competitive higher education system. You’ve got to run a corrections system, right? No one wants to run a corrections system but you have to have a safe area. You’ve got to invest in public safety and you’ve got to invest in your infrastructure.

“There are a lot of needs that you need to (fill) as a state government to provide for the citizens. But really the balance is: What kind of government can you provide with what the taxpayers are willing to pay? And you’ve got to make sure that you understand – and the taxpayers understand – that it costs money to run government.”

On covering essential services

Nixon quoted a former colleague as telling him, “‘We’ve done so much for so long with so little that now we’re experts at doing everything with nothing.’ Obviously, that’s not possible, but it’s kind of like you’ve just got to understand: You want to be tough on crime? You’ve got to be willing to lock people up. You’ve got to be willing to invest in public safety.”

On turning to tax hikes to solve every fiscal problem

“You can’t tax your way to prosperity. You can’t have an undue tax burden because if you do, people are going to leave your state and if people leave your state then overall there’s less taxes coming in. So it is a fine line. I think the best way to do it is to be very transparent about it. You’ve really got to let the public know, ‘This is what you’re buying, this is what your taxes are buying.’ And if we cut taxes, “This is what’s going to have to go.’ We can’t continue to provide the same level of services...with less money coming into the coffers.

“Government can’t be all things to all people. And you’ve got to decide what you’re good at and what you’re there to provide and need to provide. And you need to determine what the taxing ability is of the public because, if you don’t people, will leave and that’s going to create a problem for you.”

On “being realistic” about taxes

“I’m a pretty strong fiscal conservative, I don’t like taxes...just like a lot of people don’t like paying taxes. But at the end of the day you have to be realistic and understand that this is the cost of running a government. You can’t say we’re going to reduce the funding and keep the same level of services we have.”

“If you can cut taxes and have a level of government services that you need going in the future, either through a reduction of services or economic growth, then I think it’s good. If you can’t, you probably shouldn’t be doing it.”

Nixon noted that his budget team faced a similar quandary in 2011: Allow the state income tax to be cut, as scheduled, or keep the rate at 4.25 percent. Conservatives wanted Snyder to allow the income tax cut, but his team kept it at 4.25 percent. That, said Nixon, was a “sound fiscal move,” given that his administration was at that time  lowering corporate and business taxes and increasing some taxes on individuals.

“I think that unless you can identify where those reductions are going to come from, I probably wouldn’t be doing it. If you’re willing to make the hard choices and cut the budget back; but if you’re not, it’s just going to … be right back to where you were seven years ago.”

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Bridge’s mission is to inform Michigan citizens about their state, amplify their views and explore the challenges of our civic life.

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David Waymire
Tue, 05/09/2017 - 9:26am

“You can’t tax your way to prosperity. You can’t have an undue tax burden because if you do, people are going to leave your state and if people leave your state then overall there’s less taxes coming in."

Likewise, you can't cut your way to prosperity. But the facts are clear...the state in the Midwest that is clearly the most prosperous, with a per capita income some $8,000 A PERSON higher than Michigan, is Minnesota...and it's tax burden on the wealthy and businesses is much higher. In return, those wealthy people and businesses get a state that has sufficient services to attract young college grads...which makes them wealthy, too. Minnesota has more millionaires per 100000 residents than Michigan (31 vs 30.6) and far more than low tax Texas (27.4) or Mississippi (21.5). What Michigan has made clear since 2000 is you can't tax cut and service cut your way to prosperity...we've cut taxes 25 percent, and watched our state go from 19th in the nation in per capita income to 32nd.

Michigan Observer
Thu, 05/11/2017 - 7:47pm

It is no doubt the case that Minnesota has " a per capita income some $8,000 A PERSON higher than Michigan", but Mr. Waymire totally misunderstands why. It is most certainly not because Minnesota "has sufficient services to attract young college grads...which makes them wealthy, " He should instead look to Minnesota's culture, which is largely of Scandinavian origin. I commend to his attention "Debunking Utopia: Exposing the Myth of Nordic Socialism" by Dr Nima Sanandaji. It recounts the story of the success of the Nordic countries; how their cultural homogeneity, which made possible a high degree of social trust, and their work ethic, combined with low taxes and small government made them wealthy. it was only after they became wealthy that they provided themselves with extensive social services. They successfully combined high taxes with prosperity. But their rate of growth significantly slowed from the era of low taxes and small government.
Scandinavians do well both at home and abroad. In fact, their per capita incomes in the United States exceeds their (PPP adjusted) incomes in Scandinavia. And it substantially exceeds the median income of this country.

Johan Norberg,writing in the May 2016 issue of Reason. said "During its laissez faire period, between 1850 and 1950, Swedish income per capita increased eightfold as the population doubled. Infant mortality fell from 15 to 2 percent, and life expectancy increased by a whopping 28 years. And all this happened before the welfare state was even a glint in the taxman's eye." And, " Slowly but steadily the policies of Prime Ministers Tage Erlander and Olof Palme eroded productivity and the long-renowned Scandinavian work ethic. In 1970, Sweden was 25 percent richer than the OECD average. Twenty years later, the average had almost caught up with us. Once the fourth richest country on the planet, Sweden was now the fourteenth."

Having failed to understand why Minnesota is successful, Mr. Waymire failed to offer the people of Michigan wise advice.

David Waymire
Sat, 05/13/2017 - 7:43am

Mr. Observer, I would note that as recently as 1980 the two states per capita incomes were the same. It is only since then, as the knowledge economy driven by college grads has taken off, that we see the major divergence. Perhaps there has been some great in-migration of Scandanavians in Minnesota since, but I am unaware of it. I've prepared this chart to demonstrate how since 1980, when Michigan began following the prescriptions of anti government conservatives, Minnesota has jumped far ahead of Michigan in incomes. As well as share of college grads of all ethnicities in it's population. https://fred.stlouisfed.org/graph/?id=MIPCPI,MNPCPI,#0