Kids Experience Entrepreneurship at Detroit Children's Business Fair

Second annual event provided opportunities to learn, grow and earn money

On May 13th, children from around metro Detroit gathered at the Detroit Historical Museum for the second annual Detroit Children’s Business Fair.

The event, hosted by the Mackinac Center for Public Policy and Junior Achievement of Southeastern Michigan, allowed children to sell goods to customers for real money. Testing their hand at being an entrepreneur, kids could win prizes for creativity, originality and business potential, and to get advice from a panel of expert judges on ways they might improve.

John Mozena, the vice president of marketing and communications for the Mackinac Center, encouraged sign-ups during an on-air interview with WJR Detroit radio host, Frank Beckmann.

“Entrepreneurs built the Detroit that we think about” Mozena said. “It’s great to tie into that history and for kids to realize that they can be the next Henry Ford.”

Comparing it to a combination of the traditional lemonade stand and a science fair, Mozena enthused about the possible implications of such an event.

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“It’s good businesses that create good jobs, and good jobs make for good communities.”

The Michigan Chronicle, who also encouraged children to sign up for the fair, called it a “great place for kids to try their hand at entrepreneurship.”

Following the fair, the Chronicle published a follow-up article.

As more than 100 shoppers visited the nearly 20 youth-owned micro-businesses, an important dynamic became apparent, as participants grasped the bigger business picture. They embraced the value of hard work, increased their self-esteem and were eager to share their good fortune and commit a portion of their sales to philanthropic and charitable opportunities.

According to WDET radio, 14-year-old Zena Nasiri and 12-year-old Mena Nasiri brought their business – EenaArts – to the fair. Students from Morgan Lantz’s fifth-grade class from Escuela Avancemos also participated. These two groups alone sold everything from jewelry and scarves all the way to lava lamps, candy apples and ice cream.

“We just started realizing that we were actually selling a lot,” Zena told WDET radio. “At first it was kind of a casual thing and then it got more serious. And now I think we’re running it like an actual business.”

The Mackinac Center and Junior Achievement plan to host a third Detroit Children’s Business Fair next spring, with hopes that it will continue to grow and provide children with an educational and fun experience.

You can watch a recap video of the fair at the event’s website.

Read more:

Michigan Chronicle: Business booming for kids at Mackinac Center marketplace
Mackinac Center: Support Young Entrepreneurs at the Detroit Children’s Business Fair
WDET: Youth Businesses Step Into the Spotlight
WJR: John Mozena Interview about the Detroit Children’s Business Fair
Michigan Chronicle: Young entrepreneurs wanted for Detroit Children’s Business Fair


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A Plea for Fairness, Transparency and Intellectual Honesty

Testimony prepared for the Michigan Travel Commission

Photo from Flickr

The following is testimony prepared for the Michigan Travel Commission at its June 22 meeting in Muskegon, Michigan. The Commission is charged with the mandate to “promote, maintain and develop the orderly growth of the Michigan travel industry” and is required to take testimony regarding policy adoption or adaption “from a broad cross section of travel interests.”

Good morning, my name is Michael LaFaive. I am an economist and director of fiscal policy for the Mackinac Center for Public Policy, with which I have been associated now for 25 summers. I am here today to call upon the Michigan Travel Commission to demand greater fairness, transparency and intellectual honesty in state and industry dealings.

I have written many scholarly studies during my time with the Mackinac Center, but one of the most recent involves state tourism promotion. My study, co-authored with professor Michael Hicks, looked at tourism promotion by 48 states over 39 years. We found a huge negative rate of return.

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As one prominent example, we found that for every $1 million increase in state promotion efforts there was a corresponding $20,000 in extra economic activity in the average state’s accommodations industry. That’s a mere 2-cent increase for every taxpayer dollar spent. Other sectors we looked at fared no better. The Pure Michigan program is ineffective and should be shut down. I ask that the Travel Commission to do the following:

  1. Call on the state of Michigan to repeal its failed Pure Michigan program.

    Not only does the program not work, it is fundamentally unfair to every other taxpaying business in the state not lucky enough to have its advertising subsidized by government. If the Commission and larger industry truly believe that these programs are effective, then they should have no problems self-assessing to finance the Pure Michigan program.

    Doing so would provide observers with what economists call a “revealed preference,” where the actions of a person or group reveal far more than vocal testimony alone. The state claims that Pure Michigan generates more than $8 in tax revenue for every $1 spent on it. If everyone believes this to be true, the travel industry should want to happily invest in its own well-being.

    If only that were true. In the industry’s strategic plan for 2007-2011, titled Michigan Tourism Strategic Plan, the authors write:

    There is absolutely no industry support for a broad-based industry self-assessment approach to generate sufficient monies to fund Travel Michigan. Last year, TICOM (Tourism Industry Coalition of Michigan) created a special task force to explore such an approach. Without exception, representatives from a variety of tourism industry segments indicated their members and/or Boards would strongly oppose such an approach.

    The hostility to such self-assessment suggests that members of the travel trade group fully understand they would not enjoy the benefits that the state has claimed occur when it runs Travel Michigan at someone else’s expense.

  2. Call on the state to find a vendor willing to publish a transparent review of Pure Michigan’s return-on-investment number.

    The state currently hires Longwoods International to make return-on-investment calculations, but that company’s officials refuse to explain precisely how they generate their claims, specifically the one that says Pure Michigan generates more than $8 in tax revenue for every $1 spent on out-of-state advertisements. These are the figures used to sell the program as a success to lawmakers and others, especially during the appropriation process.

    Why anyone takes such pronouncements seriously is beyond me. The vendor and proponents at the Michigan Economic Development Corporation and elsewhere are basically saying, “Hey lawmakers and taxpayers, trust us, we are right about this; now please appropriate more public money to the cause of private industry’s profits.”

  3. Demand that the industry’s association (Michigan Lodging and Tourism Association) back its assertions with evidence.

    Last spring the president of this organization, Deanna Richeson, wrote in an email that an unnamed think tank had published a “study … that has already been discredited.” Curious that someone somewhere may have discredited our work, I emailed, faxed, called by telephone and mailed a letter to Richeson asking her to explain who had done so and where I could locate any takedown of the Mackinac Center’s tourism work. I’m still waiting for her answer and her silence speaks volumes.

    The answer won’t be forthcoming because our study is the most scholarly and comprehensive in existence today.

  4. Ask Richeson and Travel Michigan Vice President David Lorenz to publicly debate me and my colleague Michael Hicks in a public forum.

    Public officials and industry spokesmen have made inflated claims about the effects of this taxpayer-supported program. They ought to be transparent on their views and accountable for them.

    We asked them to debate ourselves and they refused our request. Perhaps they may reconsider.

It is clear to us that the state and the industry want to keep the status quo. But it should not come at the price of fairness to other industries, state secretiveness or a refusal to support public statements with actual evidence or a real debate.

Thank you for your time.


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Traverse City Should Avoid Risky Public Internet

Most municipal broadband projects losing money

Traverse City is exploring investments in public broadband internet. Past experience teaches us that it should be very cautious about doing so.

Initially, a public entity was reportedly thinking about building a fiber internet line and becoming an internet service provider. The chairman of Traverse City Light & Power says the organization is still in the process of making that decision. New evidence suggest there are many ways for these types of deals to go wrong.

First, a report came out last month from the University of Pennsylvania that found public broadband to largely be a failure. The report looked at the 20 most recently built fiber networks across the United States for which the authors could get records. It found that most projects were already cash-flow negative and likely to continue needing taxpayer subsidies just to survive. Many of the other projects are barely making money and not likely to recover the costs of their initial build-up. Only two of the 20 networks were financially viable.

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Second, news just broke that Lake County, Minnesota, will be selling its network. In 2010, the county received nearly $70 million in federal loans and grants to build a broadband network while putting in an extra $10 million from local taxpayers. But it wasn’t enough, despite governments paying $22,000 per subscriber in subsidies.

In Michigan, Traverse City isn’t alone. Holland is also considering a risky broadband project and the small community of Laketown Township in Ottawa County narrowly rejected doing so.

These deals don’t pass the “yellow pages” test, which says if you can find it in the yellow pages, the government should not be doing it. The government should be finding ways to encourage broadband investment by removing obstacles – not getting in the way with unfair competition.


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Pension Reform, Electronic Vehicle Registration, Decriminalize Idling in Driveway

June 16, 2017 MichiganVotes weekly roll call report

House Bill 4647, Overhaul school employee retirement system: Passed 55 to 52 in the House

To replace the current school pension system with one that requires more cost-sharing by new employees, and contains provisions intended to limit state management practices responsible for the $29.1 billion of unfunded liabilities in the status quo system. New employees could choose instead to receive substantial employer contributions to 401(k) accounts. If the overhauled defined benefit component is not properly funded then enrollees would have to pay half the cost of correcting this, and if underfunding exceeds specified levels this option would be closed to new hires.

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Who Voted "Yes" and Who Voted "No"


Senate Bill 401, Overhaul school employee retirement system: Passed 21 to 17 in the Senate

The Senate vote on the identical pension reform provisions as in the House bill described above.

Who Voted "Yes" and Who Voted "No"


Senate Bill 401, Amendment to impose unfunded school pension liability costs on charters: Failed 14 to 24 in the Senate

Curtis Hertel amendment to require charter schools to contribute to the cost of paying down the school pension system's $29.1 billion in unfunded liabilities, even though their employees do not get benefits from the system. The amendment was supported by all Democrats and by Republicans Emmons, Rocca and Schmidt.

Who Voted "Yes" and Who Voted "No"


House Bill 4636, Criminalize female genital mutilation of minors: Passed 38 to 0 in the Senate

To make it a crime subject to 15 years in prison to perform a clitoridectomy, infibulation, or other female genital mutilation on person less than age 18. Claims that the procedure is required by custom or ritual would be explicitly excluded as a defense to prosecution. Related bills would ban transporting a girl for this purpose, authorize lawsuits from victims, and permanently revoke the license of a medical professional convicted of this.

Who Voted "Yes" and Who Voted "No"


House Bill 4013, Allow electronic vehicle registration in car instead of paper: Passed 38 to 0 in the Senate

To allow the vehicle registration document motorists are required to have when driving to be an electronic picture of the document on their smartphone or other device.

Who Voted "Yes" and Who Voted "No"


House Bill 4215, Repeal rule banning car running in driveway: Passed 30 to 6 in the Senate

To repeal a ban on leaving an unattended vehicle running other than on a public street or highway. This would allow warming up the car in the driveway in winter.

Who Voted "Yes" and Who Voted "No"


House Bill 4613, Create process to restrict expansive court cost levies: Passed 38 to 0 in the Senate

To create a state commission to recommend changes to trial court funding in light of a Michigan Supreme Court ruling that questioned charging defendants for costs that are unrelated to their case and instead cover routine court and municipal operations. The Senate also passed House Bill 4612 to extend the current (possibly excessive) levies another three years.

Who Voted "Yes" and Who Voted "No"


House Bill 4407, Require opioid abuse training in schools: Passed 102 to 5 in the House

To require public schools to include instruction on prescription opioid abuse in required health classes. House Bill 4406 requires a state commission to develop a lesson plan.

Who Voted "Yes" and Who Voted "No"


House Bill 4403, Include opioid addiction treatment in Medicaid benefits: Passed 105 to 2 in the House

To include acute treatment services and clinical stabilization services for opioid addiction among the medical services the state has assumed a duty to provide through its social welfare system, including Medicaid.

Who Voted "Yes" and Who Voted "No"


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.


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Vitti’s ‘Student-First’ Agenda Faces Early Test

Pay limits for incoming teachers an unnecessary obstacle

New Detroit Public Schools Community District Superintendent Nikolai Vitti has said he wants to pursue a “student-first state and local policy agenda” for the troubled district. Renegotiating the teachers union contract gives him an early opportunity to work toward a truly student-first agenda.

Vitti wants to make teacher raises a budget priority. But district leaders also ought to insist on concessions from the union that give them more flexibility to fill shortages with effective instructors.

A new Bridge Magazine article identifies one easy place to start: removing stringent rules on how much teachers can be paid when they transfer in from another district. The terms of Detroit’s current contract only permit “credit on the salary schedule for up to two (2) years of outside teaching experience.”

Bridge’s Mike Wilkinson offers an example of why this sort of policy is unproductive: “Say you’re a teacher with 10 years’ experience at Utica schools, which had layoffs last year. To work in Detroit, you’d have to accept nearly $36,000 less, going from more than $78,500 to just under $43,000 because eight years’ of experience wouldn’t count.”

The collective bargaining agreement does allow some transferring teachers to get eight years of experience credit. According to Detroit Federation of Teachers President Ivy Bailey, the exception applies to special education and other positions that are harder to fill.

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Bridge’s quick analysis found other districts have agreements with similar restrictions, but it also found districts that operate without the restriction. One large suburban district, Walled Lake Consolidated Schools, reached an agreement with the local union to remove the offending provision a few years ago, showing it can be done.

But there’s good reason to question how far Vitti’s team will go to attract more teaching talent. The Detroit schools’ spokesperson told Bridge the district has no interest in hiring qualified experts who lack state certification. This option provided last year by state lawmakers could help alleviate some shortages.

A teacher’s first two years of performance more accurately predict future success than whether she is certified. Further, the average teacher doesn’t improve after her first five years on the job, while earning advanced degrees bears no relationship with overall performance. Nearly all public school districts pay teachers based on seniority and credentials and little else, including performance. That’s convenient to administer but out of step with rewarding results.

To its credit, the district already gives out modest merit-based bonuses, so a basis exists for more fundamental reforms. Ultimately, though, Detroit community schools could enhance teacher quality much more by phasing out the conventional salary schedule and basing teacher raises primarily on meaningful measures of effectiveness. Then administrators need to get out of the way and give teachers more tools and opportunities to succeed.

As transformative as these policy changes might be, Detroit’s new superintendent doesn’t need to be that ambitious in his first few months to show he is serious about a student-first agenda. Lifting the restriction on pay levels for new teachers with outside experience would represent a modest step. But it also could send a signal of more changes to come.


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George Orwell and Humpty Dumpty Economic Policy

Michigan must remember warnings to not corrupt the English language to give businesses 'free' money

George Orwell photo from Wikipedia

"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master—that's all."

Lewis Carroll, “Through the Looking-Glass”

“If thought corrupts language, language can also corrupt thought. A bad usage can spread by tradition and imitation even among people who should and do know better.”

George Orwell, “Politics and the English Language”

 

Our state Legislature is considering even more ways for the people who run government to pick which businesses get free money. These are largely reheated versions of failed programs, dressed up in new language.

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The debate over these programs pits decades of history, consistent academic research results and fundamental principles of economics versus the flowery language of “economic development” promises. And just as Orwell warned us, the language is doing an excellent job of obscuring the facts.

To combat this, it’s important to recognize how some carefully chosen words don’t mean what they should:

  • Government “economic development” schemes aren’t held accountable for developing the economy. That’s because they can’t; the resources in play are overwhelmed by every other economic factor in the real world. In a state of 10 million people with a $468 billion GDP, Michigan’s programs in this space are roughly 1/1000th of the economy and their impact on it is proportionally insignificant.
  • “Refundable tax credits” can dwarf a company’s actual tax bill, meaning the company cashes a large check from the state. It’s a way of disguising a cash handout through the tax code, since the money never shows up as an appropriations line item.
  • The “Michigan Economic Growth Authority” had no authority over economic growth in Michigan. Instead, it awarded refundable tax credits (see above) to select businesses. Even though the MEGA program is gone, it will still cost taxpayers $660 million this year, and it continues to hurt the economy.
  • The “Michigan Economic Development Corporation” doesn’t have the ability to develop the state’s economy and isn’t an actual corporation. It’s run largely by advocates for big government and big business and makes its decisions accordingly.
  • The “Michigan Strategic Fund” was created in 1984 in response to a recession that had already been over for two years. In more than 30 years since, it has failed to identify a strategy that can deliver a return on the resources it expends. Rather, its governing board rubber-stamps whatever deals are brought before it, without any analytic rigor.
  • The legislation called “Good Jobs for Michigan” isn’t about creating jobs. Rather, it makes tax money flow to some companies, rather than from them. The state’s own Auditor General found that only one out of every five promised jobs is ever created through these kinds of deals.
  • “Transformational brownfield redevelopment” means building something new where something else used to be. In other words, it’s what humans have done since we invented cities, and for millennia people did it without getting free money from the government to do so.

We have a term for these sorts of terms – doublespeak – thanks to Orwell’s “1984.” But before he introduced us to the power of “doublethink” and “Newspeak” in that novel, he published his essay “Politics and the English Language” that still reads true today. “In our time, political speech and writing are largely the defence of the indefensible,” he wrote. “When there is a gap between one's real and one's declared aims, one turns as it were instinctively to long words and exhausted idioms.”

The way to fight this, he said, is to recognize and avoid the temptation to act like Humpty Dumpty and make our own words mean what we choose them to mean. “Political language — and with variations this is true of all political parties, from Conservatives to Anarchists — is designed to make lies sound truthful … and to give an appearance of solidity to pure wind,” Orwell concluded. “One cannot change this all in a moment, but one can at least change one's own habits.”

For those who oppose efforts by would-be central planners to interfere in the market and pick winners and losers through the political process, remember Orwell’s warning: “A bad usage can spread by tradition and imitation even among people who should and do know better.”

We do know better. But until we regain control of the language being used, simply being right isn’t going to be enough.


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Skorup Speaks on ‘Good Jobs’ Proposal Before Michigan House Committee

Republicans contemplate returning to bad economic policy

Editor's note: The following is a transcript of the testimony given by Jarrett Skorup, a policy analyst at the Mackinac Center for Public Policy, on June 14 before Michigan House Tax Policy Committee.

In February of this year, the House Republican Action plan said this, in regards to economic policy:

“To provide people with more opportunities, we will support a broad-based economic environment that is friendly to job creation and business growth, no matter the size of the business. We are also going to protect the taxpayers’ investment by making sure the funds used by the Michigan Economic Development Corporation are transparent to the public, directed toward long-term viability, help small businesses and are not wasted on picking winners and losers.”

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These bills, the so-called “Good Jobs” package, violate those principles. Let’s take them one-by-one.

“To provide people with more opportunities …”

These bills provide more opportunities for some by taking from the many. Even if you believe the promises made in the bill package, at the end of the day you have a state agency deciding which companies get tax credits.

“We will support a broad-based economic environment that is friendly to job creation and business growth, no matter the size of the business.”

These bills are narrowly tailored toward large corporations. Every three months, Michigan creates around 200,000 jobs – Lansing is going to pick and choose which of those get a break.

“We are also going to protect the taxpayers’ investment by making sure the funds used by the Michigan Economic Development Corporation are transparent to the public, directed toward long-term viability, help small business and are not wasted on picking winners and losers.”

Transparent? As we sit here, the MEDC is paying out more than $600 million for past tax credits and will not say who the money is going to or what the money is being used for. The agency is not compliant with reporting requirements on its current programs, but lawmakers are being asked to provide blanket authority to spend $250 million for bureaucrats to select winners and losers. Help small business? These bills are for large firms. Not picking winners and losers? Some companies get breaks, others are on the hook for the cost.

Testifying here today, I feel like I’m in the movie “Groundhog Day.” Michigan has gone the tax credit and subsidy route – in the 1990s under Gov. Engler and in the 2000s under Gov. Granholm. Bill packages promising “good jobs” were passed with wide, bipartisan support. But reviews of those programs showed negative economic results, particularly for the Michigan Economic Growth Authority package, in which fewer than 3 percent of projects met their projections and fewer than 20 percent of promised jobs were created.

But we don’t even have to look at MEGA; we have plenty of research showing the ineffectiveness of this type of program. The Kansas PEAK program is very similar to this “Good Jobs” legislation. Established in 2009, PEAK encouraged firms to move to the state or expand, allowing them to keep up to 95 percent of the payroll withholding taxes (based on wages above the county median). The nonpartisan Kauffman Foundation recently found the incentives had no notable effect on Kansas jobs or income. This shouldn’t be surprising – the economic literature on tax increment financing shows the effects to generally be negative, with the costs of the programs outweighing the gains.

For a decade, Michigan was a national leader in what we consider bad economic policy – raising taxes broadly while giving breaks to specific companies or industries. When Republicans took over the House and governorship, it wisely moved away from that. While we still offer subsidy programs, the amount of corporate welfare and tax credits has greatly declined. In those years, Michigan has been a national leader in jobs and income. Let’s not go back to repeating the mistakes of the past.


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What’s Old is New Again: Another Subsidy Program Being Considered by Legislature

Do Millionaires Need More Subsidies?

In pursuing economic development, Michigan may repeat past errors

State lawmakers are once again rushing to embrace another program designed to benefit a few at the expense of the many. The new proposal is known colloquially as “Good Jobs for Michigan” but if history is any guide, it will produce few of note. It is a state “tax capture” program loosely modeled on the state’s failed multibillion dollar corporate welfare subsidy program known as MEGA, and it could be passed as early as this summer.

The proposal effectively allows well-connected corporations and others to keep tax dollars for projects that would have otherwise accrued to the government. It should not be adopted into law. It is unfair, supported only by questionable economic analyses, doesn’t work and is expensive, too. Michigan’s jobs bureaucrats should just quit while they are behind. A better development tool is a fair field and no favors — tax cuts for all and not just a few big business owners selected by state politicians.

Government — as many have long argued — has nothing to give anyone it hasn’t first taken from someone else. In order for legislators to give financial favors to big business they must first, directly or indirectly, reach into the pockets of small business owners and other taxpayers.

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Robbing Peter to pay Paul is poor economics, especially because an expensive bureaucracy is necessary to run expensive corporate welfare programs. This program could cost $250 million for up to 10 years, for starters.

The proposal’s authors have tried to give it some intellectual respectability by calling for a “regional” computer-based analysis. The computer model is supposed to assure whether the tax capture scheme “will result in an overall positive fiscal impact to the state.” But this means nothing.

In truth, the bill mandates a facade of science be constructed to obscure the program’s costs and perhaps puff up its alleged benefits. The state’s hugely expensive and failed Michigan Economic Growth Authority subsidy program also required such analyses.

And those analyses, published by the program administrators, repeatedly found net positive benefits for handing out fiscal favors. Yet we now know that only about 2.3 percent of MEGA deals lived up to their expectations, meaning the computer analyses were wrong. The only thing they demonstrated was the inability of state bureaucrats and their consultants to accurately predict the future.

The failed MEGA program itself is a reason not to create a new MEGA program. Five academic- style studies have been performed of the old MEGA between 2005 and 2014. Four of them said MEGA had a zero-to-negative impact, despite the effort of billions in taxpayer dollars. The fifth found a positive impact, but it was small. If MEGA, a huge program, could not move Michigan’s job needle, it is unlikely that this new, smaller program will either.

Kansas tried a tax capture program called PEAK, or Promoting Employment Across Kansas, which was similar to Good Jobs for Michigan. When he studied PEAK in 2014, economist Nathan Jensen concluded that firms that had received special treatment were no more likely to create jobs than similar firms that did not receive an incentive.

Good Jobs for Michigan is officially capped at $250 million worth of deals. But this can easily be increased by the Legislature. Remember, the first MEGA program was sold as a narrowly tailored, rarely used incentive deal program, too. It quickly expanded when it was politically convenient. Last year, the now defunct MEGA program cost the state treasury $1 billion, roughly equal to all the money generated by the state’s corporate income tax.

It should not strain credulity to think that a future governor might happily expand a new MEGA into something as unrecognizable and expensive as the original MEGA became over time.

The proposed Good Jobs for Michigan program is as unfair, ineffective and could easily become as expensive as Michigan’s past, failed jobs programs. It should not be adopted.


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On Cigarette Tax Evasion, I Told You So

Additional four million packs to be smuggled into Minnesota next year

In 2015 I was graciously invited to testify before a Minnesota state committee on taxes regarding an automatic tax inflator for cigarettes. The invitation was a result of my decade long investigation — in partnership with professor and economist Todd Nesbit — of cigarette excise taxes and their impact on illicit activity, most notably tax evasion. I told the committee what it apparently did not want to hear: that their recent tax increase and associated tax inflator would lead to rampant smuggling.

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In my testimony I outlined the mountain of research showing a causal link between smuggling, high excise rates and tax differentials on cigarettes between states. At the time I could only report that the North Star State had the 16th highest smuggling rate in the nation. The data was not yet available to measure the impact of the 130 percent excise tax increase imposed in 2013. Using our statistical model we forecasted that smuggling would leap to 32.9 percent of the overall market from just 18 percent.

Most Minnesota lawmakers were completely dismissive of my concerns and perhaps even more so when I asserted that smuggling would only get worse as the state’s tax inflator raised the overall price of cigarettes. Since that February day the evidence has borne out my forecast and more. The implicit admission by the state of smuggling trouble came that same winter when the governor’s proposed budget said that 40 percent of inspections of Minnesota retailers “resulted in either a seizure or assessment related to the discovery of untaxed tobacco products.”

Using our statistical model with data from 2015, we estimate that Minnesota’s smuggling rate will increase to 37.4 percent of the total market over the next year, or almost 1.5 percent points above our last estimate.

This should surprise no one. The state currently imposes a combined excise and in lieu sales tax of $3.59 per pack. Its neighbor, North Dakota, charges just 44 cents per pack. One doesn’t need a doctorate in economics to recognize that both consumers and criminals are going to take advantage of the tax-induced price differentials to save a buck transiting state borders near and far.

Two men from Illinois recently pled guilty to charges in Minnesota for running a truckload of illegal smokes with a retail value of $78,000 over from Wisconsin last year. It was a record bust in the state but puny compared to those in other states. States with higher excise tax rates have seen arrests that discovered millions of dollars of smuggled cigarettes. On June 8, three Canadian citizens plead guilty to moving $17 million in illicit smokes from Kansas to New York, as one example.

Minnesota will probably see similar large-scale smuggling efforts in the near future, if they aren’t already. After all, the state has guaranteed smugglers a high pay out with its high excise tax rate and automatic (upward) adjustments. We estimate that four million cigarettes will be trafficked into the state by casual users and by organized crime in the next year. The sources will range from North Dakota to North Carolina and even overseas, via mail and shipping containers. Illicit smokes acquired in Virginia have been found as far away as California.

Regrettably, cigarette smuggling isn’t the only unintended consequence of the practice. Indeed, we’ve seen cigarette tax-related thefts of wholesalers and retailers, hijackings of cigarette laden trucks, counterfeiting of legitimate products (which are often adulterated like the Bath Tub Gin of the Prohibition Era), corruption of public officials and even murder-for-hire schemes. Most if not all of this behavior can be laid at the feet of high cigarette excise taxes.

The first step in addressing the problems I cite above is to repeal the automatic inflator on cigarette taxes. As I predicted years ago for Minnesota, automatic tax hikes will lead to automatic increases in tax-related lawlessness.

In endorsing a proposal to give businesses more subsidies, The Detroit News says that failing to pass this package “stunts not just job creation, but the state’s population growth as well.” But that assumes the proposal will help the state economy and fails to consider the full costs of this subsidy program.

The empirical and historical evidence of similar programs suggest that these proposed subsidies will not have a meaningful impact on job creation and certainly won’t increase the state's population. Economists have assessed dozens of similar programs in Michigan and other states and the results are pretty negative.

Opponents of this recent selective subsidy program are being accused of being “ideological.” But the real ideologues are those who support delivering hundreds of millions of taxpayer dollars to politically favored business owners based on flimsy evidence.


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