Dr. Charles Ballard, Professor of Economics at Michigan State University

David Haynes sits down with Dr. Charles Ballard, Professor of Economics at Michigan State University. They cover topics including Michigan’s economy and budget, wealth inequality and Michigan’s shrinking middle class, childcare tax, and more.

Dr. Ballard is an expert in all areas of economics including the Michigan and national economies; trade reform; tax and expenditure policy; state and local public finance; taxation; and poverty and income distribution. He has extensive experience talking with the media about the economy and politics. Ballard also directs MSU’s quarterly State of the State Survey, which measures Michigan’s consumer confidence and approval ratings of political leaders. In 2007, he won the Outstanding Teacher Award in MSU’s College of Social Science. He currently serves as Board Chair of the Michigan League for Public Policy.

Transcript

David Haynes:

Hello, everyone. Welcome to another edition of our Rural Insights podcast. And I am delighted to have with us today, a good friend for many years, Dr. Charles Ballard, professor of economics at MSU, at Michigan State University, and the author of many books, which I assume you can buy through Amazon after you hear him talk. And if you can’t find him, give me a call, I’ll get it set up. So you know where his books are, but Charlie, glad you’re with us today. Thank you very much.

Charles Ballard:

Thanks for having me. Good to see you.

David Haynes:

I’d like to start out with you and I went back and a little bit on some of this, and that is the… First, let me ask, I guess before I do this economic in inequality, what’s the situation, do you think, with the Michigan revenue stream and therefore the budget, but what’s your look at this, especially with everything we’re seeing with inflation coming on?

Charles Ballard:

Well, there’s a temporary story and a long term story, temporary, because of the various bills that have been passed in the last year to try to recover from COVID. There’s a lot of money and, and the state government is in the unusual position of having a pretty good revenue system revenue situation, but long term, our revenues ha our revenue system has been deteriorating for years. The fraction of our economy that we devote to state and local taxes in Michigan has been going down for 50 years. And that means less revenue available for supporting K-12 education, for supporting higher education, for fixing the damn roads, as Governor Whitmer would say, for just a wide variety of social service, for parks, you name it, our budget has been really stressed. So the long term situation, I think is, at least is not nearly as favorable as I would like it to be, given all of what I see as pressing needs for investment by the government, but in the short term, because of the infusion of federal funds, it’s not as dire.

David Haynes:

So one of the, obviously for our listeners, this is about, then how do you get more revenue? How do you get taxes? And, as I think we all know, Michigan has a very difficult time when they have to take taxes to the voters of passing new taxes, which is a normal inclination. But as the saying goes, somebody has to pay the bills. So for many years, and for those of you listening, Dr. Ballard has been a major scholar and person that talks to public policy makers about issues of taxation and revenue in Michigan. The inequality gap grows between rich and the poor, middle class and the very rich. Dr. Gene Sperling has a great book, Economic Dignity, which writes about the earned income tax credit and how it helps everybody from his perspective, can you talk a little bit about earned income tax credit and the graduated income tax ideas, which I think a lot of people believe will help this issue of inequality and will help the state with revenue. I assume.

Charles Ballard:

Sure. As background, really, this big increase in inequality began about 40 years ago. It has a variety of sources. Lots of things played into it. Some political, some economic. Michigan has not been very different from most of the rest of the country, in that in Michigan what’s had is the high income have pulled away from the middle and the very high have pulled away from the high, the middle and the bottom haven’t done nearly as well. And that’s actually worse in Michigan than in most other states. We used to have a very robust and vibrant middle class, ordinary folks at just a high school education who were earning very good wages and that’s been hurt in recent decades. And the people at the bottom haven’t done well.

So with that as background, my feeling is that it would be wise to do more to help those at the bottom. And if you got to pay for it, maybe wise to pay for it, buy more from those at the top. So earn income tax credit, that’s something that helps people at the bottom. It’s different from the old style welfare programs, which just gave cash.

The EITC only gives benefits to those who are working and it is targeted at low income families. Most of the money goes on to low income families with children, relatively little to low income folks who don’t have children, but most of it is low income families with children. And you can only get it if you work. And so it is an incentive to work. And the evidence suggests that it’s had a beneficial effect all over the place. So we have a federal EITC. It was signed in a law by Michigan’s own Gerald Ford in 1975. And remember, he was a Republican, it was expanded under Ronald Reagan, another Republican, expanded again under George H.W. Bush, another Republican and expanded at the federal level for the fourth time, when Bill Clinton, a Democrat was the president. But I say that because it’s something that historically has had a lot of bipartisan support and many states have chosen to top up the federal EITC. Clearly in Michigan, we don’t have any control over what the federal government does, but if we want to augment that we can’t.

And in 2007, we passed a bill that took your federal EITC and boosted it by an extra 20%. Then in 2011, there was a strong move to eliminate that entirely, which I think would’ve been a mistake. What we ended up doing was, cutting it by more than half, instead of a 20% top up, we have a 6% top up. If it were up to me, I’d go back to the 20% because the evidence, and tons of evidence from sociologists and economists, lots of research that’s been done on this, including some at MSU, showing that it’s had beneficial effects. So-

David Haynes:

What does six up mean? What does that mean?

Charles Ballard:

Well, so for a typical household, you might get a few thousand dollars from your EITC. Let’s say, just to make the arithmetic easy, that you are getting a thousand dollars from the federal EITC. Well, back under the old system of a 20% top up, you’d get 200 extra dollars from Michigan, under the 6% top up you only get 60 extra dollars for Michigan. And there are some people, depends upon the number of children, depends upon a bunch of things, but some people are getting like four or $5,000 of federal EITC. And if you’re in that category, then the drop from a 20% state top up to a 6% state top up was several hundred dollars. Not trivial, especially when you’re talking about, we’re talking about people, generally, the population that is affected by the EITC. These are not people who are driving around in Cadillacs. This is lower income, lower wage, working Americans. Many of whom have been struggling for decades to make ends meet.

David Haynes:

So, as you know, we have a relatively high poverty rate in the peninsula, especially the more rural areas of the peninsula, the childcare tax credit. We hear a lot from our listeners and our readers about the childcare costs in the UP, which are averaging out from our research at 6, 7, 800 a month. I forget off hand. Does that tax credit would also help folks get in the EITC? Would it not?

Charles Ballard:

Yes, absolutely. And so what we’ve seen, and I think this is generally a positive trend in public policy in America at a time when there have been lots of negative trends, but a positive trend is this increase in our efforts to help low income families with children, because often the evidence, what do they spend the money on? In some cases, it allows them to fix their car so that they can get to work more reliably. And in some cases it allows them to have a little bit extra so that they can go to a school or community college or a training program, get an extra certificate and help work their way up the ladder. So lots of good effects, both from the childcare tax credit and from the EITC. They’re both things that I think are good ideas that we ought at least keep. And maybe expand.

David Haynes:

So the childcare tax credit, from a tax policy point of view, also helps the middle class, that shrinking middle class that have children. They would probably-

Charles Ballard:

Most of these things are designed such that they, they phase out over a complicated schedule, but basically here’s the issue. If you want to give something to the low income folks, but you don’t want to give it to the rich, well, if you have an abrupt cutoff where all of a sudden you get one more dollar and you lose your $3,000 benefit that that causes problems. So what we do for many, including these programs, there’s a gradual phase out, which means that some people, who we would call middle class, get at least some of that, but the benefits have the largest effect down in, what we would call, lower middle or working poor.

David Haynes:

So before we talk about the graduated income tax, go back to talk a little bit about what are the major impacts and causes of the shrinking middle class in Michigan. What have been those influencers that people should know about? What’s caused that?

Charles Ballard:

A lot of things going on, but in Michigan, one thing that really stands out is that we were 60 years ago, 70 years ago, we were so heavy into manufacturing, and we were extraordinarily successful with it for several decades. But manufacturing has been shrinking as a percentage of the American economy since the fifties. And so the sector in which we were specialized, and it’s not just… It’s all sorts of manufacturing, but it’s autos more than anything else. That sector has not done well for decades now. And also labor unions have become weaker. And those two things go hand in hand because labor unions, their traditional strength was in manufacturing sectors.

And so what we’ve seen is a long term decline. It used to be, I mean, there are lots of stories of the economic miracle of the middle of the 20th century of ordinary people didn’t have a college education, but went to work in a factory and made really good money. Those stories are very much less common now. Another thing that I think contributed was we in Michigan, I think had been so successful with manufacturing 60 years ago, that we got caught flat footed as the economy was evolving toward much more of a high tech, high skill. In the auto factories, the people who used to do simple, repetitive tasks, installing the left rear door handle 107 times an hour. Those people have been replaced by robots. And those robots are then operated by computer systems analysts. So it’s a different skillset. And I think we haven’t done nearly as good as we could have and should have to train our people for the new jobs that are evolving.

So tho those are some of the stories about why the middle class has struggled. It’s struggled all across the country, but the struggles have been more in Michigan than in an awful lot of other places.

David Haynes:

I remember, when I was a young man working in Washington and in the state legislature, which was a long time ago, I’m afraid I have to admit, the middle class was referred to as the family that worked in the auto industry. And they had a house in a nice suburb in Southeast Michigan, and they had a camp up north. They had a pickup truck and a car and they lived the life that has disappeared as the prototype of that.

Charles Ballard:

There are still people who have a cottage up north. But they tend… It’s much less common for it to be somebody who works in the auto factory. It’s…

David Haynes:

Oh, yeah. So what about the graduated income tax? How’s it working? Would that help solve some of these problems and how?

Charles Ballard:

In my view, a graduated income tax would help to solve some of the problems. Let me first describe the federal income tax, which a lot of people are familiar with. It is progressive, which means that it takes a higher percentage from high income people than from low income people. And one way that it does that, is that it has what are called graduated rates. The rate on the first so many dollars of taxable income is 10%. And then it jumps up to 15% and then it eventually gets up to 37%. Those numbers are much lower than they used to be. We used to have a much more progressive tax system than we have now, but still, that’s how the federal system works. More than 30 states have a system like that with graduated rates. In many states, it’s something like 3% on the first so many dollars of taxable income.

And then it jumps up to five and then to seven, and then something like that. We in Michigan, we’re one of a handful of states that have a flat rate in the income tax. It’s 4.25% on every dollar of taxable income. So that’s the same rate on an extra dollar for the millionaire CEO as for the nurses aid or the carpenter’s assistant. So we have this flat rate and there are proposals out there, and I’ve worked on some of these campaigns to try to educate the public about it. There are proposals that could raise more money to go to schools and roads and stuff, and yet give a tax cut to 90% of Michigan’s people, the way you would do that would be to reduce somewhat the rate on the ordinary folks income and then have higher rates on those who have higher incomes.

Now, I should say this may come as a surprise to some folks, but I’m advocating for something that would not be great for my own pocketbook. I’m not going to tell you how much I make, but the fact for better or worse, is that PhD economists have done pretty well in the last 50 years. So I’m in the income bracket where if we were to enact a graduated income tax, I would pay somewhat more. But I take a broader view of what’s good. It’s not just what’s good for my bank account, narrowly defined. It’s, what’s good for the society in which I live. And that’s why I, even though it would cost me depending upon the proposal, maybe a few hundred more dollars a year, these proposals I think, would be good for the state.

David Haynes:

And in order for Michigan to do a graduated income tax, would have to be a vote of the people?

Charles Ballard:

That’s right. The flat rate income tax is written into the 1963 constitution. So in order to change that, you’d have to have a constitutional amendment. Now, there was a group of activists who tried very seriously. They put a big effort into getting it onto the 2020 ballot, but then along came COVID, and it’s really hard to collect signatures if everybody’s staying home. And so that didn’t happen. Will it be on the ballot in 2022? I don’t know the answer to that, but we have taken public opinion surveys, and often, public opinion it’s usually favorable toward these things. Of course, I think that the devil is always in the details. And we know that if a proposal ever reached to the ballot, there are well funded organizations that would spend millions of dollars on often misleading attack ads to try to defeat it. And so whether it would pass, I don’t know, but I do believe it majority support.

David Haynes:

When was the last time, what was it on the ballot in the seventies?

Charles Ballard:

Yeah. I can’t remember the exact year. I think it was on the ballot more than once. And it failed. Back in the sixties and seventies, we’d have to look up the year.

David Haynes:

Yeah. Well, I think our listeners see why everyone refers to Dr. Ballard as the leading state expert on taxes and the economy and his voice and his knowledge is heard by many. So I would hope I can get you to come back again and-

Charles Ballard:

I’d love to.

David Haynes:

…Do these sessions, so folks in the UP, to hear about some of these issues.

Charles Ballard:

That would be great. We’ve talked about some interesting things here, but there’s plenty of other stuff to talk about.

David Haynes:

Well, I was just going to say I got a whole list of things that we could talk for hours here, but I thought we break it up in chunks and we’ll do another one real soon.

Charles Ballard:

Well, this has been a good start. Thanks

David Haynes:

Thanks Dr. Ballard, and we’ll see you soon.

Charles Ballard:

Okay.

David Haynes:

Thank you, sir.

Charles Ballard:

You’re welcome. Thank you.