Eating the Seed Corn

by Jack Lessenberry
April 9, 2010

Former University of Michigan President James Duderstadt is not exactly famous for his one-liners. But he got one in the other day that said it all.

Wayne State University had invited him as part of a too-little-noticed, day-long symposium April 6 on the theme “The Michigan Economy: Will it Get Better; Can it Get Worse?”

The keynote speaker was Alice Rivlin, director of the Office of Management and Budget in the Clinton Administration and former vice-chair of the Federal Reserve, who was predictably incisive and brilliant, if not especially focused on Michigan’s unique situation.

Duderstadt, however, lives the reality of our economy every day, and as university president for eight years (1988-1996) had the dubious pleasure of wrestling with Lansing for funding.

Today, however, times are far leaner, and Michigan seems short of statesmen. Duderstadt said when he watches Lansing these days, he sometimes thinks the state motto (“If you seek a pleasant peninsula, look around you”) ought to be changed.

Perhaps to “Eat Dessert First, Life is Uncertain.”

That got him a good laugh — but his main point was serious: if Michigan is to have a better future, the way to get there is not by spending more on prisons than on higher education.

We need to willingly “make sacrifices to give the next generation a better future,” something Americans in the past have always done, which is why the pioneers built schools and hired teachers when they could barely afford to get in the next year’s crop.

Yet that mentality seems to have vanished. You don’t hear much talk of sacrifice and future generations in Lansing today. Though the governor weakly protested, nobody stepped forward to save the Michigan Promise Scholarship last year.

Michigan broke its promise to 96,000 college students who had been promised tuition help if they got good grades and went to a college in their home state.

“Sorry, can’t afford it,” the leaders in the legislature said.

Yet nobody dared suggest asking those already well-off to sacrifice instead. Here’s an example: Lynn Borset, a thoughtful reader in Ann Arbor, told me she understood that Michigan retirees’ income was entirely exempt from state taxes. If so, she asked, wasn’t this a serious revenue loss for the state, one that is likely to get worse as the population ages?

I turned to an expert: Michigan State University’s Charley Ballard, a professor of economics and the author of Michigan’s Economic Future. His answer was eye-popping: “It’s not just state employees who don’t have to pay tax on their pensions,” he wrote to me. “Michigan completely exempts the pensions of state government employees and local government employees and federal employees and military retirees.” No matter how well-off they are.

“AND (emphasis his) we exempt Social Security income. AND we are more generous than any other state in exempting private-pension income up to a pretty high threshold.” How high? Pretty darn high.

“For the 2009 tax year, private pensions are exempted up to $45,120 for a single person, and twice as much for a married couple. Thus, for a married couple, it is possible to have retirement income of well in excess of $100,000, and pay not a penny of Michigan income tax,” he noted. Nor does it stop there.

Lansing has put additional benefits under the Christmas tree for the group the New Republic magazine once wickedly called the “Greedy Geezers.” Ballard continued: “Michigan seniors get an additional personal exemption that the rest of us don’t get. AND the Homestead Property Tax Credit is more generous to seniors than to the rest of us.” As a result: “Something like 90 percent of Michigan seniors pay no income tax.”

“And since the Homestead Credit is refundable, many of them actually pay negative taxes.”

So what’s the bottom line for the state?

Hold on to your armrests. “A former Ph.D. student of mine now works for the Department of Treasury in Lansing,” Ballard explained. “His estimate is that the annual revenue cost is $700 million. And, of course, [the cost] is likely to grow as the state’s population grows older.”

Michigan, in other words, is risking the next generation’s future so that well-off senior citizens can have a few thousand a year more. Ballard noted that he is not a politician. But he did say, “From an economic standpoint, however, these policies are very suspect. Not only are we building in an ever-increasing revenue loss in a time of fiscal crisis, but there is also a matter of basic fairness.”

Not to mention common sense. Back in 1855, a few farmers’ sons literally hacked down some woods, threw up three buildings and put up a campus where Charley Ballard now has his offices.

They called it the Agricultural College of the State of Michigan. The legislators who authorized that embryo of MSU may not have been as sophisticated as their descendants today.

But they did know something today’s leaders seem to have  forgotten: if you want a future, don’t let grandpa eat your seed corn.

Veteran journalist and national Emmy Award winner Jack Lessenberry teaches at Wayne State University, serves as Michigan Radio’s senior political analyst and writes regularly for several publications. He also serves as The Toledo Blade’s writing coach and ombudsman and is host of the weekly television show Deadline Now on WGTE-TV in Toledo.