Detroit or Dallas: Part 3
Where have all the college graduates gone?
Detroit (and Michigan generally) has long been suffering from a shrinking population and acute “brain-drain.” According to a 2007 poll of students at the University of Michigan, Michigan State and Wayne State University, 44 percent reported that they intend to leave the state upon graduation. This sentiment has been confirmed by the Census Bureau, which ranked the state of Michigan second to last in the country in retaining young adults between 2000 and 2005.
Next to New Orleans, which lost so much of its population due to Hurricane Katrina, Detroit ranks first among all other U.S. cities in the number of people leaving its jurisdiction from 2005 to 2006. To earn that dubious distinction, in just that one year more than 12,000 residents left Detroit.
Overall, Michigan is expected to fall from its current position as the eighth most populous state in terms to the eleventh by 2030, growing by a little more than 600,000 people in the next 22 years; in comparison, Texas grew by more than a half million in the last year.
So why are so many people choosing to leave Michigan, and deciding (in some cases) to move to places like Texas? Surely, the fact that we don’t have an income tax plays a significant role. All things being equal, if you were a smart young recent college graduate in 2008, wouldn’t you also want an immediate 7 percent pay raise by choosing to live in Texas and not Detroit – thereby avoiding high state and city income taxes?
Another challenge for college graduates and others who wish to live in Michigan is simply finding a job. Unsurprisingly, job creation has proven to be one of the other major impediments to growing Michigan’s economy.
To underscore Michigan’s predicament in attracting new industries and nurturing businesses to create new jobs inside the state, look at the score given to the state by the non-partisan Tax Foundation in its “State Business Climax Index.” According to that group’s economic analysts, Michigan is 29th in the country in terms of overall business climate. In other words, if you were a corporate executive looking to locate your business, there are 28 other states that stack up more favorably than Michigan.
Compare this experience with the one in Dallas, which in the last 18 months has lured the corporate headquarters for AT&T (formerly headquartered in San Antonio, Texas) and Comerica Bank (formerly headquartered in – you guessed it – Detroit, Michigan).
In terms of taxing its corporate employers, Michigan ranks next to last in the entire country, confirming its status as a relatively hostile state for entrepreneurs.
Over the years, Michigan has fallen victim to the same attitude I hear expressed in so many speeches given by liberal Democrats – namely, that businesses “can afford” higher taxes. The experience of Michigan proves that this isn’t so; there is a limit to what corporate employers and small businesses can afford to pay in taxes. At some point, businesses will move, cease to operate or, (in the case of a car manufacturing) no longer be globally competitive.
The negative impact that bad tax policy has had on business in Detroit over the past several decades has in turn produced the highest unemployment rates in the country. It is a huge mistake to assume that an employer’s ability (and will) to pay ever higher taxes has no limit – and ignoring this reality has harmed Michigan’s economy to such an extent that almost one out of every two of its best and brightest now chooses to leave the state.
For February of 2008, the Bureau of Labor Statistics reported that Michigan had an unemployment rate of 7.2 percent, the highest in the nation. In Detroit, the rate of unemployment is even higher, 7.7 percent, which is the highest jobless rate among all metropolitan areas with a population in 2000 of 1 million or more. Not surprisingly, Detroit also had the highest number of job losses on a year-over-year basis. From February of 2007 to February of 2008, more than 42,000 payroll jobs disappeared from the Detroit area, while more than 62,000 vanished from all of Michigan, inclusive of job losses coming out of Detroit.
Meanwhile, the Dallas area added almost 71,000 payroll jobs in the same period, which were part of the 235,000 jobs added to payrolls in all of Texas during that same year.
Clearly, in terms of “solutions” for the creation of new jobs goes, Texas is performing better than Michigan. And a big part of the solution that’s working for Texas is not raising taxes and realizing that the world is a competitive place. To attract the new jobs and economic opportunities of tomorrow, a city must lower its barriers to entry – not raise them. Cities that don’t learn this lesson might as well start handing out one-way plane tickets with their graduates’ diplomas.