Michigan Economy Declines as Legislature Fiddles

Published October 1, 2007

The depth of the economic crisis in Michigan is greater than ever, and there is little evidence of a turnaround any time soon. Consider the following data from May and June of this year:

  • Michigan’s per-person economic output fell from 96 percent of the national average in 2003 to 89 percent in 2006 (Dana Johnson, chief economist, Comerica Bank).
  • The state’s gross domestic product (GDP)–the best measure of the output of the economy–declined by 0.5 percent, while the nation as a whole expanded by 3.4 percent. From 2003 to 2006, Michigan was the only state with a decline in GDP (Johnson).
  • In a recent poll by EPIC/MRA (formerly known as Michigan Researchers Associates), fully 3 percent of Michigan residents (a stunning 300,000) said they would “definitely” be moving out of the state because the economic or employment situation was so bad.

State of Decline

Unfortunately, the legislature has been slow to address the crisis. Consider the following:

  • Within three months of passage, the 2006-2007 budget was found to be about $900 million in the red. It was five months before the legislature and the governor finally agreed to “balance” the budget through delayed payments to universities and community colleges, withheld pension fund payment obligations, and more than $400 million in borrowing against future tobacco settlement payments.
  • The state’s Single Business Tax (SBT), rated by the Tax Foundation as the worst business tax in the nation, was repealed last year. Instead of replacing it quickly with a smaller, simpler, more streamlined business tax, the legislature and governor negotiated, postured, and fiddled for six months. Finally in June, a new tax package was enacted that is bigger, just as complex, and just as likely to drive away jobs as the old plan.
  • The governor submitted her 2007-2008 budget to the legislature in February. As of August 1, the budget was still working its way through the appropriations committees. Rather than act quickly to balance the budget to expected revenues of $8.5 billion, the House has been fiddling with a spending plan that may exceed $10 billion. There are at least three new tax plans on the table–an increase in the income tax, a new “luxury” tax on services, and a $1.35 monthly fee on every telephone line, including cell phones and the Internet.

None of these actions will foster the policy and spending priorities needed to downsize government and create an environment for job growth.

Jack Hoogendyk ([email protected]) is a Republican state representative from Kalamazoo, Michigan.