At the end of a year-long, successful campaign to impose a $1.4 billion tax hike on Michigan’s groaning economy, Gov. Jennifer Granholm (D) announced, “I’m not ever going to raise taxes again. It’s too hard. It’s too impossible.”
Granholm made her announcement in a December 5 interview published by the Associated Press.
The tax hike adds a further burden on a state with the nation’s highest unemployment at 7.7 percent, total employment down 10 percent since 2000, falling personal income in absolute terms, and the nation’s deepest real estate price declines.
Year of Tax Hike Rhetoric
Early in 2007 Granholm declared a shortfall in projected state revenue represented a “crisis” for which there was only one answer: a tax increase.
After setting the stage rhetorically, Granholm began her campaign for more revenue with a failed effort to push through a 2 percent excise tax on all services.
On the last day of the 2007 fiscal year the legislature had not passed a budget for FY 2008. In the early hours of October 1, as state government was beginning the process of shutting down, Granholm finally got what she wanted–a $760 million income tax hike and a different service tax, this one a 6 percent levy on selected services, most of which were business-to-business. The service tax was projected to generate another $750 million.
Huge Spending Increases
More than a few eyebrows were raised when the legislature used the new money to increase gross spending by some $900 million, to $42.7 billion. “What happened to the ‘crisis’?” taxpayers asked.
Also, the 6 percent service tax was quickly seen to be a jobs killer that would take a big bite out of Detroit’s struggling Big Three automakers. The service tax component was repealed two months later and replaced by a 22 percent, $600 million surtax on the state’s general business tax.
This has been a long, strange fiscal trip for a state that’s been in a one-state recession since 2003, but it’s easily explained by Granholm’s commitment to her core political base–public employees and their unions.
Despite blather about straitened revenues meaning “people will die” (she actually said this), from the start many newspaper editors, pundits, and scholars at the Mackinac Center for Public Policy viewed the campaign as being about maintaining business as usual in an unsustainable big-government establishment.
Business leaders in the state are skeptical about the sincerity of Granholm’s “I’ll never raise taxes again” promise.
“In the same interview where the governor shares her epiphany, she then moves right along to a discussion of support for fee increases to fund state departments,” noted Charlie Owens, director of the state chapter of the National Federation of Independent Business.
Owens predicts the only difference will be “a change in the vernacular whereby tax increases are called something else.” His verdict: “Neither the business community nor the taxpaying public will be fooled by such a play on words.”
Todd Anderson, vice president for government relations at the Small Business Association of Michigan, is a little more optimistic. After affirming the extreme displeasure of his members at the new tax hikes, he said, “We’re pleased at least that new taxes are off the table.”
But Anderson questions the governor’s commitment to “cuts and reforms,” which was the alternative Granholm proposed in her “no new taxes” interview.
“She said tax hikes are off the table because they are ‘too hard.’ Does she think [structural] reforms will be easy?” Anderson said.
Granholm has frequently scoffed at specific recommendations for “transformational reforms” made by organizations such as the Mackinac Center, Michigan’s free-market think tank.
Tricia Kinley is director of tax policy and economic development for the Michigan Chamber of Commerce. Her one-line reaction to Granholm’s putative mid-life conversion sums up the general view in the business community: “Nice news. It just comes one year too late.”
Jack McHugh ([email protected]) is senior legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan.