Monday, October 01, 2007

Michigan breaks into the Top Ten

Captain Ed points out that Michigan's elected representatives have succeeded in catapulting our state from fourteenth place into the Top Ten - in total tax burden:
...Adding taxes to Michigan amounts to a domestic Smoot-Hawley approach. Michigan already had the 14th-highest tax burden in the US. State and local taxes took 11.2% of their income before these tax increases. They now appear ready to leapfrog Arkansas, California, Minnesota, and New Jersey to enter the Top Ten of tax-burden states.

Note, too, that the Michigan government solved the problem by a 3:1 ratio of sacrifice. They increased taxes by over $1.4 billion, thanks to increases in both income and sales taxes that go into effect immediately. They only managed to shave $440 million off of their own budget. Given that the state budget planned for $42.6 billion in spending for FY2007, this represents a whopping 1% decrease in state spending. It hardly seems as though Michigan lawmakers even cracked the books of their budget to look for other opportunities for savings. [Note: The Republicans in the Senate Senate did come up with a plan that required no tax increase. The Democrats in the House, and the Governor, wouldn't discuss it.]

The increased burden of taxation will not help Michigan recover its economy. It will pressure businesses to move elsewhere at a time when Michigan needs investment and commitment to improve its financial stability. Instead of reversing the decline, the increased burden will escalate it, and next year's revenue shortfalls will create the exact same problem for Michigan.

It's a disaster in slow motion. Instead of taking a critical look at the reasons why Michigan's economy has plunged, the state legislature has punted and stuck its citizens with the bill. That's hardly a profile in courage.
Make no mistake, the Democrat majority could have passed this in the House months ago, but a handful of them hadn't the guts to face recall elections. No, and the weasels had to spend eight months damaging Michigan's credibility in financial markets to arrive at their denouement. It hasn't gone unnoticed outside the state. Rich Lowrey at National Review provides some background and notes some reasons we have come to this pass:
...[Michigan] is suffering from a one-state recession all its own, mostly because it has failed to foster the most profound economic force in the universe — opportunity. The state has been losing out to more business-friendly environs both overseas and in other states for decades, but has refused to adapt accordingly.

...Michigan was the only state in the country not hit by Hurricane Katrina to lose jobs between September 2004 and September 2005. The state unemployment rate just ticked up again to 7.1 percent, substantially above the nation’s rate of 4.7 percent. The rate of growth of its per capita gross state product is 49th in the nation; lowly Mississippi is 44th.

Michael LaFaive of the Mackinac Center calls Michigan “the France of North America.” Economically competitive states might have a personal income tax, or corporate income tax, or sales tax — Michigan has all three. It has long been the only state with a European-style, value-added tax — the Single Business Tax.

...Meanwhile, unions make the state an inhospitable place to do business. A company can be bankrupt in Michigan and still face threats of a strike, as Northwest Airlines and the auto-parts maker Delphi have learned. Michigan’s unionization rate of 21.8 percent is much higher than the national average of 13.5 percent. This accounts for it having the second-highest unit-labor cost in the nation, according to the Mackinac Center. States with right-to-work laws, and consequently less unionization, experience more growth and create more jobs, at the expense of troglodytes like Michigan.

It used to be that unions could force unnaturally high wages and benefits on U.S. manufacturers, and the costs would be passed along to consumers. Those were the days prior to globalization when the U.S. auto industry had a lock on the domestic market and experienced little international competition. It was inevitable that Michigan would find the new competition disruptive, but not that it would react to it so poorly.

The way to thrive in a globalized environment is to create a low-tax economy without the rigidities that come with heavy unionization and regulation. For those who disagree, Michigan beckons.
As Alice the Camel noted last week, it's only Liberals for whom political economy is a mystery. The problems have been well known to conservtives for a long time:
The natural function of a trade union and the one for which it was historically conceived is to represent those employees who want collective representation in bargaining with their employers over terms of employment. But note that this function is perverted the moment a union claims the right to represent employees who do not want representation, or conducts activities that have nothing to do with terms of employment (e.g. political activities), or tries to deal with an industry as a whole instead of with individual employers. -Barry Goldwater

Paladin fleshed this out in Michigan's case in February: If Jobs Really Matter ……

Jobs. Michigan needs more jobs. Ask anyone. Read any newspaper. Listen to any politician. More jobs are what we need. Better jobs are what we need. Manufacturing jobs are what we need.

The Wall Street Journal reports that in the 20 years between 1986 and 2006 right-to-work States like Alabama, Texas, and South Carolina added 104,000 auto industry jobs while union-fair-play States like Michigan, New York, and Ohio have lost 130,000 auto industry jobs.

Union membership in the United States has gone from 34% in the fifties to 12% in 2006. How much longer can Michigan afford to ride this curve? Where are the politicians who really do care about jobs? And why don’t we elect them?

Unions were needed in the 1930s. Unions thrived from 1945-1970 in the environment of the auto industry quasi-monopoly. And as long as the monopoly lasted, Michigan’s “fair play” laws could not do serious damage.

Those days are gone. Only free markets for capital, goods, and labor can restore Michigan’s greatness.
I will note that 2 Republicans in the House voted in favor of this idiocy. It did not change the result, but you have to ponder what this sort of behavior implies about the value of term limits. Their defection did provide a margin of safety for a Democrat to vote against the measure. Jack Hoogendyck notes:
In the end, Chris Ward (R) Brighton, and Ed Gaffney (R) Grosse Pointe, voted with the majority of Democrats to approve the new tax. Both are in their last terms. They are not worried about reelection.

Mike Simpson (D), a vulnerable from Jackson voted NO. He got off the hook, thanks to two Republicans.
The only good news to come out of this is that MESSA and the MEA are facing a "reform." The Democrats must be profoundly embarrassed.

2 comments:

Anonymous said...

In 2001 (at the age of 42), I finally called it quits on Michigan and moved to metro Atlanta (GA). During the 10 years prior to my move, business was great. Even though I worked for companies based in Connecticut, Iowa and Minnesota, I was determined to stay in my home state and support the economy by telecommuting long distance. Now, I just go back to Michigan a couple of times a year and act like a tourist...not sure Michigan will even get tourists to visit anymore (might as well visit Canada).

RightMichigan.com said...

Anonymous isn't going to be the only one.

--Nick
www.RightMichigan.com