Auto Industry a “Bit Player” in State Fiscal Woes

Michigan politicians are fond of blaming the domestic auto industry's decline for all the state's problems. But "auto industry" just doesn't mean what it used to here. For example, domestic auto sales have fallen by 49.8 percent since their 1999 peak. Over the same period, however, inflation-adjusted state tax and fee revenues have only declined by 15.9 percent.

If the auto industry were the 800-pound gorilla of the Michigan economy the politicians try to convey, the revenue loss would have been much greater. Apparently, this gorilla weighs less than advertized.

Perversely, the same politicians who promote auto declines as the source of Michigan's travails also cite this as a reason to raise taxes. They imply that state tax revenues are disproportionately based on a single "old economy" source, and so our tax system is "out of sync" with the current economy.

They are wrong. Tax revenues are down in Michigan, but in proportion to the decline in overall employment here — not just automaker employment. In fact, Michigan tax revenues are tracking the state's economy much more closely than in most states. Our tax system has actually shown itself to be more resilient than other states'.

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