Should State Delay Income, Business Tax Cuts?
The following article originally appeared in the January 27, 2002, Detroit News (http://detnews.com/2002/editorial/0201/27/a15-400677.htm) opposite Sen. Alma Wheeler Smith's argument in favor of delaying already-enacted tax cuts due to the economic slowdown.
With the economy sputtering and unemployment on the rise, many responsible Michigan families are tightening their belts. They are sorting out the most important things and curtailing, postponing or eliminating the least important. More than a few of them expect state government will do the same.
Largely through cutting spending and tapping the state's "rainy day" fund, the Engler administration and the Legislature have done a good job making ends meet in the current fiscal year. But on the horizon is a deficit of more than $1 billion for the fiscal year that starts this fall. This has prompted talk that the scheduled modest reductions in the personal income and single business taxes should be canceled or delayed.
While this step might retain $300 million or so in the state's coffers, Michigan would forfeit precious momentum it needs to get its tax burden more in line with most of the states with which it competes for people, businesses and economic growth.
In spite of recent progress in reducing the tax burden state and local governments place on taxpayers, Michigan still ranks as a high tax state -- the ninth highest on a per capita basis, according to the Tax Foundation. Our complicated single business tax is especially onerous during recessions, and those businesses that pay it do so whether they earn a profit or not. If Michigan had a standard corporate income tax, the rate necessary to raise the revenue brought in by the single business tax would have to be about 15 percent -- far higher than the corporate income tax rates of perhaps all but two states.
Our personal income tax is likewise well above the national average as a share of personal income. In other words, dozens of other states do their jobs well on less money. Michigan has more tax-cutting progress to make if it wants to simply be "average" in its overall tax burden. Gov. John Engler indicated in his State of the State speech that he recognizes this and wants to keep the tax cuts on track.
Former New York City Mayor Rudy Giuliani had the right idea when the Sept. 11 terrorist attacks blew a billion-dollar hole in New York City's $39-billion budget. He didn't cancel or delay the billions in tax cuts that were scheduled through 2005. Instead, he called for 2.5 percent reductions in police, fire and school budgets, plus a 15 percent across-the-board cut in everything else. Giuliani understood that when the patient is weak or ill, the doctor shouldn't bleed him.
In one respect, our looming state deficit represents the proverbial chickens coming home to roost. If state spending since 1990 had grown no more than inflation and population, total expenditures this year would be about $600 million less than they are. Or if just half the $625 million squandered in one election year's pork-laden budget bill in 2000 had instead been "banked," we would have more than enough money in the till today to cover next year's tax cuts.
Some who urge postponement or cancellation of the tax cuts are the same ones who oppose exempting education from the state's costly prevailing wage law. This special privilege for organized labor every year forces Michigan schools to spend $150 million more than necessary for construction. Ohio exempted education from a similar law in 1997, saving schools millions of dollars and partially helping to make the Buckeye State's tax burden less than Michigan's.
As responsible Michigan families re-prioritize their budgets and scale back less-important items, so should their state government. Legislators and others who think Michigan is "undertaxed" should put their money where their mouth is and write personal checks to Rep. Mickey Mortimer's "Tax Me More" Fund.
Gov. Engler is right. Make tough decisions. Remove burdens, don't add to them. That's leadership, and that's what Michigan families pay their elected representatives to do.