Mackinac Center Analyst Suggests Balanced-Budget Solutions

Mix of Asset Sales and Spending Cuts Will Replace Revenue From County Tax Shift Rebuffed by State House

For Immediate Release
Contact: Jack McHugh, Legislative Analyst
Phone: (517) 749-1129

MIDLAND—In the wake of the state House of Representatives’ rejection on Wednesday of a proposed shift in Michigan’s county tax collection date, Jack McHugh, a legislative analyst with the free-market Mackinac Center for Public Policy, has offered a series of balanced-budget recommendations that would provide an estimated $183 million in savings to the state budget in FY 2005 — an amount equal to the revenue projected with the county tax shift.

McHugh, who argues that the county tax proposal is in fact a tax increase, said Friday that the state House’s rejection of the plan presents a "rare opportunity to forgo short-term budget fixes and concentrate on fundamental reforms that shed unproductive assets, restrain swelling liabilities and pare back counterproductive and nonessential state programs." His recommendations follow:

  • End state subsidies to the Agricultural Experiment Station. This research should be financed by the agriculture industry itself. Approximate spending cut: $33 million (annual).

  • Sell the MacMullan Conference Center. State government should not be in the business of owning and operating a resort-type facility for its employees and their guests. Estimated income from sale: $10 million.

  • Eliminate the state’s "Technology Tri-Corridor" program. The "Tri‑Corridor" program is an economic development initiative of the kind that research and experience have shown to be counterproductive. Approximate spending cut: $30 million (annual).

  • Sell the state fairgrounds and end state government operation of the Michigan State Fair. The fair cannot succeed without proper market incentives, and this valuable piece of property is underutilized. Estimated income from sale (excluding estimated annual state property tax revenue from privatized parcel and possible savings on state fair operation): $55 million.

  • End state subsidies to the Cooperative Extension Service. Existing private initiatives show that this work can be performed by the private sector. Approximate spending cut: $28 million (annual).

  • Reduce revenue-sharing to local governments by 2.4 percent. Tax revenues that are spent locally should be raised locally. Approximate spending cut: $27 million (annual).

The recommendations are updated forms of budget advice provided in a May report issued by the Mackinac Center, "Recommendations to Strengthen Civil Society and Balance Michigan’s State Budget." McHugh’s analysis of the county tax shift proposal is posted on the Web.

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Mackinac Center Responds to State House and State Senate Fiscal Agencies' County Tax Shift Analyses

For Immediate Release
Contact: Jack McHugh, Legislative Analyst
Phone: (517) 749-1129

Proponents of the proposed county tax shift have claimed that it is not a tax hike. Now the House Fiscal Agency and Senate Fiscal Agency have issued analyses stating that taxpayers will lose, but “the only loss to the taxpayer would be the implicit loss of interest” (according to the HFA), and the amount is only $1.11 per year (according to the SFA).

These analyses are incomplete. Jack McHugh, author of a Mackinac Center paper that demonstrates that the proposal is a 16.3 tax increase over its 31 month phase-in period, responds:

“The Fiscal Agencies ignore the acceleration to every taxpayer’s ‘accrued taxes’ liability, and the damage done to their balance sheets. HFA and SFA only look at the much smaller foregone interest ‘opportunity cost’ of having to pay earlier. Yet the loss to a taxpayer’s net worth from increasing his accrued tax liability is much larger. This loss is not an ‘accounting fiction,’ and any complete analysis must account for it.

“For example, a business paying $100,000 in annual county taxes will suffer a $42,000 loss in its book value under the proposal. Homeowners will see their net worth diminished by $50 to $1,000, depending on where they live and how much their home is worth.

“In addition, in the case of HFA, the analysis does not compare apples-to-apples. It assumes that in the case of a December tax bill taxpayers would pay almost immediately, but in the case of a July tax bill they would wait for weeks and weeks before paying. Yet this only applies to some taxpayers, and it will help them only once.

“Finally, both agencies base their opportunity cost analyses on current short-term interest rates, which are at historically low levels. It would be unreasonably optimistic to assume that short-term rates will stay this low forever. When they go back up, the opportunity costs imposed by the tax shift will also rise.

“The bottom line is, compared to the net worth hit, which they do not address, the opportunity costs analyzed by the fiscal agencies are a very small part of the damage this proposal does to taxpayers.”

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