Does state government exist to serve the people, or is it the other way around? Too often, Michigan’s political establishment behaves as if the latter were true. With our state mired in a "one-state recession," this attitude obstructs efforts to make the changes needed to turn the economy around.
Here’s exhibit number one for this attitude: Government officials who say a tax cut in one area must be "paid for" with a tax increase in another area (rather than with spending cuts). We hear this line a lot in the current debate about eliminating the state’s Single Business Tax, so let’s parse it out a bit. "Tax cuts must be paid for" really means that the government is entitled to a certain amount of money and that amount can never be reduced.
But what if we just have more government than we can afford? Michigan doesn’t exist in a vacuum. No one has to stay here, or open a business here, or keep one open. If high taxes and excessive regulations make doing business here less profitable than other places, or more trouble than it’s worth, people and businesses can and will leave. There’s plenty of evidence that this is happening already.
Now, in that context, think about what "tax cuts must be paid for" really means: The people exist to serve the government, not the other way around. You may think this is extreme, that no one in government really thinks this way. Consider a place where it's easier to imagine that they do.
The City of Detroit has 18,600 employees, or one for every 48 residents, and spends $2,859 for every man, woman and child in the city. As a comparison, Indianapolis has just one city worker for every 203 residents and spends just $1,103 per city resident, 62 percent less than Detroit.
To support this spending, Detroit has very high property taxes and a city income tax.A Detroit resident with a $100,000 home pays more than $3,300 per year in property tax, more than twice as much as many other Michigan communities. In addition to paying excessive taxes, Detroit business owners must also deal with burdensome regulations and a heavy-handed, unresponsive bureaucracy.
Except they don’t, really. Like Michigan, Detroit doesn’t exist in a vacuum. Residents and businesses can always leave. They have done so, cutting the city’s population in half, and it continues to drop.
Let’s suspend disbelief for a moment and pretend that every one of Detroit’s 18,600 employees serves a vital purpose and does so as efficiently as possible: It doesn't matter if they do, because unless Detroit cuts its expenses drastically and gives the savings back as huge tax cuts, the decline in population and jobs will continue, and there will be even less ability to support the city workforce. Detroit just has more government than it can afford. When city officials say "tax cuts must be paid for," they’re really saying the people and the economy exist to serve the current government establishment.
The same thing applies to the state. For years Michigan has lagged behind other states in economic and population growth. We may be at the tipping point of going from poor relative performance to absolute decline in these measures.
Let’s be clear about what this means: Michigan is on the verge of becoming a state characterized by declining incomes, homes that every year are worth less than they were the previous year, and lonely parents whose children and grandchildren had to go elsewhere to find careers. It’s not a pretty picture.
If policy is dictated by a "tax cuts must be paid for" mindset, then the things that need to change to avoid this depressing scenario will not change. Here are just two existing policies that need changing: Michigan levies one of the highest business taxes in the nation, and also levies property taxes on business tools and equipment. These two taxes raise around $3 billion a year. That money pays for all kinds of government programs — some useful, some not.
Let’s suspend disbelief again and pretend that every one of those programs is valuable, and is being done as efficiently as possible. It doesn’t matter, because, like Detroit, we just can’t afford it anymore. Without tax cuts and other improvements in our business climate, jobs and people will continue to leave, and eventually the entire state will look like Detroit’s empty neighborhoods.
Those who say Michigan can’t cut taxes because doing so would mean cutbacks in state government programs are really saying that the people exist to serve the government, not the other way around.
Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.