Public safety is indisputably a core function of government and, as such, warrants priority in the state budget. However, legislation pending in the Michigan House would pull some police and fire-fighting services from the state’s general fund and finance them instead with revenues from a tax increase on telephone service. The flaws of this scheme are numerous and profound.
As currently written, House Bill 4852 would increase telephone taxes by a whopping $198 million in the first year alone, according to an analysis by the House Fiscal Agency. That’s nearly $150 million more than is currently appropriated for the targeted programs. Thus, the bill would not only increase taxes but substantially increase spending as well. Moreover, given the sustained growth of the telecommunications sector, the tax hike would, if enacted, fatten the state budget by greater amounts each successive year.
Under the legislation, revenues from the new tax would be deposited into a "public safety fund" for distribution to 10 public safety programs. The single largest share — nearly 25 percent — would be dispersed to the Michigan Public Safety Communications System, a statewide radio network run by the Michigan State Police. The Granholm administration’s budget recommendation for fiscal year 2008 proposes about $26 million for the communications system; the tax increase would instead yield more than $48 million for the program in the first year.
The telecom tax increase is sponsored by Rep. George Cushingberry, D-Detroit, who also is proposing to raise Michigan’s income tax rate from the current 3.9 percent to 4.6 percent. But given the state’s beleaguered economy — unemployment hit 7.2 percent in June and per-capita personal income is 6.7 percent below the national average — a tax increase of any type would only deepen the crisis. Michigan families simply can’t afford to relinquish yet more of their hard-earned incomes to the government’s already brimming coffers.
A new telecommunications tax is particularly pernicious; higher costs on telecom services would inhibit the very growth of the high-tech sector that Michigan desperately needs. As it is, consumers in the state already pay numerous telecom taxes that far exceed those levied on other services. On local wire line service, for example, there’s a 6 percent state tax and a 3 percent federal tax, along with a universal service tax, state and county charges for the 911 system, and a charge for network access. Taxes on long-distance include a second universal service fee, a "carrier cost recovery" fee and a second state tax. The various charges can easily total 10 percent of a monthly bill.
The telecom tax legislation does not address just how the Legislature would use the estimated $42 million in general fund dollars that a telecom tax hike would supplant. And that’s precisely the problem with a tax trick like HB 4852: Budget discipline is eroded. Competition among government programs for general fund resources forces legislators to weigh spending priorities and act with a modicum of discipline. But to the extent that core government functions are funded through dedicated taxes, lawmakers are free to expend general fund dollars on a host of unnecessary programs.
Similarly, municipalities would realize a windfall of more than $4 million with enactment of HB 4852. Currently, local governments pay annual fees to the state police for administration of the Law Enforcement Information Network, a database of criminal justice information. The legislation would replace the fees with revenue from the telephone tax. But it’s unlikely that local officials would rebate to taxpayers the funds expended for the LEIN fees. In all likelihood, they would simply increase spending on a nonessential "service."
The Michigan State Police and other proponents of the telephone tax increase may well have a case that law enforcement is underfunded. Since the Sept. 11 attacks, for example, Michigan has lost 1,577 police officers, according to the Michigan Association of Chiefs of Police. But the solution is to prioritize spending, not increase it. In an annual state budget of $42.4 billion, there are more than enough general fund revenues to support sufficient police and fire services without imposing yet another new tax. On the other hand, should lawmakers impose the new tax, there may be less need for more police as over-taxed residents flee Michigan for more economically friendly states.
Diane S. Katz is director of science, environment and technology policy with 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.