For Immediate Release
Wednesday, March 7, 2007
Contact: Michael D. LaFaive
Director of the Morey Fiscal Policy Center
— Gov. Jennifer Granholm’s proposed 2 percent excise tax on most services
could result in the loss of up to 19,000 Michigan jobs in just its first 16
months, according to research released today by the Mackinac Center for
Authored by economists at the Beacon Hill Institute in Massachusetts at the
request of the Mackinac Center, the study shows that official revenue
estimates fail to include the dynamic impact of hiking taxes on Michigan
residents and job providers.
order to measure the impact of the governor’s primary tax proposal, the
Mackinac Center asked the Beacon Hill Institute to measure the impact that
its most prominent component — a 2 percent excise tax on services — would
have on the Michigan economy, all other things being equal.
"One of the fundamental tenets of economics is that when prices go up,
quantity demanded goes down," said Michael D. LaFaive, director of fiscal
policy for the Center. "Raising the price of anything — business services,
for instance — means less of that service will be sold. Since this tax will
raise the cost of everything from legal services to bowling, the impact will
ripple through the economy, causing job losses and lower-than-expected
revenue to the treasury."
Beacon Hill Institute estimates that revenue from the excise tax will fall
short of official projections by $221 million through fiscal year 2008. It
is also projected to lower state personal income by $1.1 billion and reduce
total investment in Michigan by more than $248 million. The analysis does
not attempt to measure job or income changes resulting from other components
of the governor’s tax and budget plan, which, combined, add up to a $1
billion net increase in annual taxes paid by Michigan workers and
"Michigan had the nation’s worst unemployment rate in 2006 at 6.9 percent"
said Jack McHugh, legislative analyst for the Mackinac Center. "A new tax is
the opposite of what’s needed to save a state with falling home values,
declining personal income, reduced employment and lower population." McHugh
is the author of "How
To Replace the SBT With Nothing," an essay that lists nearly $1.9
billion worth of ideas for balancing the state budget without raising taxes.
More information and
the Beacon Hill Institute report can be found at: