Gaining Ground

Recent legislative events in Lansing may seem discouraging if you are concerned about limited government and economic liberty in Michigan. After all, the state’s fiscal 2005 budget, effective Oct. 1, was balanced with a substantial increase in the cigarette tax, an extension and diversion of an expiring fuel tax, and a county property tax "shift" that was really a tax hike.

But there is a silver lining in this dark cloud of fiscal irresponsibility.

As in most states during the late 1990s, Michigan legislators went on a spending spree when tax revenues to state treasuries grew fat from a roaring economy and a soaring stock market. Indeed, in the summer of 2000, legislators were informed that there was more than $600 million in unexpected revenue in state coffers. Rather than give it back to taxpayers or save it for a rainy day, they spent the money as if the good times would never end.

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When the boom did end and tax revenues returned to pre-bubble levels, state officials across the country scrambled to balance their budgets. During Gov. Granholm’s first year in office, she faced a gap of $1.7 billion between the inflated amount the state planned to spend and the realistic amount it expected to raise (the so-called "deficit").

It is a testament to how much the landscape of political possibilities in Michigan has shifted that the new governor ruled out increases in general taxes to solve the budget crisis. In contrast, when former Gov. Blanchard was faced with a state deficit in 1983, he did not seriously cut spending; he lobbied to raise the state income tax by 38 percent.

This option is unthinkable today. Now what is "thinkable" is raising peripheral taxes — cigarette and casino taxes, to name just two. This is still bad news, especially for smokers and gamblers, but the good news is that in order to raise revenues, officials did not feel able to tap the general public, where the big money really is. They were forced instead to rely on measures they cannot repeat easily or effectively — targeting politically weak groups, dreaming up bookkeeping gimmicks and camouflaging their actions with "fee" hikes.

And they had to fight hard for most of these changes. Indeed, the governor’s proposal to move up the date at which county property taxes are collected was initially defeated in the state House, only to be passed later by a single vote. Lawmakers who switched their vote so that it could pass are now under a public microscope.

It is a sign of progress for fundamental financial responsibility that fear of a public backlash has prevented Michigan’s political establishment from increasing general sales, income, property and business taxes. Indeed, in fiscal 2004, Michigan’s 4.0 percent income tax rate was even cut (though marginally) during a year in which Michigan faced another billion-dollar deficit. In addition, a proposal by the governor to levy a permanent estate tax — a "death" tax — was decisively defeated in both the House and Senate.

Sometimes it is hard to see this forest for the trees. The forces of expansionist government never rest, and year after year they inflict a thousand cuts on the body politic. But it is important to step back and take the long-term view. Forty years ago, measures of public trust in government were much higher than they are now. The massive expansion of social spending characterized by President Johnson’s "Great Society" programs was evidence that the public had become idealistic about the role of government and its ability to provide social and economic goods. Trends in state programs and spending mirrored the same attitude. People were much more willing to trust the government to use new tax revenues wisely.

Not anymore. The wheels of government may turn slowly, but for a quarter century they’ve been grinding toward a political environment that demands a far greater degree of tax restraint. Lawmakers know that they are on a tight leash. While they never stop tugging — as demonstrated by the "revenue enhancements" mentioned above — the political establishment understands that there is not enough "slack" in the leash to allow significant increases in general tax rates.

It remains true that a political spending addiction has prevented government from shrinking as it should. But the general and powerful trend has been toward state governments that are less careless about their citizens’ precious tax dollars.

We are gaining ground — make no mistake about it.


Jack McHugh and Michael D. LaFaive are, respectively, legislative analyst and director of fiscal policy 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 authors and the Center are properly cited.