Monday, December 13, 2004

Michigan Budget Woes

A new report released by the National Conference of State Legislatures shows that Michigan is one of only three states where government revenues are still below those projected. The other two states and New Jersey and Tennessee.

Interestingly, some states are showing an astonishing level of income tax revenue growth over projection. Examples are Arizona (46%), Georgia (97.4%), Kansas (58%), and Hawaii (106%).

However, Michigan's revenue gap (the gap between projections and actual revenues) stands at $465 million for Fiscal year 2005, which started on October 1st of this year.

This means a couple of things in terms of tax and spending policy. First, we'll see whether the legislature has the guts to do some more cutting, or if they'll try more accounting tricks, such as the property tax shift, to raise more revenue.

Second, the underlying problem of a lack of economic growth in Michigan needs to be addressed. Heavy reliance on manufacturing, high taxes, and heavy unionization make Michigan an unattractive place for business to move. We've seen businesses flee the state in the last several year for other states and other countries. Unless Michigan is made competitive again, the state's economy will continue to groan under the weight of government.

It's an unfortunate reality, but manufacturing isn't the backbone of America any more. It's time to recognize that manufacturing, although still an important part of the economy, is going the way of farming. It simply takes far fewer people to manufacture the same number of items.

We are a service economy now - let's face it and deal with it.

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