Tuesday, February 1, 2005

Big Government Republicans

Michigan's Senate Majority Leader Ken Sikkema yesterday released a plan to help rejuvenate Michigan's economy. It appears to be another case of politicians and bureaucrats picking economic winners and losers. Apparently he thinks that a few folks in Lansing know how better to pick which economic sectors will do well and should receive special government favors.

But, before we continue with why several of his plan's aspects are bad ideas, let's go over what the plan contains.

  • Creation of a seed capital fund. This fund, created by the issuance by the state government of a $50 million bond, would provide startup capital to companies. However, at the same time, the state government would get an ownership interest in the company that receives capital, purportedly to pay the state back for the seed money.
  • Creation of a tax credit for "angel investors" who incur losses when providing startup capital to "high tech" companies.
  • Creation of a pre-tax education saving account so that all Michiganders (not just post-high school students) could get a tax break on money spent to take classes at a community college or get other types of training.

    We question the effectiveness (and prudence) of all three of these proposals.

    First, for the state government to be in the business of venture capital is folly. Bureaucrats and politicians, no matter how well-intentioned, are not subject to market forces, making them inherently less-able to make good judgments on where to invest money. They will be confined by rules and regulations to determine where to spend our dollars, not the needs of the market.

    On top of that, the state will be taking an ownership interest in each of these companies that received seed capital. Do we really want the state government owning portions of businesses? That opens the door for political meddling in company operations. How many state-owned enterprises have been successes? We can't think of any.

    Second, Sikkema wants to create a special tax credit for private sector investors who lose money when investing in high tech startups. While this proposal may have its heart in the right place, it would be far more beneficial to the entire economy if taxes were simply decreased for everyone. Once again, this proposal is an example of politicians picking the winners and losers. That doesn't work.

    And third, Sikkema wants to create a special tax-free savings account for tuition for adults needing job training. This is probably the most acceptable of the three in the sense that it reduces taxation at its source. However, a general tax decrease would accomplish more for all Michiganders.

    In our opinion, Governor Granholm's Single Business Tax restructure is going to be far more effective at giving Michigan Business the tax relief it needs. Small business creates more jobs than big business, and this tax change is aimed at small business. To be more effective, the SBT should be further reduced than is proposed so that overall state government revenue is reduced.

    Michigan's per capita tax burden (as a percentage of income) is still higher than it was all through state history, with the exception of most of the 90's.

    Michigan's tax burden is still high when compared to the other states. Michigan ranks 13th on the list of the nation's highest tax burdens. That is not the way to attract new business.

    Our conclusion is a bit stunning. While a Democratic governor proposes a tax decrease, the Republican Legislative leaders propose more government! Roles have reversed. The Republicans are not the party of small government they claim to be.