Grand Rapids Pundit

Minimal Reforms for Massive Tax Hike

Posted by: GRPundit on Tuesday, 2nd Oct, 2007

The taxpayers of Michigan traded minimal reforms for a massive tax hike this past weekend. A new 6% service tax will apply to the following services:

Astrology services
Carpet cleaning
Consulting services
Investigation, guard and armored car services
Janitorial
Commercial landscaping services
Baby-shoe bronzing
Bail bonding
Balloon-o-grams
Coin-operated blood pressure testing
Check room services (coat checks)
Concierge services
Dating services
Social escort services
Fortune telling
House sitting
Coin-operated locker rental
Palm reading
Party planning
Porter services
Psychic services
Rest room operation services
Shoe shines
Singing telegrams
Wedding planning
Wedding chapel services (not churches)
Scenic transportation services
Skiing services
Tour operator services
Personal care (except hair care, including manicure, pedicure, etc.)
Security system services
Mini-warehouse and self-storage unit services
Business service center services (e.g., hire out payroll service)
Investment advice
Consumer-buying services
Discount-buying services
Genealogical investigation
Social introduction services
Numerology services
Pay telephone services
Personal fitness training
Personal shopping services
Coin-operated photographic machines
Phrenology services
Packaging and labeling
Specialized design services
Passenger and ground transport services
Courier and messenger services
Document preparation

Of course, the income tax also increased from 3.9% to 4.35%. What did we get in return? Two reforms, although they are important, they are not worth the tradeoff.

First, the Michigan Education Association (the teacher’s union) runs its own health care plan called MESSA. MESSA health care is, by some estimates, 20% more expensive than market-rate health care plans. Part of the problem is that, for those familiar with how health care works, MESSA premiums are the same for single individuals and families. Most health plans today cost employers more based on whether the employee is single, married, or married with children. With MESSA, it doesn’t matter, school districts get charged the same family rate, regardless of the employee’s status. This translates to much higher costs. The other factor increasing costs for school districts is the fact that MESSA is just repackaged Blue Cross coverage, with a premium attached simply because it is union-run. Basically, MESSA is a money-laundering scheme for the teacher’s union.

The bill that passed the legislature this weekend would require MESSA to publish its claims data, so competing health care plans could quote school districts their rate for the same plans. Previously, MESSA has vigorously opposed this because they will do anything to maintain their stranglehold on healthcare coverage for teachers in Michigan. In fact, the teachers union frequently threatens school boards with a strike if they attempt to bid out health care coverage, even though it is illegal for teachers to strike in Michigan. One MEA bumper sticker shows how militant they are - it reads “You’ll get my MESSA card from me when you pry it from my cold, dead hand.”

You understand why the union is so militant about protecting MESSA? Because it is a union cash cow. Now the legislature has finally stood up and made it easier for school districts to make sure that taxpayers get the best deal by allowing for competition in health coverage. Unfortunately, it only allows school districts to bid out care, it doesn’t require it. This means that local school boards will still have to deal with union threats and potential strikes if they want to do the right thing.

Second, reforms to the state teacher retirement system were enacted. This is a very long-term reform because it will only effect teachers who start working after July 1, 2008. However, it is an important reform because it will increase the time in service requirements for teachers to be able to get health and pension benefits in retirement. Currently, teachers can work as little as five years to get free health care for life. Unfortunately, the reform does not include a phase-out of the defined-benefit plan. Nearly all other state workers have been transitioned to a defined-contribution plan, much like a 401(k), which is sustainable and a bigger benefit to retirees. The current defined-benefit plan will continue to be unsustainable and extremely expensive. This issue will have to be dealt with again in the future, so this bill just put the pain off on future legislators.

And that’s it! We get those two watered-down reforms in exchange for more job-killing taxes. Only two local legislators voted in favor of the tax increases - Mike Sak and Robert Dean, both Representatives from Grand Rapids. We have heard rumors that the Michigan Taxpayers Alliance will target Robert Dean in their recall efforts. We wish them luck.

The good news is that the media is full of stories of ticked off Michiganders today. Lots of people are talking recalls, not just the MTA.

Michael Lafaive, of the Mackinac Center, put it best in an editorial in the Detroit News today:

“The state Legislature has kicked Michigan while it is down. Government is going to take another $1.48 billion out of the hands of residents and private job providers when they can least afford it — and do so with a new tax on services, too.

Michigan is already ranked 50th among the states in economic growth. It has the highest unemployment rate (7.4 percent), and our per capita income growth is well below the national average. By one measure, people are moving out of Michigan in near record numbers. And the bad news just got worse.

Lansing’s political class has pushed its service tax nose under Michigan’s economic tent. Next year, if new revenues do not flow into the treasury at anticipated rates, or if the cost of state government rises, it will be easy to add even more businesses to the 23 now on the state service tax hook.

We should fear for Michigan’s future. All the cheerleading by government officials won’t overcome the fact that it is more expensive to work, live and invest in the Great Lakes State.”

Recall 2007!!

Freedom Rang Across Michigan for 258 Minutes

Posted by: GRPundit on Monday, 1st Oct, 2007

Our state government shut down this morning at 12:01 am and remained shut down until 4:18am, when two Senate Republicans broke ranks and voted in favor of $1.5 billion in tax increases. Freedom rang across the land for 258 minutes, but alas, the politicians relented and voted to destroy more jobs by raising our state income tax to 4.35% from 3.9%, as well as adding a 6% sales tax to services.

Michigan, the land of the one-state depression, will get even worse. $1.5 billion extracted from the populace and added to the general fund budget is an increase in spending of 18% in one year. That’s right, Governor Granholm has increased spending 18% in one year.

We’ll have more detail on the vote and the associated reforms later today. We are also attempting to confirm that those who voted in favor of the tax hikes will be recalled.

Make Michigan Attractive to Business Again

Posted by: GRPundit on Tuesday, 19th Jun, 2007

The stunning inability of Michigan’s politicians to talk about the 8,000 ton elephant in the room continues to amaze us here at GR Pundit. Michigan’s economy is suffering a “single-state” recession for one primary reason - the United Auto Workers union. Why? Michigan’s economy is/was so heavily dependent on the domestic auto industry that any disruption in that industry would surely affect the entire state. The United Auto Workers, along with the management of Ford, Chrysler, and General Motors, conspired over the decades to build extremely lavish and unsustainable benefits packages for unionized employees. However, there was a problem. Toyota. Japanese carmakers entered the market with superior products at lower prices. Suddenly, the domestic big three are completely unable to compete. Here’s the rub: they are being prevented from competing because they simply can’t reduce labor costs enough. The UAW is standing in the way of the necessary and painful reorganization that is required to bring the domestic auto industry into line with foreign car makers.

While the politicians in Lansing debate how best to tax businesses in Michigan, we notice the deafening silence on the issue that is truly the destroyer of Michigan’s economy - forced unionization. This past Saturday’s Wall Street Journal had an excellent editorial by Larry Reed of Midland’s Mackinac Center. He outlines the case for ending forced unionization. The concept is called “right-to-work,” which means that anyone is free to join a union or not. Today’s law in Michigan states that if you join a company with a union, you are forced to pay dues.

We only need to look south, within our own United States, to see the contrast between a heavily unionized state and a non-heavily unionized state. Alabama, which is seeing new car factories being built like crazy, is the exact opposite of Michigan. In fact, according to the editorial, “If current trends continue, Alabama will eclipse Michigan in per-capita income in just three years. With base pay and bonuses, and especially when the cost of living is factored in, nonunion workers in many auto plants in the south are better off than their union counterparts in Michigan.” That’s a powerful statement.

Michigan needs to pass right-to-work legislation immediately. Another interesting point, according to the editorial, is that, between 1970 and 2000, right-to-work states created 1.43 million manufacturing jobs, while non-right-to-work states lost 2.18 million jobs.

The politicians can tinker with taxes all they want, but nothing will substantially change until the real labor environment in Michigan changes. Car factories are being built in the south, while car factories and manufacturers are shuttering in Michigan.

Time to Repeal SBT

Posted by: GRPundit on Wednesday, 1st Mar, 2006

L. Brooks Patterson, the executive of Oakland County, announced during his state of the county speech last month that he was initiating a fundraising drive to get a repeal of the Single Business Tax on the ballot in November.

It was announced today that he had raised enough money to begin the drive. The Detroit News has an article on it here. A web site on the ballot initiative has been set up at www.RepealSBT.com.

This is great news. The SBT is the most onerous business tax in the nation. It is one reason why businesses will not locate here. The tax needs to be repealed, with nothing to replace it, in order to get businesses looking at our state again. We have the worst economy in the nation and one-off tax breaks and state speculative investments won’t fix this long term, structural problem. It is one step in the direction of making Michigan attractive to business again.

Is Free Trade Killing Michigan?

Posted by: GRPundit on Friday, 17th Feb, 2006

Even though this article isn’t Michigan-specific, it relates to the current economic situation in Michigan and the reaction that some are having to the decline of the domestic auto industry.

Is free trade killing Detroit? The answer is simply no. This article explains why. To quote a few important lines:

After 2000, as the economy fell into recession, US exports fell. We estimate that more than 3.4 million manufacturing workers were producing goods for export in 2000; by 2003, this number had fallen below 2.7 million. All told, the export slump destroyed 742,000 US manufacturing jobs.

On the import side, though, the picture was very different. It isn’t true that manufactured goods flooded into the U.S. after 2000. In fact, growth in manufactured imports was quite sluggish from 2000 to 2003. And as we will explain, this weakness in imports actually boosted manufacturing employment in 2003 by some 428,000 jobs.

Overall, then, trade accounted for a net loss of no more than 314,000 jobs (a reduction of 742,000 because of weak exports and an increase of 428,000 owing to weak imports), representing only 11% of the total manufacturing job loss of 2.85 million. The other 2.54 million jobs disappeared because of the economy’s cyclical downturn, which dampened domestic demand for manufactured goods.

The important idea here is that international competition forces domestic industry to improve the product and reduce the price. If domestic companies are shielded from that competition by trade barriers, their products will fall farther and farther behind on the international market, ultimately greatly reducing the number of exports. Blocking trade will hurt us more in the long run.

Detroit will need to compete or die. No amount of protection will prevent that. Free trade raises the standard of living for both trading partners because of the benefits of international division of labor.

UAW Kills More Jobs?

Posted by: GRPundit on Thursday, 9th Feb, 2006

WOOD TV 8 is reporting that Toyota has decided not to build a new factory in West Michigan because of militant UAW members who participated in an unauthorized protest at the Detroit Auto show, where Toyota Executives were in attendance.

From the article:

The rally wasn’t an authorized union gathering. UAW member Greg Shotwell of Coopersville, a worker at the Delphi plant there, organized it. Shotwell calls his group SOS, or Soldiers For Solidarity.

Cole told 24 Hour News 8 that upon learning Shotwell was from West Michigan the group from Toyota dropped West Michigan from the list.

“The message is that the UAW can’t control its own people,” Cole said.

The UAW is doing its best to ensure that Michigan economy continues to rank as the nation’s worst.

State of the Statist

Posted by: GRPundit on Monday, 30th Jan, 2006

Governor Granholm’s State of the State speech was a surprising call for expansion of government, even for our current governor.

According to the Mackinac Center for Public Policy, the governor called for 20 expansions of state government and only one reduction in state government. Apparently our governor has yet to take Economics 101. Michigan has been competing to be the worst economy in the nation, and the governor is doing a great job of proposing greater bureaucracy, government, and taxation to make sure things stay that way.

Among the highlights of the governor’s proposed expansion of government, and consequently, increased taxation, are:

Blue-Collar Workers Turn Backs on UAW

Posted by: GRPundit on Monday, 19th Dec, 2005

An interesting article in today’s Detroit News points out an instance, in Michigan, where factory workers are actively fighting unionization:

It speaks to a growing skepticism and sometimes outright distain of a union that historically inspired unflinching loyalty from members and fear from management.

Does this really surprise anyone? Just what, exactly, does the UAW do for its workers these days? The UAW got themselves into labor contracts which were inherently unsustainable, now the Detroit big three find themselves in a situation where they simply must move production overseas to compete.

Somehow Toyota is doing just fine with its factories in the US - but the UAW is actively hindering the big three’s ability to compete. The UAW, along with most of the legacy unions, is rapidly becoming obsolete. The sooner they disappear, the sooner Michigan’s economy can become competitive again.

Black October

Posted by: GRPundit on Monday, 14th Nov, 2005

There’s an excellent article on today’s Detroit News web site regarding the effect of Delphi’s Bankruptcy on the automotive industry and unions. One quote:

“The domestic auto industry’s structure is not stable… And, simply put, we expect it will get worse before it gets better.”

We’re seeing the beginning of a dramatic restructuring of the US automotive industry, and by extension, the legacy manufacturing sector. As GM, Ford, and Chrysler are experiencing record amounts of idle time at factories, Toyota is scrambling to open more US plants.

Michigan is going to bear the brunt of the negative effects of this change, and we’d better be willing to face the realities of the situation. Michigan must be made attractive to business investment if we are to get through this.

Michigan Ouch

Posted by: GRPundit on Wednesday, 2nd Nov, 2005

Over the last month we’ve seen several events which will permanently shift the economic reality of Michigan.

1) Northwest Airline’s mechanics strike, which flopped and ended up in a busted union, had no consequence for NWA. This marks a major turning point for unions in Michigan - they have lost the organizational power and they don’t have the sympathy of the average Joe.

2) Delphi’s Bankruptcy. This will have some very far-reaching effects, and it is already starting to ripple. Not only is it likely that thousands more manufacturing jobs will be lost here in Michigan (including some in the Grand Rapids area), the Unions are suddenly on their heels. Nearly immediately after the Delphi Bankruptcy filing, GM and the United Auto Workers worked out an agreement to shave billions off GM’s health care bill.

3) Today, the Detroit News reported that October car sales dropped to a seven year low. Total Big Three US market share dropped from 57% in October of 2004, to 52.4% in October of 2005. In the mean time, Toyota captured 15.1% of the market, the highest ever for that company. This will continue to have far-reaching effects on the Big Three (Ford and GM in particular) and will put further pressure on those companies to achieve higher cost savings, in turn putting pressure on the UAW for more concessions.

Things aren’t looking good. What can be done to help? Michigan must aggressively become a business-friendly state to attract non-manufacturing jobs. How do we do that?

1) Eliminate the single business tax - the most onerous business tax in the nation.

2) Lift the cap on charter schools - our traditional public school systems are collapsing under their own bureaucratic weight. A market in education will fix this problem. Competition will improve achievement for all students.

3) Pass a “right to work” law which allows employees to decide whether or not to join a union when they take a job at a union shop.

Those are just first steps. Hopefully we can stand up to special interests in order to improve the economic situation for all Michiganders - but we’re not holding our GR Pundit breath.