Archive for the 'Michigan Economy' Category

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.

Michigan Government Shutdown Countdown

Posted by: GRPundit on Friday, 28th Sep, 2007

It looks like we are on track for a state government shutdown at midnight Sunday evening. The governor went on TV last night to announce that all “essential” government services will continue. The question arises - then what isn’t essential? Can we do without the non-essential “services?”

The legislature continues to debate a tax increase. Do you want an 18% income tax increase from 3.9% to 4.6%? Do you think that will help our state’s economy? Do you think that serious government reforms should be part of the deal? Be sure to call your state senator and state rep today to let them know. They are set to reconvene at 1pm to continue the debate. This point in time is critical. We can either have long-term systemic government and budget reform, or just another fleece of the taxpayers.

Local Representatives and their contact information:
72nd District - Glenn Steil Jr., 517-373-0840, glennsteil@house.mi.gov
73rd District, Tom Pearce, 517-373-0218, tompearce@house.mi.gov
75th District, Robert Dean, 517-373-2668, robertdean@house.mi.gov
76th District, Sak Michael, 517-373-0822, speakerprotemsak@house.mi.gov
77th District, Kevin Green, 517-373-2277, kevingreen@house.mi.gov
86th District, Dave Hildenbrand, 517-373-0846, rephildenbrand@house.mi.gov
Not sure who your Representative is? Go Here.

Local Senators and their contact information:
28th District - Mark Jansen - (517) 373-0797
29th District - Bill Hardiman - (517) 373-1801
30th District - Wayne Kuipers - (517) 373-6920
Not sure who your Senator is? Go Here.

The question always comes up. What could be cut so that taxes don’t have to be increased? Here is the list of $1.9 billion in potential cuts.

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.

Tax Ourselves into Prosperity?

Posted by: GRPundit on Friday, 6th Apr, 2007

State government is having a tough time these days. The Governor and Legislature are arguing over how to close a supposed $940 million deficit for this fiscal year (which ends in September). But wait. As GR Pundit readers already understand, the way government budgets its money is different from how normal people and companies budget. Let’s take a closer look at the numbers.

Is this “deficit” due to a reduction in revenue? According to the Michigan House Fiscal Agency, fiscal year 2005-6’s General Fund revenue was $8.266 billion. Fiscal year 2006-07’s General Fund revenue is expected to be $8.230 billion. That’s a slight increase in reveues. So what’s the problem? Well, spending, of course. According to the same agency, appropriations (spending) for 2006-07 are set at $9.2 billion. Houston, we have a problem.

So, as usual, Governor Granholm and the Democrats in the state House are proposing all sorts of tax increases, including a 2% sales tax on services, an increase in the death tax, higher taxes on cigarettes, higher taxes on insurance, and higher liquor taxes.

The problem here is that residents of Michigan already enjoy the 16th highest tax burden in the United States. The average tax burden is 10.6%, when combining all state and local taxes.

Any company or individual would cut back on spending to balance the budget. But, since government has a monopoly on the police and will put you in jail if you don’t pay taxes, it’s a heck of a lot easier, for politicians and bureaucrats, so simply force us to pay more tribute.

This is one of those times where having a split government is better for all of us. The Republicans and Democrats in the state have to fight it out to get an agreement. No rubber-stamping, as our Federal government was for the past six years.

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.

Favorable Job Market Predicted for Grand Rapids

Posted by: GRPundit on Tuesday, 20th Sep, 2005

MiBiz reports that the job market for the Grand Rapids area is looking up for the fourth quarter of 2005.

The trend is continuing in favor of service industries. The construction, wholesale/retail trade and finance/insurance/real estate industries are expected to add the most jobs, with manufacturing staying stable with no growth anticipated.

But we’ll remind our readers that Governor Granholm wants to tax service industries more in favor of tax cuts for manufacturers. It doesn’t make much sense to increase the tax burden of those industries which are creating jobs, which will result in the creation of fewer jobs. The single business tax needs to be cut across the board, so all industries benefit. The lower the taxes, the more money employers will have to create jobs. It really is that simple.

Michigan has the nation’s worst economy and people are leaving the state. It’s time to get government out of the way so businesses can be allowed to create jobs.

Union Shafts Workers

Posted by: GRPundit on Tuesday, 30th Aug, 2005

In reading about the striking workers from Northwest Airlines, one can’t help but feel sorry for them. Northwest is operating smoothly after replacing them, their health insurance runs out tomorrow, and they get their last paycheck on Friday.

Here are GR Pundit, we’re often hard on unions, but it’s important that our readers understand that we’re hard on union leadership, not union members. The airline mechanics’ union had the opportunity to make concessions to keep the jobs of most of the union members, but those concessions were rejected. Intead, over 4,000 mechanics are now out of work with no income.

Today’s unions are losing their clout and their muscle. The airline mechanics’ union is just one example of many to come where the members are going to be out of a job in the name of solidarity.

Now there are 1,200 replacement mechanincs working at Northwest who, we’re sure, are happy to have a job. In the mean time, the head of the mechanics’ union makes statements which are clearly untrue:

AMFA co-founder and national director O.V. Delle-Femine visited picketers Monday at Detroit Metro Airport to boost spirits.

“In a couple weeks, people are going to see the failure of this airline,” Delle-Femine told strikers gathering at a nearby United Auto Workers union hall before heading to picket lines.

He’s lying to his members to try and keep them in line. In the mean time, we’re sure Mr. Delle-Femine is receiving his full salary and health benefits.

Fork in the Road for Unions

Posted by: GRPundit on Wednesday, 24th Aug, 2005

The Detroit News had a good selection of articles yesterday on the crisis faced by unions in today’s America. The current Northwest Airlines strike is highlighting the fact that the ability of unions to flex muscle and take on “big business” is severely weakened. Northwest trained replacement mechanics for 18 months prior to last week’s strike. An article from today’s DetNews says that the strikers’ chances of forcing the airline into an agreement are slim.

Northwest says that 96% of flights were successfully completed on Tuesday, up from 91% on Saturday. The strike caused a momentary disruption, but things are back to normal. Looks like the strike was just a blip on the radar.

An important quote from the article:

In interviews this week, the replacement hires say they don’t regret their move, despite being derided as “scabs” and “scum” by the strikers, who yell at them from sidewalks above the tarmac.

The Northwest jobs are a chance for better pay and, for many laid off from other airlines, a chance to return to the industry.

That sums the situation up well. While the union members strike, people who are happy just to have a job are filling in. The poor state of the economy in Michigan makes it unwise to walk off the job.

Particularly interesting about the Detroit News’ web site is that a poll of online readers shows that 67% believe that union demands are out of line. Read the comments as well, they are mostly anti-union.

While unions had an important role to play in the past, they have outlived their usefulness and now just stand in the way of economic progress. The legacy air carriers and automakers, weighted down with the union mentality of the 1950s, are the big losers in today’s economy. As companies such as Northwest aggressively challenge unions, the unions will become less and less relevant.