Archive for the 'Michigan Taxes' Category
Michigan’s Budget - The Numbers
Posted by: GRPundit on Wednesday, 3rd Oct, 2007
There seems to be some confusion lately about the state’s general fund budget. Have there been cuts? Has revenue gone down? Are $440 million in cuts necessary to balance 2007-2008’s budget? What is the impact of the new $1.5 billion in taxes just passed by the legislature?
The Budget
We’d like to go through the numbers and explain a bit how government budgeting works. Michigan, like most units of government, has several funds. The General Fund, the one that the legislature can spend on pretty much whatever it wants, is the budget that everyone refers to when there is talk of a deficit or the need for tax increases. The General Fund is about $9 billion of the state’s total $40 billion budget. We discussed the total growth of the budget, as well as how government does accounting, in a previous post. Please follow that link and come back after you have read the explanation of the politicians’ definition of a budget cut.
We’ve heard the Governor and many politicians talk about cutting the budget. However, when the numbers are examined, the state’s General Fund has seen an increase in revenue every year of the Governor’s term. However, there has been a reduction in spending, but only to match the government’s revenue. You see, the state government has been good at spending more than it brings in, whether under Democrat or Republican control.
But wait! Governor Granholm boasts about having to cut billions from the state budget. From the Governor’s office: “Since taking office in 2003, Governor Granholm has cut nearly $3 billion in state spending to resolve more than $4 billion in budget shortfalls - more than any other governor in the state’s history.” Really? Here’s a list of the total annual General Fund spending during Governor Ganholm’s tenure:
Fiscal Year - Spending (millions) 02-03 - $8,830 03-04 - $8,770 04-05 - $8,702 05-06 - $9,106 06-07 - $8,966
In other words, in absolute numbers, a grand total of $268 million has been cut during the Governor’s tenure. Just for fun, let’s factor in inflation, so that 2002-2003 is our baseline. If that were the case, and spending had gone up just at the rate of inflation, then 2006-2007 spending would have been about $9.938 billion. Subtract actual spending, and the total possible cut the Governor could take credit for is $1.108 billion. You see, the Governor is using politician math where possible spending is taken into account when declaring a deficit or cut, not actual spending.
The New Taxes
According to the non-partisan House Fiscal Agency, the entity that estimates for the State House how much money the state will bring in, 2007-2008 revenue will be about $8.186 billion. Governor Granholm proposes to spend $9.941 billion in 2007-2008. So this is the deficit that she’s referring to when she has said that $1.8 billion in “cuts” have needed to be made to balance the budget. You see, it’s not actual spending that is being cut, it is proposed spending. The new, higher income tax rate, along with the new 6% tax on services, will raise, according to estimates, somewhere between $1.4 and $1.5 billion this fiscal year. That brings our total General Fund Revenue to about $9.6 billion. That’s an increase in spending, from 2006-2007, of 9%. That’s an increase in revenue, if the tax hadn’t passed, of over 17%. In one year! When’s the last time you got a raise of 9% or even 17%?
But there’s more! Governor Granholm, even after the passage of the new taxes, is declaring that $400 million of cuts still need to occur! But, as hopefully you have figured out, the cut is not in spending, but a cut in what she wants to spend!
What do the new taxes mean to the average Michigander? A $1.5 billion increase, divided by approximately 10 million residents of Michigan, equals a $150 tax increase per person. That includes every single man, woman, and child. According to the Census Bureau, there are about 3.7 million households in Michigan, which means that the tax increase is over $400 per household. That’s in addition to the $7,183 annual cost of state government on a per household basis.
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.
- Michigan Legislature web site - Find your legislators to contact him/her
- Michigan Taxpayers Alliance - Organization fighting tax increases with recall threats
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.
Budget Boondoggle
Posted by: GRPundit on Thursday, 27th Sep, 2007
For those that still think that the state government has “cut to the bone” with no more that can possibly be cut, and that our income tax should be raised from 3.9% to 4.6% (as the Governor is pushing for), check out the below news clip from WXYZ in Detroit.
The short introduction is this: Governor Granholm is having a new State Police headquarters built to replace the one that the state currently leases from MSU for $1 a year. The price tag? $116 million - $42 million more than it would cost the state to build itself. And who is the contract going to for the construction? A friend and campaign contributor of the Governor’s. The legislature has the power to stop it, but they haven’t. The video is entertaining to watch - especially as the Governor tries to squirm away from the reporter’s questions.
State Budget Meltdown - Enjoying the Spectacle
Posted by: GRPundit on Friday, 7th Sep, 2007
Both the Detroit News and the Grand Rapids Press have articles today about the apparent near-meltdown occuring in Lansing over the state government’s budget. Apparently, late last night, the State House was flooded by all members of the State Senate, along with the Governor, in an effort to get the members of the House to agree to an increase of the state income tax from 3.9% to 4.4% (a 13% tax increase), as well as an increase in the state sales tax from 6% to 7% (a 17% tax increase). Ultimately the effort failed. According to the Grand Rapids Press, “…Democrats are paralyzed by ‘political fear that if they stick their necks out, there will be voter retribution.’”
This is outstanding news. In case you’re not aware, a taxpayer advocacy organization called the Michigan Taxpayers Alliance has been threatening to mount recall campaigns against legislators who vote in favor of any tax increase. Leon Drolet, the former State Representative who is leading the campaign, has been much-maligned over his efforts, but we applaud him and his organization. In fact, he is teaming up with the local taxpayer advocacy group Kent County Families for Fiscal Responsibility, who helped to defeat the GRCC millage last month. KCFFR filed the preliminary campaign reporting statements yesterday to begin the effort to recall Senators Bill Hardiman and Mark Jansen, as well as Representatives Robert Dean, Kevin Green, and Dave Hildenbrand, if those individuals decide to for in favor of a tax increase, according to the KCFFR web site.
People are talking about a possible government shutdown in October if the budget battle isn’t resolved by that time. We can only hope for such a pleasant October surprise. The more gridlock in Lansing, the better off our state is. There are plenty more cuts that can be made, and it is our hope that those cuts see the light of day before job-killing tax increases are considered. Stay tuned for more Lansing fireworks.
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.
State Budget Gnashing
Posted by: GRPundit on Thursday, 16th Nov, 2006
The stage is already being set for a possible state (and probably local) tax increase. Today’s Detroit News reports that state revenues for the just-completed fiscal year 2005-2006 are down by $170 million. That’s about 0.85% less than they anticipated, yet we are already hearing that the world is going to end for schools and no more police will be on the streets.
But, before we get ahead of ourselves, let’s take a quick look at the budget. We compiled the graph at left from data published by the Senate Fiscal Agency. It is a summary of the total state revenue and expenditures since the 1990-1991 fiscal year. The only year when the expenditures actually went down was 2002-2003, when they declined by 0.28%, or about $118 million. However, every single year, revenue has increased.
A couple of quotes will show you how bureaucrats and politicians are so good at making situations sound much worse than they are in order to scare us into being more accepting of tax increases. From the article above:
The governor and lawmakers have erased more than $3 billion in cumulative deficits over the past four years by making budget cuts, increasing cigarette taxes and fees, and shifting money from other accounts.
You’ll see, that even though one reduction in the budget from 2002 to 2003 occurred, a grand total of $118 million, bureaucrats seem to be able to conjure up at least $3 billion in “cuts” over the last several years. How do they do this? Here’s how:
If a government budget is $100 million this year and it is budgeted to increase to $110 million next year, but the actual increase is to $102 million, it is called an $8 million cut, even though more real money is being spent. Our Grand Rapids city politicians are very good at making this sort of obfuscationary budget argument. You see, the “cut” isn’t a real reduction in spending, it’s a reduction in the anticipated increase in spending.
Now, of course, the bureaucrats’ special interest groups are crying foul. Justin King, executive director of the Michigan Association of Schools Boards, the lobbyist organization for school districts, claims that any cut in school funding this year would be “devastating.” He says that 50 school districts are approaching bankruptcy, even though schools have received a 35% increase in funding, after adjusting for inflation, over the last ten years. One presumes that he is including our own Grand Rapids Public Schools when he says that districts are on the verge of bankruptcy, even though GRPS spends $10,770 per student. You see, a reduction in the state budget of 0.85% is billed as devastating to schools.
But the sky doesn’t stop falling there. Dan Gilmartin, executive director of the Michigan Municipal League (the lobbyist organization for Michigan cities), says, “Any additional cuts would be suicidal for communities,” and, We’re laying off cops, not paving roads and not attracting new jobs.”
This is all attributed to a state payment to cities called revenue sharing. Basically it’s a redistribution of state-collected taxes to city governments. Our city bureaucrats and politicians are fond of stating that the city government has “lost” $30 million in revenue sharing. However, we again look at the real numbers. Annual city revenue from revenue sharing has declined from a high of about $27 million a year to about $23 million this year. Yes, that’s a real reduction of $4 million, but instead of saying that they have had to cut $4 million out of the budget (that doesn’t sound too sexy), they add up what they would have gotten each year if the state continued to boost revenue sharing. Presto - they’ve “cut” $30 million out of the city budget!
The cry from cities is now that they will have to cut police and fire to make up the difference of any additional “cuts.”
Never underestimate a bureaucrat whose job is on the line. They will obfuscate the budget numbers as much as possible to scare us. Instead of cities and schools engaging in simple and small (0.85%) wage cuts to preserve jobs, they will lay off teachers, policemen, and firemen, all the while still maintaining extremely generous benefits packages for those who remain.
While the rest of us have had to tighten our belts and deal with the still-stagnant and even declining economy in Michigan, government will continue to expand. Government never will have “enough” - don’t forget that.
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.
