NCPA - National Center for Policy Analysis


May 28, 2008

Last year, Gov. Jennifer Granholm (D-Mich.), imposed the state's largest tax hike in a generation, raising the state income tax rate to 4.35 percent from 3.9 percent, and increasing the state's tax on gross business receipts by 22 percent.  The latest news of Michigan's deepening budget woe is a national warning of what happens when you raise taxes in a weak economy, says the Wall Street Journal.

For example:

  • Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year.
  • Six months after the tax increase, one-third of the expected revenues have vanished as the state's economy continues to struggle.
  • Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales.
  • Michigan is now in the 18th month of a state-wide recession and the unemployment rate of 6.9 percent remains far above the national rate of 5 percent.

The tax hikes have done nothing but accelerate the departures of families and businesses, says the Journal:

  • Michigan ranks fourth of the 50 states in declining home values, and these days about two families leave for every family that moves in.
  • Even worse, property taxes are continuing to rise by the rate of overall inflation, while home values fall.

Research by former Comerica economist David Littmann finds that about the only industry still growing in Michigan is government.  As evidence, Granholm's $44.8 billion budget this year further fattened agency payrolls, says the Journal.

Source: "Granholm's Tax Warning," May 28, 2008, The Wall Street Journal.

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