NCPA - National Center for Policy Analysis


October 21, 2009

The Wolverine state is once again set to run out of money, and it is once again poised to raise taxes even as jobs and businesses disappear, says the Wall Street Journal. 

  • In 2007 Gov. Jennifer Granholm (D) signed the biggest tax increase in Michigan history; most of the $1.4 billion coming from business.
  • The personal income tax -- which hits non-incorporated small businesses -- was raised to 4.2 percent from 3.95 percent, and the Michigan business tax levied a surcharge of 22 percent.

The tax money was dedicated to the likes of education, public works, job retraining and corporate subsidies: 

  • While every state has seen a big jump in joblessness since 2007, Michigan's jobs picture remains by far the worst, with a 15.2 percent unemployment rate.
  • Some 750,000 private-sector payroll jobs have vanished since the start of the decade.
  • For every family that has moved into Michigan since 2007, two have sold their homes and left.

The new business taxes didn't balance the budget:

  • Instead, thanks to business closures and relocations, tax receipts are running nearly $1 billion below projections and the deficit has climbed back to $2.8 billion; and this is despite the flood of federal stimulus and auto bailout cash over the last year.
  • Despite the budget-balancing misadventures of the past year, the governor wants $600 million and among the ideas to raise the money are: an income tax increase with a higher top rate, a sales tax on services, a freeze on the personal income tax exemption (which would be a stealth inflation tax on all Michigan families), a 3 percent surtax on doctors, and fees on bottled water and cigarettes.

The governor and the House speaker Andy Dillon continue to bow to public-sector unions:

  • There are now 637,000 public employees in Michigan compared to fewer than 500,000 workers left in manufacturing.
  • Government is the largest employer in the state, but the number of taxpayers to support these government workers is shrinking.
  • The budget deadline is November 1 and Granholm is holding out for tax increases rather than paring back state government.

The decline in auto sales has hurt Michigan more than other states, but the state's economy would have been better equipped to cope without Granholm's policy mix of higher taxes in order to spend more money on favored political and corporate interests.  If any larger good can come of the experience, it is that Michigan is teaching other states how not to govern, says the Journal.

Source: Editorial, "The State of Joblessness," Wall Street Journal, October 20, 2009.

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