Wednesday, September 30, 2009

Portrait of an Underfunded State Government

With all the hand wringing over taxes going on, maybe it's time to drag out this chart once again. From the Senate Fiscal Agency, it shows the Headlee revenue limit for state government - and how far we are below it at this point.

Peter Luke explained it back in March:

The state can collect up to 9.49 percent of total Michigan personal income in taxes and fees approved by the Legislature. Pretty much any money collected over that limit has to be returned to taxpayers. The aim was to cap the growth of state government.

Now after years of tax cuts and spending restraint, Michigan will collect just 5.5 percent of personal income in assorted state taxes and fees in fiscal 2010. (Comparing apples to apples, that 2010 percentage factors out some $6 billion in school taxes shifted from local to state coffers in the 1994 Proposal A school finance changes).

So in funding essential services, state government in 2010 will collect a little more than half the revenue--some $14 billion--that a conservative Republican thought appropriate three decades ago. That figure takes into account the $1.7 billion in personal income and business tax hikes approved in 2007.

Throw in the Great Recession on top of that, and now you can understand why we are at the place we are today with the state budget deficit.

We are not properly funding our government to provide the services we need. And as far as the Republican claim that we need low, low, low business taxes to attract economic growth, a report by the conservative Tax Foundation shows that Michigan is currently at #17 for the "best business tax climate in the nation, up from 28th in 2006", beating out all out Midwestern neighbors except for Indiana, which came in at 12th. Even with that eye-opening (and myth-busting) tax comparison, Rick Haglund explains that it's not the taxes, stupid, it's the quality of life that keeps states competitive.

In calculating its tax climate index, the foundation looked at personal income taxes, corporate taxes, sales taxes, property taxes and unemployment insurance taxes.

Adding them up, it found South Dakota has the best business tax climate in the country.

But businesses aren't exactly flocking there. South Dakota has attracted 94 new or expanded corporate facilities in the past three years, according to Site Selection magazine.

That's just a fraction of Michigan's 731 new corporate investments in the same time period.

And South Dakota is dwarfed by other states, such as New York, Massachusetts and Illinois, that have high concentrations of businesses, high incomes and yes, high taxes.

Then why such a fear of raising revenue? Quite simply, the Democrats are letting the Norquist Republican myths win this argument once again - even though people are agreeable to necessary tax increases, deep cuts would be more damaging in the long run than small tax increases, and no one was recalled or made to pay in the election of '08 for their vote on tax increases. Hard to figure why they can't stand up now, but here we are.

Time to stop being afraid, and start funding this government so we can move Michigan forward. Destroying health care, education and public safety will not attract business to this state - and the smart legislators know this. Let's hope they win the argument this time, because our future depends on it.