Sunday, February 21, 2010

LSJ: Bypass the Legislature, Take Tax Question to the Voters

It should be obvious by now that this Legislature has no intention of doing the right thing for this state. Since House Democrats are mouthing Republican talking points and threatening an all-cuts budget...

Democratic Representative Tim Melton chairs the committee. He says he and Speaker of the House Andy Dillon agree that there is not the political will or public interest in expanding the sales tax to cover K-12 costs.

"Yeah, we've certainly had this discussion of we've got to find savings in these budgets - and education is a 13 billion dollar budget line item, so it's a big budget," says Melton.

"Political will" is the only term that should be the focus here, because poll after poll has shown that public sentiment is fine with tax increases when they are coupled with cuts and reforms. Spare us the "public interest" excuse, because that simply isn't true, unless House Democrats are taking their orders straight from the teabaggers only. On the flip side, you have Republicans who really ARE taking their orders from the teabaggers, and they have zero interest in doing anything at all but causing the destruction of government. That's just too darn bad for you if your community loses police and fire protection, your schools go bankrupt, your kids have to drop out of college, and your insurance rates across the board skyrocket - all examples of back door tax increases, by the way. Republicans have an ideology to serve first, and that ideology dictates that power and tax cuts for the rich are the priority here. Nothing else matters, including your life and well-being.

Had enough of spineless Democrats and obstructionist Republicans? Let's bypass yet another year of this nonsense from these guys, and take matters into our own hands. The LSJ thinks that might be the best idea, and the history behind this body of lawmakers proves them right...

Gov. Jennifer Granholm and the people of Michigan have a problem. The governor has a plan to alter the sales tax to create money for local schools and rationalize the state's taxation of businesses.

Unfortunately, the two people in charge of House and Senate - Speaker Andy Dillon and Senate Majority Leader Mike Bishop - seem intent on avoiding prudent measures at every turn.

Granholm and the voters need to take them out of the equation by moving her sales tax on services plan to the statewide ballot this November. And, in deference to Michigan's ongoing structural deficit in the general and school funds, the governor should modify her plan to extend the sales tax to most services while retaining the 6 percent rate now levied on goods.

Even if Michigan retains its 6 percent sales tax rate, there are 31 states with higher ones, and another six states with the same rate, according to the Tax Foundation, a 70-year-old group started "to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government." Yes, that's right, Michigan's existing sales tax rate is among the lowest in the country.

How about this: A lower sales tax rate expanded to services, coupled with a popular graduated income tax. Doable in one proposal? Don't know. Someone would have to do some serious number crunching to figure out the exact rates we would need, but a proposal that would offer an income tax cut to lower and middle class voters that also protects education and public safety should be an easy sell, especially after these guys have to trot out $1.6 billion in cuts.

The Legislature will not tackle the tax reform issue. Period.

Looking back, they have spent the last three years promising some sort of reform, and they never found the "political will" to pull it off. For a little trip down Tax Reform Memory Lane, here is a very brief sketch of what basically has happened:

Speaker Dillon wanted to do a graduated tax way back in 2007. An interesting tidbit from a now-archived Luke story on May 23rd of that year, when House Democrats were considering raising the income rate to 4.4% and putting the graduated tax question on the ballot in 2008.

House Democrats are pushing for an overhaul of Michigan's 40-year-old, flat-rate income tax. Dillon said his members want to put a constitutional amendment on the ballot to allow for a graduated rate.

"It's progressive," Dillon said. "Those who have more, pay more."

It was the correct thought, but it was not to be. The graduated tax proposal crashed and burned in the waning hours of the 2007 budget showdown, and a series of events caused by Republican grandstanding led to the dreaded MBT surcharge that still is an issue to this day. Lawmakers knew back then there still was a problem with our tax structure, but, between being drained by continuous Republican obstruction that dragged on for months and then anti-tax zealots filing frivolous recall petitions, and with the looming huge election year in 2008, the issue of tax reform was put aside.

By May of 2008, the warning about our structural imbalance was sent out again by the Citizens Research Council and the W.E. Upjohn Institute, offering the same solutions that we heard back then, the same solutions we are hearing again today.

The report illustrates that Michigan can't march blithely into the future thinking its budget problems have been solved. Even when the state's economy turns around, Michigan's government will continue to operate at increasing deficits -- what the report calls a "structural deficit" because it's built into the very structure of government and isn't caused by cyclical economic woes.


The report recommends several solutions, all worthy of consideration. Shifting some of the state's tax burdens to the growing service sector would allow Michigan's revenues to follow its economy. Michigan ranks low among states in the number of services taxed. Any service tax would have to be fair, unlike the capricious levy briefly enacted, then quickly revoked, last year. Another alternative is to create a graduated income tax here, as we have on the federal level, where rates rise with income.

When this report was issued, little did we realize that we were on the precipice of the Great Recession. The 2008 budget skated through with some more cuts, as all attention focused on the election year and our structural "issues" were ignored - but all the while steadily growing ever so much deeper. By the beginning of 2009, facing what would become a nearly $3 billion dollar deficit, tax reform was promised once again by the House:

However, meaningful tax reform can only come through a ballot initiative so we can address constitutional provisions that prevent us from legislating comprehensive reform. For this reason, I ask the Senate and the Governor to join us in crafting a job-creating, comprehensive tax reform measure that we can put before the voters.

As you know, that never happened, and another year went by. The stimulus dollars saved us from total destruction, but we still made horrible cuts in 2009. After promising to fight for education, public safety and health care all last year, House Democrats folded at the last minute and bowed to Republican demands - putting hundreds of school districts on the brink of bankruptcy, causing thousands of layoffs of teachers and public safety officials, and leaving cities and townships scrambling to shore up their communities by making their own cuts and/raising revenue. Not to mention the loss of college scholarships which have caused some to drop out of school. Add it all up, and you have a state with a rapidly diminishing quality of life, and a very angry population. And you are going to cut $1.6 billion more? Seriously, who will want to live here?

That's enough of waiting on the Legislature, don't you think? Three years to address this issue is plenty. The LSJ is calling for a coalition to get this on the ballot - a prospect that would take $1.5 million and an army to collect signatures, and it looks like it would have to be the November election, which is well past the due date on the budget. Governor Granholm has already drawn the line in the sand on school cuts - and this is a woman with nothing left to lose at this point, so chances are, she is serious.

"If we have to go to shutdown, we will," she added, promising she won't sign a budget that cuts education.

Do it. And if we can't get anything on the ballot and end up punting the whole thing to the next legislature, then so be it. If we are lucky, we will find some people who are serious about serving the best interests of the entire state. That's a real tall order in this day and age, but when you look at the current batch of folks who will do anything to avoid making tough decisions, at this point it looks like it's a chance we will have to take.

A ballot proposal would be the best thing here though, before it comes to that. Who is going to lead the charge?