Tuesday, May 11, 2010

The Truth About Taxes in Michigan

Every once in a while a story will appear in the traditional media that looks like a hanging curve ball to this batter. It's nugget of truth that refutes all the Republican talking points about Michigan's tax rate, or union wages, or health care, or whatever it is they are lying about today. My eyes grow wide as saucers as I start to think about not only how far I'm going to hit that pitch out of the park, but in what direction I'm going to send it. And when that happens, more often than not, I tend to over-think my swing and end up missing altogether, slamming the bat to the ground in frustration afterward.

But, unlike some Democrats currently campaigning for office, at least I take a swing. Certain candidates have stood there and watch the ball go by, and then turn to the opposing catcher, compliment the pitcher, and ask to join their team. That analogy is a bit of a stretch, but it tends to work when it comes to how the Democrats will respond to Republican created myths about taxes that are repeated to the point that they become conventional wisdom.

That fat pitch about the truth concerning tax rates in Michigan came last weekend, buried in an AP story that broke on Saturday afternoon. Our non-partisan Senate Fiscal Agency issued a report entitled "The Michigan Economy and State Revenue: A 10-Year History (1999-2009)" that details exactly what has happened as the loss of market share from the Big Three took down the entire state - as we continued to cut taxes and/or increase exemptions. Throw in the fact that we don't tax many services in an economy that is increasingly service-based, and you have effectively "drowned the government" when it comes to revenue to protect your cities, schools, and other vital public services. This time, I waited to see what reaction, if any, it would bring. And as usual, so far the truth about Michigan's tax rates has been ignored.

You know how Republican candidates love to run around with their hair on fire screaming the phrase "job-killing business tax!", as if the Michigan Business Tax was the cause of all of our problems? Well, turns out it is now one of the lowest in the nation. Here is that hanging curve ball:

"Michigan's corporate tax burden fell from 12th in 1989 to 39th in 2007 ... the largest drop in tax burden among all the states," economists Eric Scorsone and David Zin wrote in the SFA report.

When they passed the MBT back in '07, the claim was that 70% of businesses would see a tax cut. Apparently that has been true, the Republican-created surcharge not withstanding. "The largest drop in tax burden among all the states". Let that line sink in for a moment. And then ask yourself if eliminating business taxes altogether is really the answer when it comes to creating jobs.

As far as personal taxes go, those have fallen a great deal as well. The AP story sums it up:

When Michigan residents ask themselves if they want additional cuts to their public schools, universities, police and roads, it's important to know the role taxes are playing in their lives.

These days, they're paying a slightly higher percentage of their personal income toward the state education tax, a portion of property taxes that goes to local public schools, than they were a decade ago. But they're paying a smaller percentage in income, sales and use taxes.

Statistics show Michigan has fallen from having the 16th highest state and local tax burden per person a decade ago to 30th now. Considered as a percentage of personal income, the state tax burden has fallen from 14th to 20th.

Property taxes have increased 1%. That has been the only increase. The rest have fallen dramatically, almost to the point where we can say we are already a "low tax state". The SFA report concludes:

Michigan's economy has struggled mightily over the past decade under the weight of job losses stemming from major declines in the auto and manufacturing sectors. Overall, the Michigan economy has shed nearly one out of every five jobs that existed in 2000. By the end of the first decade of the 21st century, health care and other services had supplanted manufacturing as the State's largest economic sector. However, service sector growth was not able to offset losses in manufacturing. On top of these already significant problems, the 2008-2009 great recession made an even more serious dent in Michigan's labor market.

Not surprisingly, these economic problems have translated into a severe contraction in the State revenue stream. Despite some tax increases in 2007, State taxes as a percentage of personal income fell throughout the period. Michigan ranked in the middle or bottom tier of states in terms of tax burden. Further, tax expenditures grew at a very high rate throughout the decade. Thus, the overall picture is one in which State revenue is now at a historic low and tax burdens have fallen significantly.

Just know this: When Republicans say our problem is "taxes", they're lying. And when Democrats play along with that game, they are complicit in perpetuating that lie. Go read the entire report for a stunning picture of what has happened to this state in the past decade. There are some figures in there that show there was literally nothing we could have done to prevent an auto industry/manufacturing slide that started in the year 2000 and took out both our state and personal revenue. The only thing we can do now is start to take sensible steps to build the state again, and, knowing that the auto industry will never be quite the same again, we need to target high-growth industries to diversify our economy. In this day and age, you need targeted incentives to do that - because every state in the nation is out there doing the exact same thing, competing for those jobs with everything they have.

And know this: House Republicans have introduced a series of bills that call for the elimination of those targeted incentives, as they move to cut the MBT even further. Not only would further cuts to the MBT revenue bring more devastation to your schools, public safety, and other services, the Republicans would destroy our ability to bring new business to this state as well.

If "low business taxes" were the answer, the jobs would already be here. And this rookie can't hit every pitch out of the park - we need a team to stand up and point that out. It remains to be seen whether or not the Democrats really want to get in the game at all. If they don't start to point out the truth about the current tax rates in Michigan, you will have your answer.