To set the stage: The stimulus money is gone. This has forced the majority of the states to enact "budget cuts (that) will hit education, health care, and other state-funded services harder in the 2012 fiscal year – which started July 1, 2011 – than in any year since the recession began." The CBPP reports that nearly all states will spend less in 2012 than they did in 2008, and that 38 states are making "major cuts to core public services". This is going to be a drag on the national economy as states continue to cut jobs and reduce spending on goods. On top of that, we have 12 states that have continued to cut taxes in the face of these budget shortfalls - and as you already know, Michigan is one of them.
While our revenue is coming in above projections right now, that won't be the case a few years down the road, as the price of eliminating the MBT takes its toll.
But the House Fiscal Agency points out that replacing the Michigan Business Tax with a 6 percent corporate income tax will bring in less revenue over the next two years and that the anticipated extra revenues won't be able to make up for the lost money.
Just about the time that loss really starts to kick in, the feds will be poised to swing the ax at aid to the states, thanks to Republican grandstanding over the debt ceiling.
And now comes the Budget Control Act of 2011, the deal reached in Congress to cut $2.4 trillion over the next decade in exchange for raising the debt ceiling. Although the deal could have been worse and was structured by White House negotiators to reduce the impact on safety-net programs like Medicare and Medicaid, it will do real damage at the state and local level.
The act will cut $917 billion out of domestic discretionary programs, about 60 percent of which will come from nondefense spending. That will inevitably reduce transportation, education and environmental aid sent to the states.
Out of a $47B yearly state budget, 44% of our funding comes from the federal government, or roughly $400 million a week. The Snyder administration is certainly aware of the coming cuts, even if they don't know the details yet. All they will say is that they are watching Washington so they can "plan accordingly". Now, can anyone out there guess what the plan includes so far? C'mon, you should know the answer by now...
If you said "more business tax cuts", congratulations, you may already be a fiscally-irresponsible Republican.
The next big tax reform -- getting rid of Michigan's $800 million-plus tax on industrial and commercial personal property -- is heading to the Capitol.
Shaping up is a Snyder administration proposal to eliminate the tax businesses pay on everything from office equipment and furniture to industrial presses. Proponents of eliminating the levy say it discourages business investment and growth and makes Michigan uncompetitive.
"It's a disincentive to place productive equipment in Michigan," said Lt. Gov. Brian Calley, who is spearheading development of a proposal expected to emerge this fall. "It's not a system I want to fix; it's a system I want to get rid of."
This move was predicted last May after the MBT was cut, and chances are they will push it through this fall, ensuring you will forget all about it in the din of the election noise of 2012 with the impact to be felt much later. The Michigan Municipal League is already starting a campaign to make sure that revenue is replaced, as it accounts for "more than 50 percent of budgets" in some communities. If it isn't replaced, that means more loss in police, fire, and other general operations funding - piling on top of a decade of state cuts combined with the drop of local tax revenue that has already severely impacted services in a lot of places.
So, how does the Snyder administration plan to address the problem they are about to create?
Sara Wurfel, Gov. Rick Snyder's press secretary, said the administration does not know "whether something is going to be a dedicated funding source. We don't know whether it's going to be whole or in part" revenue replacement.
She said, "Everything is still being closely looked at, other than there's a very strong commitment to make sure there's some kind of replacement revenue."
"We don't know." Or won't say. Well, given the Snyder administration's track record for shifting the tax burden onto seniors, students, the working poor, and local government officials, anyone want to take a guess who will be paying the bill for that "replacement revenue"?
Things can and will change this scenario over time, but you can see how all of these pieces will start to fall in place if the course isn't altered in some way. And, due to the time lag on these tax/austerity budget cuts, in a couple of years most people will have long forgotten where they originated. The NY Times lays it out in no uncertain terms on the national level now...
The Republicans who produced this artificial crisis, and are responsible for its effects, say they would like nothing more than to see a reduction in state as well as federal spending. That is where government hits closest to home, affecting the size of classrooms, the bulbs in streetlights, the asphalt in potholes, and the lines in emergency rooms.
They are well on their way to achieving their goal, making life more difficult in every city and town.
... and that goes double for Republican governors and state legislatures that continue to cut revenue when they know that the federal government is about to deal them a huge blow.
Only question left is: Will the Democrats make them pay the price for their fiscal irresponsibility? Better start calling this out for what it is now, because Governor Schauer is going to have one hell of a mess to clean up later if this all comes to pass.