Recently the State of Michigan Legislature passed a new budget which called not only for an increase in the state income tax, but also an expansion of the state's 6% sales tax to include services. All of this to fix a $1.75 billion dollar shortfall in the current budget. This $1.75 billion amounts to about 5% of the annual budget. There were some cuts and other changes which will supposedly save some money, but the bulk of the $1.75 billion will supposedly come from the new taxes.
Now, if you don't know this, Michigan is currently undergoing it's own private recession. It's unemployment rate, at 7.4%, makes it the worst of any state in the Union. The next worse is Alaska at 6.3%. Michigan is also losing residents to other states as our economy continues to falter. So what do our leaders think will solve our economic woes? More taxes. They seem to think that we can tax our way to prosperity. What is more likely to happen is that it will further retard the economy and lengthen the period of any recovery.
The biggest mistake made by the legislature is the new tax on services. Of course, the tax is only going to be applied to 'discretionary' services, where 'discretionary' is simply defined as businesses which didn't have lobbying clout. For example, landscaping is taxed whereas golf isn't. Golf, of course, is a necessity of life so we couldn't tax that. Landscaping, however is obviously something that only wealthy people can afford. Possibly true, but the people who work for landscapers typically aren't
What our elected officials don't seem to grasp is that when you tax something, you get less of it. If landscaping costs more because of the tax, people won't do as much. The people who will feel this the most will be the people who work for landscape companies. This is all very similar to what happened a few years ago when Congress passed a luxury tax on yachts. It was supposed to hit the wealthy. Unfortunately the wealthy decided they didn't need to spend the extra money on a new yacht if they were going to have to pay a big tax. So, fewer yachts were purchased. Of course, this had bad effects on companies that made yachts, ultimately resulting in layoffs of workers. A similar thing is likely to happen in Michigan.
One of the services which is to be taxed is skiing. Michigan may not be a skiers nirvana, but we do get some people to travel here to go skiing. Also, people who live in the state will often times visit resorts here. Now, with an additional services tax, people may think twice. I know that I will go fewer times. In addition, ski instruction will be taxed and again people will likely not purchase as many lessons as before. This will result in less revenue for ski areas, thereby reducing other tax collections. Fewer tourists also results in less money coming to the state. Ski instructors may decide to leave for greener pastures. All things which hurt, not help, the state economy.
Our state already has a reputation as being a poor place to do business, we don't need to make things worse. Supporters of the tax increase say that we will be better off because we can use the money to provide needed state services. Roads and education, for example. Of course, roads have a funding source called the gas tax. It's close to a use tax and is paid by the people who use the roads. If roads need additional funding, it should come from places like that. With education, much of the state budget is spent on teacher retirements, not on improving the classrooms. If we really wanted to improve education, we should simply privatize the entire thing.
5 years ago when Jennifer Granholm was running for Governor, she promised people that in 5 years we would be "blown away" by the Michigan economy. I guess we now know what she meant.
