May 28, 2008

Michigan's Lesson to Rhode Island

Marc Comtois

From an editorial in today's Wall Street Journal:

[T]he latest news of Michigan's deepening budget woe is a national warning of what happens when you raise taxes in a weak economy.

Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be "invested" in social spending and new businesses and lead to a Michigan renaissance.

Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales....The tax hikes have done nothing but accelerate the departures of families and businesses. Michigan ranks fourth of the 50 states in declining home values, and these days about two families leave for every family that moves in. Making matters worse is that property taxes are continuing to rise by the rate of overall inflation, while home values fall. Michigan natives grumble that the only reason more people aren't blazing a path out of the state is they can't sell their homes. Research by former Comerica economist David Littmann finds that about the only industry still growing in Michigan is government. Ms. Granholm's $44.8 billion budget this year further fattened agency payrolls.

There's another national lesson from the Granholm tax dud. If Democrats believe that anger over the economy and high gas prices have put voters in a receptive mood for higher taxes, they should visit the Wolverine State.

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Last I heard, Rhode Island and Michigan were the only two states losing population.

I moved out of RI in 2007. The move worked out great!

Posted by: Citizen Critic at May 28, 2008 4:39 PM

A lot of these "progressive" states are finding that no matter how desperately they raise taxes revenue won't follow. People leave the state. Jobs leave, capital leaves, people buy on the internet, buy less and find some way to evade the tax man. Call it something the Left can relate to: "Peak Taxes".

Posted by: Mike at May 28, 2008 8:40 PM

>>Call it something the Left can relate to: "Peak Taxes".

I like that! Wish I'd thought of it.

Posted by: Tom W at May 28, 2008 9:48 PM

Wow. Scary.

Posted by: Monique at May 28, 2008 9:57 PM

The nature of Democrat - union dominated regimes.

Rather than govern for the long term best interests of the state, they will continue to feather their own nests for as long as they can, and as much as they can. The very essence of a special interest.

That's why I'm afraid that Rhode Island's future is going to resemble that of Detroit (and Buffalo, Rochester, Cleveland, etc.), rather than that of Atlanta or Dallas or Austin or Raleigh-Durham.

I just don't see the Democrat General Assembly will put the best interests of this state and its citizens ahead of the interests of the public sector unions and welfare industry (I mean, once you get down to it, isn't the Democratic Party comprised of those two special interests - ultimately they're one in the same). Special interests not only exert undue influence on our state government, they are our state government.

Sure the General Assembly will tinker at the margins, but only to the extent that they are forced to (think the laughably minimal "pension reform" of a few years ago).

Our future is Rustbelt, not Sunbelt.

It doesn't have to be this way, but the Democrat General Assembly will ensure that it will be.

Posted by: Tom W at May 29, 2008 9:53 AM

Sounds like the Gov needs a remdial lesson in economics. Or at least be taught about the Laffer curve.

Posted by: Arnold at May 29, 2008 1:26 PM

>>Sounds like the Gov needs a remdial lesson in economics. Or at least be taught about the Laffer curve.

That assumes that she's operating in good faith.

Good faith has nothing to do with it.

She's a Democrat politician, and relies upon public sector union support for reelection.

So she does their bidding, and if the state continues its economic decline, well, that's just collateral damage - she got hers, and the unions got theirs, and that's what's more important to them.

That dynamic is why Michigan has been in economic decline for years, is losing population, and will continue to decline.

Rhode Island has the same political dynamic operating in the Democrat General Assembly ... which is also why the dynamic of economic decline will continue here just as it has in Michigan.

It's no mere coincidence that Michigan and Rhode Island are the only two states losing population (RI losing population despite the influx of illegal aliens).

Posted by: Tom W at May 29, 2008 2:44 PM
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