|Boulus: Budget mess is product of state's tax decisions|
Lansing State Journal/August 9, 2009
Among the most knowledgeable people in Michigan about the state budget are the directors of the nonpartisan House and Senate fiscal agencies.
So when Gary Olson, director of the Senate Fiscal Agency, recently said Michigan's annual budget crisis is not the result of the state's 9-year-old recession, he's worth listening to.
In an interview with Lansing-based MIRS newsletter, Olson said: "The tax burden (in Michigan) has declined very, very significantly." And he said: "That has nothing to do with people out of work. Revenues are declining much, much faster than income. ..."
He continued: "This is not a problem directly tied to the collapse of the economy. The base of the sales tax is not responsive to consumer spending - all these things together - the exemptions to the Michigan Business Tax, the film credits, all these things come together. But, there is a fundamental disconnect with how revenues grow compared to the growth of income."
The facts are clear: The major reason for the state's decade of budget chaos is Michigan citizens are paying a smaller part of our personal income to fund government. Olson noted that in 2000, we paid about 9.49 cents of $1 of personal income to state government. Today that's down to 7.3 cents - a 23 percent decrease in state taxing effort.
If Michigan's state tax burden were the same as in 2000, state revenues would be $7.5 billion higher. Instead, the Legislature and Governor again are struggling to cut their way to a balanced budget by slashing programs and services by $1.8 billion for FY 2010. Until the state tax structure is updated, each year Lansing will continue to reduce funds for local police and firefighters, water and sewage systems, the State Police, veterans' needs, child protective services, health care for children and the elderly, public schools and colleges and universities.
Why has the state's tax burden on individuals and companies fallen? Because of tax cuts we were told would create jobs and prosperity. We cut the state's income tax rate from 4.4 percent in 1999 to 3.9 percent in 2003. We cut the Single Business Tax rate from 2.35 percent in 1998 to 1.95 percent in 2001. The result: Unemployment jumped from 3.72 percent in 1999 to 7.1 percent in 2008. While the state's income tax rate was increased temporarily to 4.35 percent in 2007, and lawmakers passed a new Michigan business tax and surcharge, they have been more than offset by other credits, as noted by Olson, and the state's tax burden continues to decrease year after year.
This isn't to say fundamental reforms are not part of a prescription for fixing the budget. But it should be clear to politicians that they also must reform the state's tax system to preserve Michigan's quality of life to attract and retain the young talented college graduates who are fleeing to other states -many with higher tax burdens than Michigan - to find a place where they will build their futures.