WSJ on Granholm's tax hikes

From the Wall St Journal:

MoveOnOutofMichigan.org
High taxes lead businesses to flee the Wolverine State.

Comerica Inc. was founded in 1849 in Detroit and the Detroit Tigers play in Comerica Park, but this week the bank holding company announced it is moving its headquarters to Dallas--where, it said, the bigger growth opportunities are. Consider it one more vote of confidence in the state the national expansion forgot, and especially in Michigan Governor Jennifer Granholm's economic agenda.

Re-elected last year, Ms. Granholm recently rewarded the voters by announcing some $1 billion in new fees and tax increases. The plan would charge Michigan residents higher levies for almost every activity inside the state with a moving part. She would tax trucking, shopping, smoking, hunting, fishing, drinking beer and liquor, using a cell phone and, yes, even dying.

Her plan does complete the phase-out of the state's hated "single business tax," which the Tax Foundation has called one of the most anti-growth business taxes in the nation. She should have stopped right there. Instead the Governor wants to create a new corporate income tax as well as a new 2% excise tax on upwards of 100 business services. The net effect would be to raise Michigan's overall business tax burden. She'd also impose a 5% death tax on estates valued at more than $2 million--which is a sure way to encourage even more Michigan retirees to relocate to Florida.

The Governor says all of this is essential to close an $860 million budget deficit, but the levies are part of what has become a vicious cycle for Michigan: Poor growth causes lower revenues, so raise taxes, which leads to even poorer growth, so raise taxes again. The state has lost some 362,000 jobs since 2000 and the jobless rate in December was 7.1%, second highest in the country after Katrina-ravaged Mississippi's 7.5%. The national rate is 4.6%.

A new analysis by economist David Littman of the Mackinac Center reveals that the per capita income in the state fell to its lowest level in 75 years in 2005, relative to the national average. (See the recent trend in the nearby chart.) All of this is in contrast to the growth Michigan experienced in the 1990s, under former Governor John Engler, who succeeded in cutting income-tax rates and the welfare rolls.

It's true that some of Michigan's current woes are due to the secular decline of the U.S. auto makers and their unionized lack of competitiveness. In essence, the U.S. auto industry has been gradually relocating to more hospitable, right-to-work states. But that's all the more reason for Michigan to improve the business climate for other industries, though this is exactly the opposite of what Ms. Granholm plans.

Meanwhile, her budget would increase spending by 2.2% and pay off the teachers unions that support her with a new $178 per pupil spending increase, most of which would be absorbed by the bureaucracy and never see a classroom. This continues the state's lack of spending restraint; between 1995 and 2007 Michigan spent an aggregate $14 billion above the rate of inflation and state population growth, according to a Mackinac study.

Public-employee unions are especially powerful in the state, and Ms. Granholm bows to their every wish. One result is that, according to the Governor's own Financial Advisory Panel, the state has amassed a $35 billion unfunded liability in its public-school health and retirement benefits. The state spends a whopping $1,200 per student per year on teacher and administrator benefits.

Republicans lost the state House last fall, but they still control the Senate and are vowing to fight the Governor's tax increases. We hope they succeed lest the state continue to lose taxpayers and business to more favorable climes.