November 20, 2005
A Near-Death Experience for Michigan Republicans
By Thomas
Bray
Is the tax
revolt dead?
Yes, some
hopeful liberals are proclaiming. They cite the gubernatorial
election in Virginia, where a Democratic lieutenant governor won
handily despite his boss’s tax increases. (The boss, Mark
Warner, is being touted for President.) Exhibit B was a referendum
in Colorado rolling back a portion of the state’s spending
and tax limitations.
But not so
fast. In Virginia, the Republican candidate was widely regarded
as inept. Colorado voters, meanwhile, voted to amend, not end,
their Taxpayer Bill of Rights, or TABOR, to prevent spending from
automatically ratcheting down too suddenly in the aftermath of
recessions. The TABOR movement is actually gaining ground in other
states.
And then
there are the recent events in Michigan, which has been the only
state to actually lose jobs in the last three years, opening a
huge gap in the state budget. Yet 10 days ago, Republican legislators,
fresh from passing a budget that actually cut spending, suffered
a near-death experience when their leaders let themselves get
hornswoggled into a tax package that would have reneged on a scheduled
repeal of the state’s hated Single Business Tax in 2009.
The Single
Business Tax was enacted in 1976 to consolidate seven different
business taxes into what is essentially a value-added tax. But
the SBT has since grown into a monster of complexity and a heavy
burden on employment, and former Republican Gov. John Engler pushed
through a bill to phase out the SBT by 2009.
As the sunset
nears, however, politicians on both sides of the aisle are beginning
to panic. A sunset would “cost” the state $1.8 billion
a year in revenue, they say, a big chunk of the state’s
$9 billion general fund.
So two weeks
ago a joint press conference was arranged at which Democratic
Gov. Jennifer Granholm appeared with the Republican leaders of
the House and Senate to announce a typical sleight of hand: the
SBT rate would be cut to 1.85 percent from 1.9 percent in 2009,
but the sunset would be scrapped.
Reaction
from grassroots Republicans was both immediate and intense. Within
hours the Republican leaders were backing away from the deal.
Both houses quickly passed a revised package, minus repeal of
the sunset, and sent it back to the governor – who now faces
some tough choices. If she signs the new version, her liberal
base will be furious. If she vetoes it, she risks losing her favorite
part of the package, a $1 billion “high tech jobs”
program funded by future tobacco tax proceeds.
If she’s
serious about job creation, she will veto it. The high tech boondoggle
is little more than a huge subsidy for the state’s universities
(and for term-limited politicians looking for cushy jobs overseeing
the money). Besides, the tobacco revenue could far more profitably
be used to cut taxes further – say, on Michigan’s
personal income tax. Autoworkers could certainly use the break:
bankrupt Delphi Corp., bowing to globalization, is talking about
cutting wages and benefits 60 percent.
At the very
least, retaining the sunset gives Republicans the leverage to
demand something far more significant than a measly one-half of
one percent cut in the rate three years from now. Thus does good
economics make good politics.
In state
capitals, as in Washington, politicians like to claim the tax
revolt has gone too far. Democrats and so-called moderate Republicans
are ganging up to defeat an extension of the Bush tax cuts on
dividends and capital gains that are scheduled to expire in 2008.
But that
may set off the same sort of revolt that occurred in Michigan
last week, because voters know that lack of revenue isn’t
the real reason for deficits. Indeed, revenue is again pouring
into government treasuries, thanks to the national economic recovery.
Even in hard-pressed Michigan revenue is running seven percent
ahead of last year.
The problem
is lack of will to restrain spending. And so long as that continues
to be evident to voters, reports of the demise of the tax revolt
are likely to remain highly premature.
Thomas
Bray is a Detroit News columnist.
