Welcome to a Third-World state

The Wall Street Journal said it pretty well. We are on our way to taxing our way to prosperity.

Hail to the Taxers
October 2, 2007

Actor Jeff Daniels makes a cool pitchman in those national TV spots inviting business to Michigan, but soon he may have to start pitching *inside* the state. At about 2 a.m. Monday, a handful of Republicans in the Legislature broke days of gridlock and handed Democratic Governor Jennifer Granholm the $1.48 billion tax increase she has been demanding.

The state's personal income tax will rise to 4.35% from 3.9%, and the rest of the revenue grab will come from a new 6% sales tax on business services. Already 14th in tax burden among the 50 states, according to the Tax Foundation, Michigan is now headed up in the rankings. Congratulations.

The Michigan Chamber of Commerce estimates that two-thirds of the $750 million in new sales tax revenue will apply to business transactions that are tax exempt in most states to avoid a compounding effect that raises costs to final consumers. The tax is especially unfair to small employers that contract out for activities, such as office services, that large businesses provide in-house with no sales tax applied. By the way, last year Michigan introduced a new 4.95% business income tax, which will be applied on top of the sales tax.

Last year, amid the national expansion, Michigan was the only state outside the Gulf Coast to lose jobs and see a decline in economic output. Comerica Bank recently moved its headquarters to Texas, in part because of Michigan's hostile business climate. Michigan's 7.4% jobless rate is the highest of all states and far above the 4.6% national rate.

The state is suffering from the decline of Detroit's car makers, but that's all the more reason to promote policies that attract new businesses -- or at least don't drive current employers to Florida. Ms. Granholm argues that the combination of new taxes to balance the budget, and to finance such new public "investment" as job retraining and education, will reinvigorate Michigan.

She should check her history books. In the past 25 years, the only period when Michigan's growth has exceeded that of the national economy was in the mid-1990s after then-Governor John Engler's tax cutting and welfare reform. For a time, Michigan became the unlikely national leader in job creation. Now the total tax burden is returning to where it was before the Engler years.

Michigan last went on a taxing binge in 1983, and voters were outraged enough to mount a successful recall campaign against two state Senate ringleaders. This time, two of three Michigan voters have told pollsters they want budget cuts, not new taxes. It may be that the only way to get jobs back into Michigan is to make sure the taxing politicians in Lansing lose theirs.