Gov. Jennifer Granholm — the charismatic, silver-tongued, Harvard Law School–trained Democratic executive (with no executive experience) who tried to remake Michigan as a “Green Belt” state via stimulus spending and windmills — brought the state to the precipice with a 2007 budget shutdown. Now we are watching Obama’s remake.
The similarities between the two crises are uncanny — but the crucial differences teach a lesson about constitutionally mandated balanced budgets and the need for conservatives to maintain a steely spine against tax increases. Americans can only hope their Republican representatives in Congress have the courage that GOPers in the Michigan state senate lacked.
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In 2007, a liberal governor’s determination to enact permanent big spending hikes and tax increases set Michigan on course for a budget war. Granholm’s threat of a shutdown came on the heels of a budget that proposed hundreds of millions of dollars in new “investments” — as she and Obama like to call spending — and, to pay for it, proposed a new services tax. This, even as Michigan’s economy swirled down the drain.
A crucial difference between 2007 and today is that Granholm had won a landslide election the year before, with Democrats regaining the house and eroding the Republicans’ senate majority. But even riding this wave of support, Granholm provoked an immediate public backlash when she suggested tax and spending hikes. A Tea Party–esque movement — led by a teabag-waving, pig-hauling activist named Leon Drolet — emerged to recall legislators who supported the tax hike.
The lines were drawn. Pro-tax Democrats vs. anti-tax Republicans.
Michigan’s economy was struggling, with an unemployment rate hovering 50 percent above the national average. Ratings services added to the drama by downgrading Michigan’s bond rating from “AA− with a stable outlook” to “AA− with a negative outlook.”
Yet Democrats insisted on hiking taxes rather than making structural reforms to the state’s Medicaid program and public-employee health benefits, which together were swallowing Michigan’s budget whole. Republicans tried to plug the $800 million budget gap with a cuts-only approach, but they controlled only one house of the legislature.
Governor Granholm reacted with a page right of Obama’s playbook. “People will die,” she said, if GOP cuts to Medicaid and other social services passed.
No leadership. No structural reforms. Just a relentless threat that she would begin “shutting down” the government. Like Obama today, Granholm “appeared to be disassociated from the process, except to issue occasional press releases criticizing ‘the legislature’ or ‘Senate Republicans’ for failing to adopt her budget recommendations,” wrote the Mackinac Center, a state think tank.
Under pressure from the state’s balanced-budget requirement — another crucial difference between Michigan then and Washington today — and after a brief government shutdown on October 1, Senate Republicans warily agreed to a deal involving a mix of tax hikes and benefits reform. They agreed to hike income taxes by 12 percent and impose a new set of service taxes on select business activity, raising $1.5 billion. In return, Republicans got fragile promises of spending reform.
“This budget agreement is the right solution for Michigan,” crowed a victorious Granholm. “We prevented massive cuts to public education, health care, and public safety while also making extensive government reforms and passing new revenue. With the state back on solid financial footing, we can turn our focus to the critical task of jumpstarting our economy and creating new jobs.”
Barack Obama couldn’t have said it better. Did it solve the problem?
“Within literally hours of passing the tax hike,” recounts Mackinac Center legislative analyst Jack McHugh, “the legislature passed bills spending the entire $1.4 billion.” By the time Granholm handed over the wheel to Republican Rick Snyder three years later, the deficit had ballooned to $2 billion amidst a stalled economy.
But the tax mirage isn’t Lansing’s only lesson for Washington. The other is that balanced-budget amendments can force divided governments into shutdowns, and force Republicans to accept tax increases. Such amendments are still — on balance — a positive for states like Michigan, but one would be a disaster for a federal government that is drunk on entitlements and needs budget flexibility for national defense.
Lawmakers in Washington should learn the lessons of Michigan’s tax showdown.
— Henry Payne is editor of TheMichiganView.com and editorial cartoonist for the Detroit News.
As a life long resident of the Peoples Democratic Republic of Michigan, my only comment is "you don't know the half of it." If you want to see America after four more years of Obamanomics, just look at Michigan.
Lets see...one of the highest unemployment rates in the country, the ONLY state to lose population in the US over the last 10 years, one of the highest foreclosure rates in the US, blame the previous administration for the current fiscal disaster...etc., etc., etc.
Thank you Jenny.
..."but one would be a disaster for a federal government that is drunk on entitlements and needs budget flexibility for national defense."
That's weak thinking.
It's clear that NOT having a balanced budget amendment to the constitution has lead us to disaster. The whole point of such a an amendment would be to force the US to stop being drunk on entitlements; further the argument about defense requiring flexibility is foolish; if we ever truly needed to expand defense spending, such as in a major war, the amendment would easily be amended. But we have not had a need like that for a half century.
NOT having a balanced budget requirement is much more of a threat than having one - Congress has been proving that for a half century.
The difference between rhetoric and fact:
In 2010, the MI Dept of Human Sevices was almost put into receivorship due to the deplorable state of its child welfare practices. Gov Snyder (R) appointed a new Director and to date, the Dept has begun structural reforms that have received kudos from the courts & others. It is endlessly frustrating that conservatives do not educate the public about those who say they are 'for the children' and those who actually improve the lives of real children.
One of the hikes was a gross receipts tax on small business (yes, even if your business lost money MI would get a share of the gross). My sister (a surgeon) closed down her two MI clinics in response and moved across the border to IN. They were both profitable. MI now collects zero on her businesses and her personal income. That's the result of tax hikes without reform.
Sorry, but I also live in the mitten and I have a much different perspective. Michigan's state of affairs over the last decade, the crumbling economy, the brain drain, etc... had/has to do much more with putting all its economic eggs in one basket, the American auto industry. When the American auto industry crashed in the 2000s, so did Michigan. Add to that the housing market crashing nationally and you had a recipe for misery. And what caused all this misery? Perhaps the it was the policies of Bush, and the corporate runaway train culture he and his ilk embraced that drove the country over a cliff. The policies under Granholm, before Snyder, of attempting to diversify the Michigan economy through various stimulus plans was a good one. Bringing high tech industries to Michigan, cultivating a vibrant creative class, etc... these were good things for the state. Regions always invest in industries to help them flourish, the auto industries, the oil companies and other "red state friendly" poster industries certainly enjoy more then their fair share of tax breaks and regional deregulation. Snyder's solution of de-funding the state to the point of undermining so much of the state's wonders such as the public education systems, and ripping apart any/all of these incentive packages was short sighted and counter productive. That last thing Michigan wants to be is South Dakota, Snyder's template for a "healthy" state. With all respect for South Dakota, the stakes in Michigan are much higher. We have a much larger and more diverse population base. We have Legacies like world class universities, 4 major sports teams, a vibrant music scene, some of the best public school systems in the country, and a middle class workforce and educated class that changed the world through innovation in manufacturing and mass production, these are the things that made Michigan great. Snyder wants to strangle the state to the point of destroying the middle class and remake it as South Dakota, a culturally baron corporate playground where you have a small, uneducated, non-unionized and cheap labor pool living small lives at day jobs for large international corporations like Dell. Sorry but Michigan deserves much better. Michigan needs further investment in the middle class so its filled with people who have careers; not a dumbing down of the state so that the population toils away uneducated, poor, and just happy to have a "jobs."
Sure, this makes sense, provided that we ignore the fact that automakers are thriving - and hiring - in right-to-work states such as TX, AL, TN, MS, GA, and others. And you know what? You're right that people are glad to have the jobs, and are smart enough to not kill the goose that lays the golden eggs.
In MI, on the other hand, the automakers (other than Ford) needed massive taxpayer subsidies to survive, to prop up their bloated and unrealistic union salaries and benefits. Yes, you created an artificial middle class by building a product that had to be vastly overpriced to pay the bills, leaving the market wide open for a better and less expensive product to be imported and sold to eager consumers that were tired of paying too much to support the ludicrous union wages.
The wizard Granholm, seeing how those taxpayer dollars were so effective in covering her and her party's incompetence, then applied for and received more. They wisely saw that their future lay in promoting more industry of the type that cannot survive without massive and ongoing infusions of taxpayer dollars. Green jobs, the secret code word for zero-profit companies surviving on government subsidies - wow, I'm impressed by their business acumen! Michigan will be the proud home of how many new "unintentional non-profit organizations" (eg; solar and wind power companies)?
What happens to them when the Federal spigot runs dry - which it has, by the way?
As for the sports teams, well, the Wings are usually pretty good. The Tigers have their moments, though rarely, and the Pistons were good once upon a time. Can't think of who the fourth one would be - you can't be talking about the Lions, surely!
Seriously though, they may be getting better. I can't help but pull for the underdog - and I like Stafford and Suh - so I hope so, but Michigan's corrupt unions are no underdog, and their control of the State government is shameful, and damaging to your state. I hope that Snyder can enact some of the necessary reforms, but Michigan may be too far gone. We'll see.
In the meantime, I will agree that Michigan is a beautiful state, with some amazing people - and pretty good (not great) universities (hey, I'm a Badger). I wish you all the luck and good fortune you might have - just not on the tapayer's dime.
So you seem to be a fellow Michigander.
As I said, I've lived here all my life.
I've worked in the auto industry, been a UAW member(local 400), worked in tier 2 and tier 3 suppliers, etc.
I've seen first hand the unions and liberal dems put a strangle hold our economy. Remember when Comerica Bank moved it's headquarters to TX? Remember Granholm's brilliant response? Pull the states money out of the bank...that sure taught them a lesson.
So I do see hope for MI, if only because the losers, libs and union members, are leaving the state in droves. Maybe when they're gone...
I live in a state with a spending limit like that proposed by the BBA. Legislators have all kinds of ways of getting around the law.
IMHO it is a waste of time. The focus should be on winning elections and electing people who want to shrink the size of the federal goverment, including the so-called entitlements, and return it to its original mission.
With respect to the comment above, Michigan doesn't "deserve" anything. Individuals in Michigan "deserve" the right to Life, Liberty, and the Pursuit of Happiness. Note that these rights to not include a right to handouts taken from other peole by threat of force.
As I read these comments, what saddens me is not the fact that I was forced to leave Michigan nearly 2 years ago because of the lack of decent (emphasis on "decent"), but how people are willing to view reality through a conservative or liberal) rubric and try to make their view of reality fit into it. What happened in Michigan was not an issue of "liberal" ideas vs. "conservative" ideas (as if they were the only 2 life-forms in the known universe). Hinging the state's economy on a single commodity like the automobile was a factor, but so was also allowing segments of the financial industry to run the market WITHOUT oversight or regulation (yes, I know conservatives like tout "less government" as a panacea for what ails America but those of us who are open-minded know that a government which doesn't have a hand in the market is every bit as a myth as one which engages in central planning). Lack of fiscal restraint was every bit an issue as faltering revenues. Michigan is America...we are missing upwards of 10 million jobs, which if we had regulated and watched the banking industry more carefully, we would have had as a source of revenue. So revenue/taxes are every bit as a factor in budget talks as fiscal restraint. We don't need ideology...we need practical solutions! This about narrow-minded ideologies as "solutions" when they are really part of the problem.
