The state of Michigan has seen better economic days. According to the Joint Economic Committee, Michigan is the only state that lost jobs in 2004. Those losses were not trivial. Whereas Michigan’s neighbors in Ohio, Wisconsin, and Indiana created 17,200, 59,200, and 18,400 jobs, respectively, Michigan lost 36,800. Worse, the number of job losses in the state appears to be accelerating, as Michigan workers saw 14,800 jobs evaporate in September alone.
It is no surprise that Michigan’s governor Jennifer Granholm — a prototypical big-spending, big-labor Democrat — has played an active role in implementing some of the state’s most economically harmful policies. However, her efforts alone would not have been enough to push the state’s economy into the mud. In fact, both houses of the state Republican legislature have actively assisted Granholm in making Michigan inhospitable to business and job growth.
In the past year alone, the Republican-dominated legislature has delayed a scheduled income-tax cut by six months (costing taxpayers $77 million), raised cigarette taxes by 75 cents ($300 million annual cost to smokers), hiked the tax on Detroit’s casinos from 18 percent to 24 percent (costing $49 million), boosted driving fees and penalties (cost of $115 million annually), sped up the collection of county property taxes, and generally avoided steep cuts in state government spending.
According to research from the Mackinac Center (using the State Tax Analysis Modeling Program), delaying the income-tax cut alone cost Michigan 2,948 jobs in 2004. Undoubtedly, the cumulative effect of this array of tax hikes and government revenue raisers has done much to stifle the state economy. But high taxes are not the only element slowing the state’s economic growth — so are high labor costs. Michigan has the second-highest per-unit labor costs in the nation. This increases the price of goods made there, putting Michigan employers at a disadvantage and discouraging new employers from setting up shop in the state. As global trade brings more and more competitors into every industry, that burden becomes more and more difficult to bear.
Michigan’s legislature recently returned to Lansing for a “lame-duck” session. Rather than use this time to consider significant tax-and-spending cuts to boost the state economy, some misguided Republicans would like to debate extending the state’s term-limits law so they can serve longer terms. (Of course, they may just be afraid to look for real jobs in the state’s struggling economy!)
To be fair, legislators are planning to consider some fiscal issues, notably the state’s “single business tax,” which places an onerous burden on auto manufacturing because it falls most heavily on those who employ the most people. However, the goal of this restructuring would not be tax reduction, rather it would be to lift the tax burden on the struggling “Big Three” automakers while forcing small and mid-sized firms — those that are actually producing what passes for economic growth these days in Michigan — to pay a greater percentage of the business tax burden. Such plans are clearly not the path to economic growth.
Since the passage of a constitutional term-limit amendment in 1992 through citizen initiative, members of the state senate have been restricted to serving two four-year terms and state house members three two-year terms. Of course, Michigan’s problems have nothing to do with term limits and everything to do with the willingness of the state’s leaders to sacrifice sound economic policies at the altar of big government and personal aggrandizement.
Instead of wasting precious time blaming term limits for legislative failures, Michigan’s Republican-dominated legislature needs to return to its roots by making real efforts to cut spending, lower taxes, and improve the state’s labor climate — perhaps through the passage of “right to work” laws. Although Granholm may present insurmountable obstacles to some of these plans in the immediate future, Republicans need to actively push for reform or they will become irrelevant. Eventually, even in a so-called “blue state” like Michigan that has shifted left-of-center on the political spectrum, the party of ideas will prevail. At the national level, the Republican party has unquestionably seized the high ground in this policy battle. To free Michigan from its economic doldrums (and help it keep its legislative majorities), Republicans in the state legislature must demonstrate the same intellectual vigor.
– Paul Gessing is director of government affairs for the National Taxpayers Union. Write to him at 108 N. Alfred St., Alexandria, Va. 22314, or visit www.ntu.org.