Cynical Synapse

Thu, 11 Feb 2010

Granholm’s Budget Proposal Doesn’t Add Up

Filed under: Budget, Economy, Government, Michigan, Politics, Stimulus, Taxes — cynicalsynapse @ 9:47 pm

Granholm presents her 2011 budget proposal

Gov. Jennifer Granholm (D) delivered her Michigan budget proposal to a joint state House and Senate Appropriations Committees session. There’s been great anticipation surrounding her last budget plan in light of the anticipated $1.7 billion shortfall in the fiscal year 2011 state budget. Highlights of the budget proposal include:

  • Cutting the sales tax to 5.5% and extending it to most services, excluding health care, new construction, and business-to-business services
  • Cutting the Michigan Business Tax surcharge in half in 2011 and eliminating it in 2012
  • Restoring Promise college scholarship grants as a refundable tax credit for students who earn a degree and work a year in Michigan
  • 3% tax on doctors’ gross receipts to pay for added Medicaid costs
  • $2.50 fee on rental cars at Michigan airports to pay for Pure Michigan ads

There are more details of the Governor’s proposal, but there are still a number of unanswered questions. And the proposal includes a whole bunch of legislation that needs to be passed and signed into law in order for it all to work. In my world, we’d call that assuming away the problem.

Doesn't add up

At first glance, Granholm’s proposal seems to make sense. The flaws start to become apparent when you start peeling back the onion, however.

While presenting her budget, Gov. Granholm said, “By the end of 2013 fiscal year, these changes to the sales and use tax and Michigan business tax will all be revenue neutral.” That leads me to conclude the deficit for 2011, which Granholm’s budget supposedly avoids, will be back with a vengance in 2013. How do we make up that $1.7 billion shortfall then? And Granholm’s 2011 plan includes $400 million in Stimulus cash that simply defers making choices on that shortfall to the 2012 budget.

Granholm’s tax on services is going to drive people in border communities to surrounding states for those services. That will hurt Michigan business people as they suffer lost revenue; many will probably close up shop. In case she doubts that, Granholm need only look at the cigarette tax issue.

I’m not close enough to the border, so I won’t be going elsewhere for services or goods. But I’m curious to know how the 5.5% tax is going to work. If I buy a $1 double cheeseburger, will it cost me $1.05 or $1.06? If the latter, I’m actually being taxed at a higher rate than specified by law. Do I have recourse? Is this something I’m going to have to keep track of to claim on my Michigan income tax return? Or is it just a ploy for the state to actually bring in additional revenue under the guise of “we don’t have no half-cent coin”?

pick pocket

More importantly, though, Granholm is shifting the tax burden from businesses to individuals in a thinly veiled attempt to gain Republican support. Although the Michigan Business Tax surcharge is definitely an issue, shifting it’s revenue burden to individuals is a regressive tax that will adversely affect those who can least afford it. Has Granholm forgotten Michigan’s unemployment rate is 14.6%, the highest in the country? Why, then, burden them with additional taxes?

Doctors are another targeted group in the governor’s budget proposal. Granholm proposes a 3% tax on physicians’ gross receipts to fund Medicaid shortfalls. I’m just really confused by this concept. Medicaid doesn’t reimburse you enough, so pay this extra tax so Medicaid won’t reimburse you enough. Why should doctors pay a tax to cover Medicaid recipients?

Education is Granholm’s sacred cow in her budget proposal. She’s kept K-12, state universities, and community colleges funded at current levels. She proposes to use the added revenues to restore the $4,000 Promise grants, although they have the added stipulation of a degree and 1 year working in Michigan. They also become a refundable tax credit instead of a grant. Today, Granholm said, “I will veto any budget that makes further cuts to education.” Have we heard that before? The pro-education Governor accepted the Legislature’s $165 per pupil cut and added her own.

Michigan Senate Majority Leader Mike Bishop (R-Rochester) isn’t one of my favorites, but he hit the nail on the head. “This is the wrong time in our history to increase taxes.” In presenting her budget, Granholm said, “The budget brings revenue and spending in line with Michigan’s harsh economic realities.” I’ve got some other ideas about this that I’ll present in the coming days.

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