Today’s Wall Street Journal has an editorial looking at Michigan’s fiscal deterioration following last year’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. hikes:
Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan’s biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state’s tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be “invested” in social spending and new businesses and lead to a Michigan renaissance.
Not quite. Six months later one-third of the expected revenues have vanished as the state’s economy continues to struggle. Income tax collections are falling behind estimates, as are property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. receipts and those from the state’s transaction tax on home sales.
The editorial notes that “Michigan natives grumble that the only reason more people aren’t blazing a path out of the state is they can’t sell their homes,” that property taxes continue to rise at the rate of inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. while the state economy is in its 18th month of recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. , and that Governor Granholm’s latest budget raises salaries for public employees.
The full piece here.
More on Michigan taxes here. (Some of our most amusing blog posts have been about tax proposals in Michigan.)
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