Special Session: Avoiding the Michigan Model

New Mexico’s Legislature is now engaged in a difficult special session. The crux of the issues they face is whether to raise taxes, cut government spending, or patch the hole with one time money in hopes that the economy turns around. At this point, it appears that the latter two routes are most likely, but there is no doubt that the tax hikers will continue to make their case throughout the session and through the special session in January.

Well, there is a state that has followed the advice of those who would continue to increase taxes in hard economic times. The model to avoid is Michigan and, to say the least, it is not one New Mexico should be following. As the article notes:

In 2007 Governor Jennifer Granholm signed the biggest tax increase in Michigan history, with most of the $1.4 billion coming from business. The personal income tax—which hits nonincorporated small businesses—was raised to 4.2% from 3.95%, and the Michigan business tax levied a surcharge of 22%. The tax money was dedicated to the likes of education, public works, job retraining and corporate subsidies. Ms. Granholm and her union allies called these “investments,” and the exercise was widely applauded as a prototype of “progressive” budgeting.

Some prototype. Every state has seen a big jump in joblessness since 2007, but with a 15.2% unemployment rate Michigan’s jobs picture is by far the worst. Some 750,000 private-sector payroll jobs have vanished since the start of the decade. For every family that has moved into Michigan since 2007, two have sold their homes and left.

Certainly, the death of the Big Three at the hands of managerial incompetence and union intransigence has played a big role, but policymakers could have capitalized on the arrival of the “transplant” automakers from Japan and other nations, but Michigan was not a friendly climate. Nonetheless, it is notable that Michigan’s top income tax rate is 4.2%, lower than New Mexico’s 4.9% rate which many on the left are trying very hard to raise to 8.2%. A cautionary tale indeed.

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