Despite recent economic progress, the
state of Michigan still faces a $300 million budget deficit for the
upcoming year. After two years of intensive budget trimming, with
little left to cut, Gov. Jennifer Granholm has proposed a $100
million tax increase, which will add 75 cents to the cost of a
cigarette pack and increase state-set liquor prices by an
unspecified amount, to help bridge the gap. Coupled with sustained
economic growth, this new tax would effectively solve the fiscal
problems that have plagued Michigan for the last few years.
- Mira Levitan
Unfortunately, the new increase is misguided. Even though it
masquerades as a “sin tax,” designed to assess levies
against people who engage in non-essential pleasure activities, the
tax package is merely a fresh form of the state sales tax. True
fiscal solutions, not regressive tax increases, are needed. While
the Michigan deficit has shrunk significantly, it has only done so
because of massive spending cuts impacting all state programs. If
her tax increases are implemented, Granholm will have vanquished
the fiscal mess she inherited from former Gov. John Engler, but
only by damaging vital public programs and changing the tax system
to rest unfairly on the poor.
In order to actually solve the state’s fiscal problems,
Granholm must take the courageous step of calling for a statewide
income tax increase. At a fundamental level, this would not be
increased taxation for new government programs; rather, it would
return the income tax to a tenable level. In fact, increasing the
income tax would not burden Michigan citizens with a
“new” tax at all, it would merely reverse the fiscally
irresponsible actions of John Engler, who in the 1990s, cut the
state income tax to a point where Michigan barely remained solvent,
despite a soaring economy. Thus, when the economy slowed, the state
found itself deeply in the red; Granholm came into office facing a
deficit in excess of $1 billion.
While increasing “sin” taxes could have the same
revenue-generating effect as raising the income tax, any sales tax
disproportionately raises the tax load for lower-income citizens.
If the tobacco tax increase were implemented, a wealthy smoker
would end up paying the same 75 cents extra a poor smoker would,
but as a proportion of income, the tax would actually be higher for
the poorer individual. By contrast, the state income tax is an
equal burden to all; Each person is forced to pay the same
percentage of their income to the government, so both poor and
wealthy citizens carry the same proportional responsibility.
It is important to understand that the spending cuts instituted
by Granholm did not merely impact pork: they hurt core services.
Bringing the income tax back to a reasonable rate would enable the
state to return appropriations for these programs to their original
levels. Elementary and secondary education would be spared from
imminent budget cuts, higher education would see recent cuts
reversed and the need to trim programs such as Medicare would be
eliminated.
However, a state income tax is easier proposed than passed.
Michigan voters must approve, by direct referendum, any significant
income tax increase. Of course, this creates a serious barrier for
any state lawmaker or executive who wishes to increase the income
tax. Nonetheless, Granholm must show financial leadership and set
the ball in motion. Marginal fixes, such as funding cuts and sin
taxes, should not be the cornerstone of Michigan’s fiscal
policy.