Just before Christmas, Jennifer Granholm got up in front of the Lansing press corps and stated the obvious. Michigan, the governor announced, will have to choose between raising taxes and slashing services to make up for the state’s massive budget deficit.
- Angela Cesere
The Detroit Free Press ran the news as its lead story. Conservatives across the state went ballistic. All this fuss because a politician applied the rules of addition and subtraction to the state budget.
What Granholm was really saying, of course, was that she was getting ready to propose some sort of tax increase. It was almost comical how she avoided saying so outright. She told reporters that balancing the budget with spending cuts alone would mean starving public schools and health care. She said Michigan’s voters rejected that strategy when they re-elected her over Dick DeVos by a 14-point margin. And she hammered home the point that the state needs public investment to transform its exhausted economy.
Infer what you will.
Presumably, Granholm is dipping her toes into the pool before diving into a public campaign for a tax hike – to be announced at her State of the State address next month. State revenues aren’t going to improve any time soon, and it’s become clear that we’ll need more taxes to avoid trashing vital services.
What’s curious is that Granholm would need to be so coy about it at this stage in the game. It’s often noted that taxes are a dirty word in Michigan politics. Bring up new taxes as an option, and partisan Republicans will tear your throat out. And, yes, Granholm is notoriously gun-shy.
But this is the governor’s second and last term. She has the bully pulpit, and Michigan is in dire straits. She needs to start telling voters why more taxes can be good for them.
There is really only one thing Michigan’s conservatives will tell you about the state economy: that low taxes attract new businesses and jobs, and high taxes repel them. It’s a basic tenet of modern conservatism. Voters have been hearing this gospel for decades, and there are well-funded think tanks dedicated to propagating it.
It’s scary, really, how many conservatives can apply anti-tax dogma to any given problem without considering whether it makes sense. In an editorial last week excoriating Granholm for her heresy on taxes, the conservative Oakland Press even argued that “it’s pretty obvious the reason the economy is in the tank is because our taxes are too high.” Really? I thought the decline of the American auto industry in the face of better foreign competitors had something to do with it.
Granted, tax increases can hurt growth, which is why economists who are weighing the options for new revenue sources – a graduated income tax, a tax on services, higher corporate taxes – are taking great pains to figure out which ones will minimize the damage. But keeping taxes low won’t be nearly enough to attract the new industry Michigan needs to replace its manufacturing economy.
Take a look at Alabama. In 2003, Republican Gov. Bob Riley sponsored a ballot initiative to raise that state’s ultra-low taxes by $1.2 billion – in part to fix its dismal public school system. Voters, convinced by anti-tax ideologues that the bill would cost 30,000 jobs, rejected it soundly.
Two years later, Toyota was looking for a location to build a new North American plant. As New York Times columnist Paul Krugman wrote in 2005, Alabama and other southern states clamored to woo the Japanese auto company, offering hundreds of millions of dollars in incentives. But Toyota picked Ontario, foregoing huge subsidies for a Canadian province with a much higher tax burden than the company’s American suitors.
Why? Because Ontario’s workforce was far better educated than that of any southern U.S. state. Toyota needed workers who could be trained to use its high-tech plant equipment cheaply and quickly. The company’s officials pointed to Nissan and Honda, which had run into problems trying to train unskilled and illiterate workers in their new Mississippi and Alabama plants.
It’s only an anecdotal case, but it says a lot about why the anti-tax gospel doesn’t work these days. We’re not in the ’50s anymore, and the Big Three aren’t building big U.S. factories with thousands of low-skill jobs. In today’s high-tech environment, we need an educated workforce and good infrastructure to attract new companies.
In all likelihood, Michigan’s conservatives will continue to insist that any tax increase is tantamount to economic suicide. It’s all they know. But if we’re going to fix our problems, someone needs to start telling voters why that approach is wrong. Let’s hope Granholm is up for the job.
Donn M. Fresard is the Daily’s editor in chief. He can be reached at dmfres@umich.edu.