Michigan's Economy

Many of you are aware that Michigan’s economy is sinking and sinking fast. Just a couple of weeks ago, Comerica, a bank that was headquartered in Michigan for over 100 years announced that it was moving to Texas. Pfizer, a pharmaceutical company, pulled up their Ann Arbor research facility earlier this year.  Rumors around Detroit is that Chrysler is the next candidate to go on EBay.  All the while, the Governor seems to be oblivious to the condition of her state and is running all over the world looking for new business. What’s going on?

Jay had a pretty good take on this subject in his post Tax Hikes Are Not "Investment". In it, he said:

I live in Michigan, a state in great economic trouble. Our state government is in a budget shortfall and instead of trimming the fat, our governor wants to raise taxes. But, she maintains, these taxes are really “investments.”

How will raising taxes help our ailing state? It won’t.

First, taxation is never investment. Period. Ever. “But aren’t taxes to build libraries and schools investments?” No. “What about roads… we need to pay to maintain our roads.” No. Taxes are taken from people by force, not consent. 

 Most of us pay taxes because we don’t want to face consequences of disobedience. I obey and pay rather than throw my life away.

Investments, however, are something I make voluntarily. I choose to invest. I can choose to avoid investments. I control, at least to some degree, my investments and how they work for me.

Taxes are not investments.

Michigan, economically, looks like Rocky Balboa in one of those “Rocky” fight scenes where he gets beat up savagely by Apollo Creed, Clubber Lang or Ivan Drago. It isn’t a pretty picture. Raising taxes will only make the pounding worse.

Already businesses are experiencing trouble collecting from their customers. Raising taxes, and adding new taxes to our service industries, puts many financially-struggling companies in a terrible position. Now they will owe the state while still fighting to collect from customers. This is a terrible time to exacerbate cashflow problems.

When states add taxes, they must build their infrastructure to oversee the collection of these taxes. Now, in addition to a government that won’t cut, we see more layers will be required to collect these taxes.

Michigan businesses will need to pass the burden on to the consumer. Consumers are already hurting with taxation.

Tax hikes are not the answer.

Why would any company want to relocate to or stay in Michigan? The main industry, automotive, isn’t healthy either – many GM & Ford workers are accepting buyouts and relocating to other states that have better economies and job opportunities.

I believe that the tax structure is out of line for both businesses and the residents of this state. The small business tax was revoked to promote small business expansion, but the Governor is proposing and pushing for a 2% tax on services, which would inhibit small businesses. Property taxes are pretty high too – there are a number of people that cannot afford the taxes, especially considering that jobs are fading into the sunset for many people.

In addition, state spending of services provided is out of line. The Governor and the legislature are at odds on which state funded services to cut or reduce. Where this is going to end up is anyone’s guess.

The magnitude of Michigan’s financial difficulties was not disclosed until after the election, then everything hit the fan. To not have this information prior to the election did not help the voters make an informed decision about tax-related issues, nor about holding various politicians accountable for their poor decisions. This is one of the reasons that I am unsympathetic to the Governor’s plan to use either raising or creating new taxes to get the State out of this financial mess (see Michigan’s 2% Service Tax).  And the recent polls support this position.

The fact is that State finances are politically controlled. That does not mean that the revenues generated by taxes will be spent wisely, but will be spent on whatever high profile topic that will generate as much positive publicity that will benefit the politicians in power. The bottom line is that the politicians will generally not take the hard line and do what is necessary to cut extraneous spending and help the taxpayer (you & me along with businesses) make a good go of it.

Some of you out there know about a game called SimCity (there are several versions). This is a game that challenges the player to run a city. In it, the player assumes the role of mayor, controlling the tax rate and expenditures for services like roads, water, trash collection, police & fire protection, and so on. I guarantee you that raising taxes will cause businesses to leave right along with people and factories, no matter how big or strong the city. And, as people leave, debts rise, and the city implodes, the mayor (you) would be voted out of office

What I would like to see is that each and every politician play this game with the conditions and policies that they would like to implement. That way, maybe, just maybe, they would understand what their irresponsible fiscal policies would do to Michigan’s economy, and that the taxpayer should vote them out if they don’t do the right thing (providing the voters quit blindly voting the same people in...)