Rainy Days and Mondays (& Taxes)...

...always get me down. Considering what the Michigan legislature did Sunday night, rain on Monday is so appropriate...

Excerpts from msnbc.msn.com:

The Legislature agreed to raise Michigan's income tax rate from 3.9 percent to 4.35 percent and expand the 6 percent sales tax to some services. (Governor) Granholm signed both measures. Structural changes to state government — including the management of teacher and other public employee benefits — also are part of the package.

Raising the state's income tax to 4.35 percent will raise an additional $765 million for the state. The income tax bill is written so the rate will gradually drop back to 3.9 percent between 2011 and 2015.

Extending the sales tax to some services starting Dec. 1 will bring in an estimated $614 million for the 10 months remaining in the fiscal year at that point, or about $750 million annually,

The tax increases should erase most of a projected $1.75 billion deficit in Michigan's next budget. The final budget for the new fiscal year will include $440 million in spending cuts, including no inflationary funding increase for public universities and community colleges, Granholm said.

There are a number of problems that I see with this action by the Michigan government. First and foremost, the state is in a depression/recession. The unemployment rate is more than 7%, and this hike does nothing to attract businesses and people to the state. Instead, it encourages people and businesses to leave the state. Reduce the tax base, reduce the income to the state, and then what? Raise taxes again? Smooth move, morons...

The next problem is that the Legislature has been working on this new budget for over 7 months, and this is the best they could do? Why weren't cost cutting measures implemented from the last budget re-write? If the common person is expected to tighten their belt and not spend as much if they don't have the money, why can't the government?  Although, to be somewhat fair, there is supposed to be large cuts in government spending, but we will see if that will be the case.

Last is the statement that "The income tax bill is written so the rate will gradually drop back to 3.9 percent between 2011 and 2015." Right...how often are taxes reduced? And by that time, most of the bozos that voted in the increase will be gone, and the tax hike would be permanent because of the same fiscal irresponsibility.

In many respects, we do not hold our politicians (government) accountable for the expenditures that they make. Indeed, how many studies and reports on waste, mismanagement, and sheer stupidity are published, but how many are actually implemented? Not many, I would presume. If they were, government (both Federal and State) would not find themselves running on deficits.

Yep, time to get rid of the Redundancy Department of Redundancy...

Before I Go...

Mrs. Common Sense and I are taking a long and well-deserved vacation.  We haven't taken a vacation for a long time, and this one will be special.  We will be celebrating our 15th wedding anniversary next Wednesday.

But before we go to a place without Internet access or cars(!), there are a few comments about the past week's events:

Fred Thompson finally announced his candidacy for the Presidency.  It will be interesting to see if his bid is as well timed as he hopes it will be.

Osama bin Laden released a tape a week before the 6th anniversary of 9/11.  It looks like he is just as vain as the civilization he wants to destroy - he dyed his beard and eyebrows!!

Cerberus has stolen or hired away a top gun at Toyota to run the sales and marketing for Chrysler.  Then the next day they hired GM's man in China to help with globalization efforts.  Does make you stop and pause and think about the future of Chrysler.

Volkswagen announced this week that they were moving their North American headquarters from Michigan to the suburbs of Washington DC.  Another blow to Michigan...

The Michigan Legislature wants to raise taxes on anything from telephones (cell, land-line, & Internet) to health clubs.  Just what a state in trouble needs - more taxes...

Another sex scandal in Washington.  This time, a Senator plays footsie in an airport stall.  Where are the politicians that actually stand for something besides themselves and their party?  Is there no one with integrity?

The financial meltdown in the mortgage industry continues.  Countrywide Financial, a major lender, is cutting 12,000 jobs from it's payroll in response to the flurry of bad loans, defaults, and the collapse of the housing market in general.  Who knows where this will end?

Luciano Pavarotti died this past week from cancer.  While not a fan of opera, his voice was one that would send chills down your spine with it's power and tone. 

Finally, the Surge appears to be working, but we'll see what General Patraeus has to say next week with his report.

Later...

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...)

Michigan's 2% Service Tax

This past week, Governor Jennifer "Granola" Granholm, imported Canadian Democrat, announced that to get Michigan out of its budget deficit, a 2% tax on services would need to be imposed.  This is most likely to replace the small business tax that was removed this past year.

The problem is that this tax would still affect the small business owner.  Most small businesses provide services such as haircuts, snow removal, lawn care, and the like.  Since the economy is moving toward a "service-based" economy, this is particularly onerous.

One of the things about this whole affair that torques me off is that the State's finances were not disclosed until after the election.  Whether you are a Democrat or Republican is not the issue - we, the voters, were denied the information that might have helped up make a decision of whether or not our elected officials were effective or not.

The next thing that gets me going about this is the threat that if this doesn't pass the Legislature, state-funded services would be cut.  Road repair, police and fire services could be reduced.  What is this?  Blackmail?

This last really p****s me off!  Once again, the working stiff gets stiffed while our elected officials sit high, dry, and fat.  Here's my proposal to our governmental officials:

1. Go through each department and cut out the waste.  Non-essential services and duplicate departments such as the Redundancy Department of Redundancy should get the ax if not reduced.
2. Corruption must be uncovered and stopped. This costs taxpayers millions in falsely awarded contracts.  We all know this happens in various state construction jobs, so quit turning a blind eye to it.
3. Michigan is one of the few states that provides 4 years of benefits to Welfare recipients.  Most only provide 2 years.  Let's get with the program - all those 2-year folks are heading to our state, and Joe Taxpayer doesn't want to support them anymore.
4. Reduce your own healthcare benefits.  If you are truly representing the common man, then you should also feel some of his pain.  Look at what is happening to Ford, GM, and Chrysler employees, and maybe you'll understand.
5. When was the last time your pay was cut?  In many corporations, if things get bad, the belt gets tightened, and salaries are frozen or reduced.  And underperforming staff was cut (we'll get you in the next election...)

Maybe I'm being simplistic about all of this.  Maybe I'm not.  But I definitely called it when I stated that if the Democrats were (re-)elected, there would be new taxes.  And here in the State of Michigan, that's exactly what is going to happen.