Budget Alternatives

Feb 21, 2011

Well, it’s been four days since Gov. Rick Snyder presented his so-called “atomic bomb” budget, and opposition has started to harden. There are those who are concerned about the poor, largely because of the repeal of the Earned Income Tax Credit.

For example, Detroit Free Press editorial page editor Stephen Henderson said yesterday that this amounts to a “government-sponsored shift of capital away from the most needy citizens to those who are already more comfortable.”

Senior citizens’ groups are upset because the governor wants their constituents to have to begin paying Michigan income tax on their income, just like everybody else does on theirs.

The film industry is screaming about the potential loss of the film credits. The education community isn’t happy with the cuts they’d have to take, though they seem to be bearing them with more grace.

But the interesting thing to me is that none of these groups seems to be offering any kind of alternative plan. They want what they want, but don’t have any kind of broader vision.

Yet something radical does have to be done. The state is running an enormous deficit that has to be gotten rid of, and our old automotive-based economy doesn’t work anymore, not the way it did.

So the question for the critics is, if you don’t like the governor’s plan, what are you going to offer instead?

Well, they may be out of ideas, but I talked last night to a man who has some. Michigan State University Economist Charles Ballard.

Ballard, in my opinion, understands Michigan’s economy better than anyone. He is thought of as a liberal, though like me, he tends to think of himself as a member of the common-sense party. And in fact, he finds a whole lot to like in Governor Snyder’s budget.  He is in favor of taxing retirement income. Levels the playing field, he said.

He likes getting rid of the odious Michigan Business Tax, and of the special tax credits as well. Government, most economists believe, usually shouldn’t try to pick winners and losers in the marketplace.  But Ballard thinks the governor ought to have extended the sales tax to services and entertainment.

That would make sense in our now largely service economy, and could mean $3 billion dollars a year. In fact, we could drop the present sales tax rate to five percent and still collect more money.

There’s also what I call the “Utah solution.” Utah, one of the nation’s most conservative states, has a five percent income tax rate. If we raised our tax rate to match Utah’s, the state would collect a billion more a year, and workers would barely notice. 

Summing up, Ballard said, “if we raise the income tax rate to the Utah rate, and we tax services and entertainments, we could carry through the rest of the Snyder plan without having to cur revenue sharing, schools, higher ed,” and could save the Earned Income Tax Credit as well. That makes sense to me.

But what’s baffling is that none of the governor’s critics in the legislature seems to be proposing anything like this. Two plus two somehow has to equal four. And right now Rick Snyder’s arithmetic is the only set of numbers on Michigan’s table.