February 21, 2012

Rick Snyder ‘Positively’ Imperils Michigan’s Recovery

Filed under: Economy,General,Taxes & Government — Tom @ 8:59 am

A really bad idea: $1.4 billion in tax increases.

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Note: This column went up at PJ Media and was teased here at BizzyBlog on Sunday.

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After a decade as the nation’s economic basket case, the news out of Michigan during the past year has been relatively decent.

After ten disastrous years, two under decidedly un-conservative Republican John Engler followed by eight under Democrat Jennifer Granholm, almost anything would look good. The state still has a long, long way to go, which makes it absolutely appalling that the big agenda item right now in Lansing is how to raise gas taxes and vehicle registration fees in a “bipartisan,” politically survivable way.

Before Republican Governor Rick Snyder’s January 1, 2011 inauguration, the Wolverine State’s seasonally adjusted unemployment rate had been two or more points higher than the rest of the nation since 2005, peaking at 14.1% in the summer of 2009 shortly after the recession’s official end. In December 2011, the rate was a still unacceptable 9.3%, but less than a point higher than the rest of the U.S.

The easy, breezy leftist explanation for this improvement is that Uncle Sam bailed out General Motors and Chrysler while “saving” the auto industry. The evidence that those decisions represent the source of the state’s nascent turnaround is mixed at best. After losing 195,000 jobs during Engler’s final two years and 637,000 during Granholm’s first seven, the state only picked up 37,000 by the end of 2010, over eighteen months after over $80 billion in bailout money was disbursed. In 2011, after Snyder’s arrival, total employment increased by over 66,000 jobs, as private-sector additions of 81,000 offset long overdue but still too modest decreases in the public sector. Over 52,000 jobs were added in “Private Service Providing,” while all forms of manufacturing accounted for less than 28,000. Additionally, Metro Detroit’s unemployment rate was 10.5% in December, while the rate in the somewhat less auto-dependent rest of the state was 8.3%, a bit below the year-end U.S. rate, lower than Midwestern neighbors Indiana (9.0%) and Illinois (9.8%), and barely higher than Ohio’s 8.1%.

An apparent change in Snyder’s attitude (or one he kept concealed from voters in 2010) threatens Michigan’s progress. Even though they are still outperforming his state, Rick doesn’t like much of what he’s seen in Wisconsin, Indiana, and Ohio. He recently told the Associated Press that he wants to avoid “the divisiveness, the hard feelings” seen in nearby states. Apparently, attaining Wisconsin’s 7.1% unemployment rate, largely maintained as a result of public-sector and collective-bargaining reforms, isn’t worth the effort if it means that opponents might try to recall you, as they are attempting to do to Badger State Governor Scott Walker. Indiana’s bold move under the leadership of Governor Mitch Daniels to become a right-to-work state is apparently too dangerous to try in Michigan, even though overall union membership there has fallen by 18% (from 22.1% of those employed to 18.3%) in the past decade, and despite the fact that a recent poll found that voters in more liberal Minnesota (including a plurality of Democrats) favor such legislation by a 55%-24% margin. For “Don’t Rock the Boat” Rick, attempting meaningful public-sector employee reform and failing thus far, as John Kasich has done while otherwise improving the fiscal and economic situation in Ohio, doesn’t warrant the political risk.

Snyder, who campaigned in 2010 as a self-described “Tough Nerd,” has apparently now decided that going soft is his best path to reelection in 2014. He now professes to prefer an approach of “relentless positive action.” One result of this new outlook is that he and his GOP-dominated legislature are “positively” on the brink of returning to the tax-and-spend, go-along-get-along ways of the Engler years. Another is that he has endorsed Mitt Romney in Michigan’s February 28 Republican primary. As governor of Massachusetts, Romney “positively” did much of what Snyder is now pursuing, havingraised taxes and fees by over $700 million per year during his single four-year term. That Romney would from all indications have been trounced had he attempted reelection in the Bay State seems not to matter.

As much opprobrium as Jennifer Granholm deserves for her miserable 2003-2010 stewardship, it was a free-spending frenzy at last century’s turn led by Engler and GOP-controlled legislatures which set Michigan up for its awful rest of the decade:

MichiganSpending2000to2013

(Sources: Fiscal Year 2013 Executive Budget Page C-38; Fiscal Year 2012 Executive Budget Page C-28)

Engler, who was also “on a spending spree” for years preceding those shown, blew the lid off in fiscal 2001 and 2002. Granholm was naturally happy to sustain Engler’s previous profligacy and build on it. While the state lost over 2% of its population during the last half of the previous decade, “Spend Every Penny Jenny” and pliant Republican lawmakers increased spending by almost 5% in real terms even as Michigan’s economy went into free-fall. The spending level-off anticipated during the current and next two fiscal years under Snyder hardly makes up for what transpired during the previous eleven. Yet the writers of a recent New York Times story on the state’s reported $471 million surplus wondered “whether it is safe to start spending again.”

No it’s not, especially if doing so requires increasing taxes and fees by $1.4 billion. The net gas-related hike would make the amount Michiganders pay their state government to fill up their vehicles the highest in the nation. Increasing the vehicle value-based registration fee, or “birthday tax,” by the proposed 67% would further unfairly hit light-mileage drivers who inflict little damage on the state’s roads.

Another reason why the proposed levies don’t make sense is that, as the Mackinac Institute notes, most of the 6% sales tax levied on gas purchases — a levy separate from the per-gallon charge at the pump — “does not go to build or repair roads.” Targeting the money to its proper place could fund needed repairs while avoiding tax increases. But making sure that happens would also involve doing something about how the sales tax is currently allocated. Apparently, timid politician Rick and his state’s RINO legislators aren’t up for that.

One potential side-effect of this dangerous exercise is that a ballot referendum on the tax hikes might increase the November turnout of instinctively tax-averse conservative voters who would also oppose President Barack Obama’s reelection. But that strategy could backfire if large numbers of currently disengaged and otherwise disheartened young voters who supported Obama in 2008 (and would again) get motivated to show up at the polls because of the looming hit to their pocketbooks.

I’d rather see Michigan’s economy avoid a double-dip. Ax the taxes, guys, and look to another Rick — Rick Santelli — for guidance on what to do about spending.

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