October 3rd, 2012
By Rex Sinquefield
Last month, the Michigan State Supreme Court affirmed that Michigan voters will get a chance to amend their State Constitution in a way similar to what our “Show-Me State” of Missouri did in 1980. On November 6th, Michigan taxpayers will determine whether it will require a two-thirds vote by their state legislators in order to raise taxes by base or rate in the future. Proposal Five, a measure sponsored by the Michigan Alliance for Prosperity, hopes to help Michigan hold the line on taxes with this “yes” vote.
Michigan, Ohio, and Missouri have been ranked dead last (50th, 49thand 48th respectively) among all 50 states in economic growth during the past decade. When states fail to respond to the competitive advantages that fiscally responsible rivals such as Indiana have expanded, it can result in a downward spiral of state government revenues. When states rely upon highly volatile sources of revenue, such as personal or corporate income, these peaks and valleys tend to worsen in tough economic times and often lead to long-term, detrimental cuts in in spending on education and other critical government services. These cuts exacerbate an already dangerous trend towards economic decline.
Taxing issues would be harsh enough in the middle- and lower-income classes without the threat of real migration by those who seek to keep their tax burdens low. Between 1995 until 2010, the State of Michigan has lost more than $15 billion in net adjusted gross income (Net AGI) to other states, according to Internal Revenue Service taxpayer data files. Michigan has sent more than 140,000 tax filers packing for Florida (which has no personal income tax) in the past 15 tax years, thereby effectively narrowing the state’s tax base and stifling its business climate. When other states grow faster than you in population, non-farm payroll employment, and economic activity, your state’s voice tends to weaken. Before long, real reforms seem impossible to achieve with such narrow tax bases and high tax rates.
When faced with these long-term structural deficits, Governors and their job-seeking coalition partners, such as their State Chamber of Commerce, should realize that it is time to hold state government spending more accountable. Instead, some political insiders prefer to play the “let’s pick the winner” strategy born from a flawed (albeit romantic) assumption that government is in the best position to decide which development projects or companies are worthy of a tax break.
Missouri’s State Auditor recently released a reporton the Missouri Quality Jobs Tax Incentive Program, which provides tax incentives to qualified companies for facilitating the creation of new, or retention of existing, jobs in Missouri. The audit found that after five years the Missouri Department of Economic Development reduced the job creation estimates by 41% from its original estimate of 45,646 jobs. In addition, the report said that the projected level of business investment had also been overstated. Discerning voters know that such governmental rent-seekers must be held in check by strong fiscal restraint within their State Constitutions.
In the years since Missouri passed the Hancock Amendment, which restricts tax increases without a public vote, Missourians have opted to keep relative tax burdens low when faced with their own decision. However, as the Cato Institute studies related to state tax and expenditure limitations across many states have shown, tighter controls on state policymakers may still be needed. Within each State Capitol, there is likely to be a strong self-fulfilling prophecy to skirt around ordinary taxpayers in favor of the next new thing that only government could sustain.
That is why states with the initiative and referendum process must protect the interests of small businesses whose influence is too diffused to easily organize. Michigan can lead the way in the Midwest by passing Proposal Five this fall.
Original article: http://www.forbes.com/sites/rexsinquefield/2012/10/03/strangled-by-taxes-will-michigan-loosen-the-states-grip/