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 up for an online bidding. 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…)

One thought on “Michigan’s Economy

  1. When the GOP governed Michigan they were mostly Rinos. They failed to put a leash on the Unions and control the bureaucracy (which is also unionized.) Detroit is a 3rd World city with a 3rd world mindset and I’m not talking about skin color, I’m talking about social values, political beliefs, and cronyism. Detroit needs to be tamed so that it quits screwing up the rest of the state.
    Shoprat | Homepage | 03.21.07 – 8:47 pm | #

    Maybe they should try raising taxes? And if that fails, they might try to raise more taxes. Then, if those fail, they could raise them even higher.
    Nightcrawler | Homepage | 03.22.07 – 3:34 pm | #

    I just don’t understand the liberal idea of kicking the people (by jacking taxes) when they are down. And then when people leave the state, government wonders why. Intellectually, Gov. Granholm and crew are smart. I don’t know why they can’t see this is a bad policy.

    Of course, she can’t cut any of the education pension stuff (political promises), so she’s got to find money somewhere to pay off the teachers’ union.
    Jay | Homepage | 03.22.07 – 9:26 pm | #

    Several months ago – Michigan ran an advertising campaign (TV and Radio) in Cincinnati touting that Michigan gives businesses the upper hand. Tax breaks and incentives. It sounded convincing.
    Conservative Dad | Homepage | 03.22.07 – 9:51 pm | #

    Detroit is not the only city with a problem. I look at the troubles that Flint still has as well as a few other cities, and I know that things are bad all over. Blaming the Unions for the mess is not fair to the Unions – the changing business climate and the Unions, businesses and the State not reacting to it has lead Michigan down that garden path to despair.

    Taxes are also part of the problem, but not all of it. The lack of accountability of the elected officials for funds spent has screwed up the state’s finances, and the lack of planning for the future has not helped either. Michigan is not family or business friendly from the tax standpoint, especially when the solution that the Democrats in charge is to raise taxes.
    Tom | Homepage | 03.23.07 – 3:44 pm | #

    There are way worse cities in Ohio (Cleveland, Youngstown), NY (Buffalo, Syracuse, Rochester)and WI (Millwaukee). Detroit is in better shape than all of these. You guys also seem to have collective amnesia about why we are here in the first place regarding taxes. The SBT was killed by the so-called RINO’s without any plan to replace that revenue or tell the voters what cuts they wanted until AFTER the election. You can blame the GOv., but THEY created this crisis, not her. It is also not her fault that the Auto industry has become lazy and slothfull, and can’t compete with the Japanese, even though Toyota pays their workers about the same as the UAW. When will you stop blaming “liberals” and see that the real problems are pretty much caused by trade policies and a lack of government fullfilling it’s basic function:to provide for the common good? It’s bigger than republican or democrat.
    Tim | Homepage | 03.24.07 – 5:14 pm | #

    Yes, Tim, there are many other cities that are in worse shape, but not that many states that are having the problems that Michigan has.

    I will agree that government (both State and Federal) has fallen down on the job in not enacting fair trade policies and treaties. That is the fault of our elected representatives, no matter what party they belong too.

    The auto industry as a whole has not responded to customer’s demands for better vehicles. In many respects, they have collectively put themselves behind the 8-ball.
    Tom | Homepage | 03.24.07 – 5:41 pm | #

    Can anyone guess what failing cities like Detroit and Cleveland have in common? Overwhelming Democrat majorities in leadership positions!
    Nightcrawler | Homepage | 03.25.07 – 5:03 am | #

    Nightcrawler- What about Boston? San Francisco? They are run by Dems. Republicans only know how to do one thing: cut taxes and let the chips fall where they may, consequences be damned. Michigan is a donor state (it pays MORE in federal taxes than it get back from Washington). Texas, with it’s great economy is a subsidized state (get more back than it pays in). Tell me who is playing favorites. Your medicine of free market capitalism tastes more like poison to me. How can you justify lavishing federal dollars on a state that is doing fine at the expense of one that is in near last place economically?
    Tim | Homepage | 03.25.07 – 10:33 am | #

    The Democrats only know how to raise taxes and “let the chips fall where they may, consequences be damned.” Bit of a sticky wicket, wouldn’t you say?

    The problem is that we keep electing politicians based on their party affiliation rather than their job performance or platform – there is little or no accountability unless a law was violated. Politicians are not financial managers. And who ultimately pays for their fiscal mismanagement? We do through our hard-earned tax dollars.

    Personally, I would much rather choose the free-market capitalism than socialism – we’ve all seen how that’s worked out in places like Cuba, USSR, and various South American countries…
    Tom | Homepage | 03.25.07 – 4:00 pm | #



    for interesting info on how bad Michigan is now.

    Edited By Siteowner
    Anonymous | 03.26.07 – 8:56 pm | #

    Tom- I am interested in your opinion on the “donor state” point I made earlier.

    Also- I am getting tired of comparing the democrats to communists. It is just muddying the waters. That’s like saying that the republican’s form of governance has been tried and failed in Hitler’s Germany. Talk like this just makes the other side angry and less likely to even want to talk to you, much less compromise and find an arrangement that both sides can live with. Politics is about coming to a compromise that everybody can live with, not a “it’s our way or the highway”. This is why the republicans got their asses handed to them in Nov and why they will not keep the white house in ’08. People are tired of the lying lies that these liars are lying. Apologies to Al Franken. The only republican I am looking at in ’08 is Rudy. I will vote for him if the GOP picks him. Otherwise, I’d like Edwards/Obama. I’m not at all keen on Hillary, but would vote for her just to get Bill back in there, our best president since Reagan.
    Tim | Homepage | 03.27.07 – 5:17 pm | #

    Tim – Donor state is political – write your Congress-critters and complain to them. Is it unfair? – yes, it is! Michigan needs the help in so many ways.

    Politics: The way that it’s headed it’s now my way and forget about your way. It’s no longer about compromise, it’s about who’s in power and keeping it that way. And both Dems and Reps are that way – I see arrogance in both parties. And considering the philosophies that the parties are adopting as their own, one cannot help but to compare to similar philosophies.

    Sorry, Tim – I can’t stand either Hillary or Bill. We’ll see what happens with the rest of the candidates.

    Anon – Thanks for the link
    Tom | Homepage | 03.28.07 – 8:21 am | #

    Great blog Tom. Good points. Check out http://www.survivingmichigan.com

    I am amazed at how bad the average person thinks Michigan is doing.
    Anonymous | Homepage | 04.02.07 – 9:43 pm | #

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