Monday, September 17, 2007

Cutting Michigan's Throat.

The Democrat-controlled Michigan House of Representatives, along with Democrat Governor Jennifer Granholm, are insisting on an 18% increase in the state income tax in order to close the $1.7B budget deficit by $1.1B. The State Senate, headed by Republican Mike Bishop, proposed a cuts-only solution that was DOA. The Senate may now
retune this proposal with a mix of cuts and a smaller income tax hike.

The total Michigan state budget is $45.2B, so the $1.7B shortfall is about 3.8% of the total. Here is the breakdown of the 2006 budget:

  • Education $14.7 (Billions)

  • Health Services $10.0

  • Human Services $4.4

  • Transportation $3.2

  • Police & Prisons $2.5

  • Government $2.3

  • Unemployment $2.0

  • Lottery Admin $1.6

  • Revenue Sharing $1.1

  • Regulatory $0.9

  • Tax Credits $0.9

  • DNR & Ag $0.7

  • Business Funds $0.6

  • Debt Service $0.3
The standard histrionics have been employed by the Governor in resisting cuts in the budget in favor of higher taxes to "protect education". This is a red herring: cutting the budget does not have to take a single dollar that is actually delivered as a dollar of real value to education. The state government must become more efficient in delivering value to schools, and that means jettisoning irrelevant administrative overhead and educational programs of dubious worth. See if you can find a few at the state's education website.

Education should not take a disproportionate hit, only its share, which would be 35% of the total shortfall, or about $550M. It also may be true that inefficiency is even worse in other spending areas, but the education portion of the budget is so huge that it has to be part of the budget balancing equation. Businesses routinely face the challenge of cutting overhead while maintaining the ability to grow value. Why can't it be so for the state government?

But it is truly economic suicide to hike income and other taxes while the state reels from job losses and possesses a nation-leading unemployment rate.

No comments: