TAX NEWS - 2010

Michigan Tax: Now is it time to talk about taxation?

Back in the winter, Gov. Jennifer Granholm sent over her version of a balanced state budget for 2011. It relied on an expected $500 million in additional federal help for Medicaid.

Some voices, including this editorial board, warned that relying on money that Congress had not even appropriated was risky business. Nevertheless, this $500 million was accepted into the Legislature's budget work as more or less an accepted fact. At Michigan's Capitol, it is far better to believe in the delivery of federal dollars than to make decisions about how to use Michigan's resources to meet Michigan's needs.

Now, though, with the Medicaid money locked away on Capitol Hill, perhaps Granholm and legislators are willing to take some responsibility - by talking taxes.

Michigan's tax structure is seriously out of alignment with how its economy works. This distortion is draining the state's ability to fix its roads, educate its children, rehabilitate its prisoners and conserve its natural resources.

Take the sales tax applied to goods. According to the House Fiscal Agency, in fiscal 1978, sales subject to the tax equated to half of personal income in Michigan. Now it's only about one-third. In other words, people are buying fewer things that carry the tax and using more services that go untaxed.

To be fair to the governor, she has proposed changes, such as the extension of the state sales/use tax to services. She wanted to broaden the tax base, while actually reducing the rate from 6 percent to 5.5 percent.

The idea went nowhere at the Capitol.

Legislators also have gone nowhere near asking voters to approve a graduated income tax that's been standard procedure in other states for years, or shrinking tax loopholes and exemptions that now total more than $30 billion.

And even though Michigan's gas tax revenue is tanking, lawmakers have ignored entreaties from business and labor interests to raise revenue to fix highways.

This isn't surprising. Michigan is in an election year, and legislators still live in fear of what happened in 1983: Two state senators were recalled after voting for an income-tax increase during another fiscal crisis.

Michigan's budget crisis is tough, but not yet unique. In two states this year, Arizona and Oregon, voters were asked to pass judgment on tax changes. They both said yes because they apparently found the alternatives far less appealing.

Letting Michigan voters decide something is apparently too dangerous a concept for the Capitol crowd. Not as dangerous, it seems, as sticking a metaphorical hand out and waiting for the federal government to stuff money into it.