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TAX NEWS - June 2010

Michigan Tax: Too easy tax cut promises

They all sound so appealing, the promises Michigan's gubernatorial candidates are making about never raising taxes -- or even better, lowering them to make the state a more attractive investment for businesses and families.

Everyone wants to pay less and get a better Michigan, right? Everyone can relate to the hardships of the state's current tax structure.

But it's not that simple, and none of the gubernatorial candidates spinning seductive tales about lower taxes can be absolved from a fuller explanation of their position.

Revenues are flat in the best years, and decreasing in the worst. And costs are rising. Anyone who's talking about cutting taxes needs to lay out specifically how he'd balance the state's budget and put the books in good enough stead to start making needed investments in education, roads and other vital areas.

It's irresponsible to talk about giving up even more revenue without showing exactly how you'd compensate for it.

During last week's gubernatorial debate on Mackinac Island, four of the seven candidates -- all Republicans -- either admitted to signing a "no tax" pledge or talked of tax cuts. Attorney General Mike Cox has said for months that Michigan's tax climate makes it less appealing than many other states. Oakland County Sheriff Mike Bouchard and businessman Rick Snyder both favor tax cuts.

Congressman Pete Hoekstra, R-Holland, held a more nuanced position on taxes until recently, but then announced on Mackinac that the continuing lousy economy and lack of progress in Lansing on cost reforms had pushed him to sign a no-tax pledge.

As a matter of policy, each of the candidates has a point. Michigan's in trouble, losing businesses and families at a record pace, and lower taxes seem like a potential quick-fix.

But businesses also run from states that can't balance their books, and Michigan started its budget negotiations for the next fiscal year looking at a $1.7-billion deficit -- a number that will almost certainly grow in the following year, when federal stimulus dollars aren't part of the picture.

Businesses also invest in states that invest in education; last year, Michigan reduced its outlay to school districts, and it failed to keep pace with inflation for several years before. The state's higher education institutions have become accustomed to budgeting for less each year from state coffers.

And how about the state road fund, which next year could fall so short that Michigan fails to qualify for all the federal matching dollars it is entitled to?

Tax cuts would make each of those problems worse.

Republican candidates are big on needed reforms to employee compensation and prison costs. Great ideas, both.

But no candidate is really explaining how he, as governor, would advance those causes any further than they've gone so far. None has a track record, either, of leading disparate political interests to a common solution.

If they really believe that they can balance the budget, and invest in the state's future, without new revenue or with even less than the state takes in now, they need to say how -- specifically.

Otherwise the talk of tax cuts is really just about campaigning, about promising people something that sounds good.

For Michigan, that just won't cut it in this election.
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