No, Michigan!
Imagine there’s a 200-pound boulder crushing your left foot underneath. It hurts like all get out and it’s left you immobile. To relieve the unbearable pain and get going again, you gather a group of friends around to aid you in your time of need. They huff and they puff and finally lift the boulder and … drop it on your right foot!
No, it doesn’t make a whole lot of sense. But neither does Michigan Gov. Jennifer Granholm’s plan to get the Wolverine State’s economy moving again by lift the burden of taxation on manufacturing and research firms only to drop it right down again on the foot of insurers.
Granholm, a Democrat, ran as a moderate and when she came into office said she had no plans to raise taxes. It’s funny how a little time in Lansing has a way of changing politicians’ plans. According to a report card on America’s governors by the fiscally conservative Cato Institute in Washington, D.C., Granholm barely merits a passing grade on budgetary matters.
The report’s authors, Stephen Moore and Stephen Slivinski, do give Granholm credit for holding the line on spending. They give her an 87 out of 100 score for cutting spending by 4.5 percent in her first two years in office. On taxes, however, the report shows that only four other governors have proposed or enacted more tax increases (gasoline, cigarettes, corporate income and inheritance have all been objects of her affection). Overall, the authors conclude, Granholm doesn’t even merit a gentlewoman’s “C,” but a slacker’s “D.”
Her instincts are not entirely off the mark. Manufacturing could certainly use the help, and certainly no one in the Auto State would disagree with shoving the boulder off its foot. As former three-term Michigan Gov. John Engler argues in this edition’s Parting Shots (page 42), the hidden tax of asbestos litigation has badly hurt the manufacturing sector. Lowering its business taxes is important, but addressing the seemingly interminable asbestos issue should also be a priority, both at the state and national levels.
In the meantime, Granholm’s proposed tax increase would more than double the burden on insurers. It’s not just the 2 percent premium tax (from an effective tax rate of a little more than 1 percent under the state’s Single Business Tax) Granholm calls for in companion bills before the House and Senate, but the reduction in tax credits that will also take their toll. When combined with the impending ban on credit-based insurance scoring, I wonder whether insurers won’t think twice about saying “Yes, Michigan!” when it comes to doing business there.
Granholm is, of course, gambling that insurers will judge Michigan too big to retreat from or to ignore. She’s also gambling that voters will care more about high-paying blue-collar manufacturing and white-collar research jobs than how (many) out-of-state insurers might be affected. Still, is it a gamble she needs to make? Instead of shifting the boulder from one foot to the other, how about chipping a big chunk out of it altogether?
Just a modest proposal from a man with a big tax burden and a sore foot.