Column: An unhappy tax hike anniversary
Oct. 1 marked the unhappy anniversary on which former Gov. Jennifer Granholm signed a temporary income tax hike into law. Today, one decade later, Michigan workers are still paying on that tax hike with no end in sight.
Rewind to October 2007. Michigan faced an economy in freefall and a state budget in crisis. It was a perfect storm — the kind that so often leads policymakers to hike taxes. And that’s what happened. Granholm and legislative leaders hammered out a deal that resulted in one of the largest tax hikes in Michigan history, roughly $1.5 billion.
Job providers got hit with a 22 percent surcharge on top of the already burdensome Michigan Business Tax. Workers saw 4.35 percent of their earnings go to state government, up from 3.9 percent for an estimated $760 million in new revenue.
At the time, policymakers assured workers the increase would only be temporary. The rate would roll back down beginning in 2012, and it would hit 3.9 percent again by 2015. By then, lawmakers figured, the Michigan economy would be well on its way toward a full recovery. With more workers working and paying taxes on their income, rates could again be lowered for everyone.
It’s fair to note that this was an easy — possibly even disingenuous — promise for Granholm and others to make back in 2007. Due to Michigan’s strict term limits, few who voted for the tax hike would hold office when the rate rolled back down. None of them would have to decide whether to keep their promise or keep the extra revenue.
Whatever their intentions, by 2011 a newly-elected governor and a mostly new House and Senate broke the promise made to taxpayers four years prior. To their credit, they started the tough job of undoing Granholm’s tax hike with legislation that reformed and reduced taxes on job providers. Unfortunately, at the same time the personal income tax rate was locked in at an only slightly reduced 4.25 percent.
Which brings us to today. While Gov. Rick Snyder and the current Legislature didn’t ever make the promise to deliver tax relief, they have shown a tremendous willingness to correct for the mistakes of the past. Business tax reform, right to work and pension reform are just a few examples of the tough policy issues tackled. Cutting income taxes could be the crowning achievement of this legacy.
Reducing business taxes so job providers could invest in hiring more workers was a bold and necessary step. Along with labor reforms, it sparked Michigan’s economic turnaround. The results have been impressive. At 5 percent, our unemployment rate stands at one-third of its 2009 high. In April, auto manufacturing jobs hit 946,300, an impressive climb from 2009’s low of 600,000. Michigan has been adding jobs faster than the national average.
Like most anniversaries, this one is a good time to remember how we’ve erred, how we’ve succeeded, and how we can strive to do better.
Pete Lund is state director of the Michigan chapter of Americans for Prosperity and former whip in the Michigan House of Representatives.