Tax Revolt Is Alive In Michigan
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Is the tax revolt dead? Yes, some hopeful liberals are proclaiming. They cite the gubernatorial election in Virginia, where a Democratic lieutenant governor won handily despite his boss’s tax increases. (The boss, Mark Warner, is being touted for President.) Exhibit B was a referendum in Colorado rolling back a portion of the state’s spending and tax limitations.
But not so fast. In Virginia, the Republican candidate was widely regarded as inept. Colorado voters, meanwhile, voted to amend, not end, their Taxpayer Bill of Rights to prevent spending from automatically ratcheting down too suddenly in the aftermath of recessions. The TABOR movement is actually gaining ground in other states.
And then there are the recent events in Michigan, which has been the only state to actually lose jobs in the last three years, opening a huge gap in the state budget. Yet 10 days ago, Republican legislators, fresh from passing a budget that actually cut spending, suffered a near-death experience when their leaders let themselves get hornswoggled into a tax package that would have reneged on a scheduled repeal of the state’s hated Single Business Tax in 2009.
The Single Business Tax was enacted in 1976 to consolidate seven different business taxes into what is essentially a value-added tax. But the SBT has since grown into a monster of complexity and a heavy burden on employment, and former Republican Governor John Engler pushed through a bill to phase out the SBT by 2009.
As the sunset nears, however, politicians on both sides of the aisle are beginning to panic. A sunset would “cost” the state $1.8 billion a year in revenue, they say, a big chunk of the state’s $9 billion general fund.
So two weeks ago a joint press conference was arranged at which Democratic Governor Jennifer Granholm appeared with the Republican leaders of the House and Senate to announce a typical sleight of hand: the SBT rate would be cut to 1.85% from 1.9% in 2009, but the sunset would be scrapped.
Reaction from grassroots Republicans was both immediate and intense. Within hours the Republican leaders were backing away from the deal. Both houses quickly passed a revised package, minus repeal of the sunset, and sent it back to the governor – who now faces some tough choices. If she signs the new version, her liberal base will be furious. If she vetoes it, she risks losing her favorite part of the package, a $1 billion “high tech jobs” program funded by future tobacco tax proceeds.
If she’s serious about job creation, she will veto it. The high tech boondoggle is little more than a huge subsidy for the state’s universities (and for term-limited politicians looking for cushy jobs overseeing the money). Besides, the tobacco revenue could far more profitably be used to cut taxes further – say, on Michigan’s personal income tax. Autoworkers could certainly use the break: bankrupt Delphi Corp., bowing to globalization, is talking about cutting wages and benefits 60%.
At the very least, retaining the sunset gives Republicans the leverage to demand something far more significant than a measly one-half of one percent cut in the rate three years from now. Thus does good economics make good politics.
In state capitals, as in Washington, politicians like to claim the tax revolt has gone too far. Democrats and so-called moderate Republicans are ganging up to defeat an extension of the Bush tax cuts on dividends and capital gains that are scheduled to expire in 2008. But that may set off the same sort of revolt that occurred in Michigan last week, because voters know that lack of revenue isn’t the real reason for deficits. Indeed, revenue is again pouring into government treasuries, thanks to the national economic recovery. Even in hard-pressed Michigan revenue is running seven percent ahead of last year.
The problem is lack of will to restrain spending. And so long as that continues to be evident to voters, reports of the demise of the tax revolt are likely to remain highly premature.
Mr. Bray is a Detroit News columnist.