LANSING – While in the current budget cycle federal stimulus dollars may have managed to keep the state “crawling and screaming” toward balance, without a serious change in spending and a dramatic new tax plan by 2012 Michigan could look a lot like California, a state drowning so far in its own debt it seems it could very well fall off the coast, said Rep. Fred Durhal Jr. (D-Detroit).
That’s why, even approaching an election year and in the midst of a recession, Durhal said he plans to do something radical that should have been done a long time ago: introduce a bill that would implement an emergency 5 percent across the board tax increase for two years, which would produce revenue to cover budget gaps and allow for no new spending or “pet projects,” or essentially freeze new spending.
“If we don’t do something about this (imbalance of revenue to spending) we are going to be in serious trouble,” he said in a recent interview with Gongwer News Service.
Durhal’s proposal has been largely a minority opinion among legislators, although some have proposed raising the gas tax to deal with transportation costs, increasing the income tax to pay for higher education or closing various tax loopholes.
While some lawmakers have called for cutting taxes, including the surcharge assessed on the Michigan Business Tax, few have suggested raising tax rates wholesale.
Raising taxes, critics have charged, would simply hurt the state’s economy more.
However, officials with a number of organizations representing the service end of government have railed against proposed cuts to programs.
Meanwhile, Durhal said he plans to introduce the bill, which hasn’t yet been drafted, in August and to help start increasing revenue in fiscal year 2010-11.
While Durhal said he would raise taxes “across the board,” analysts at the House Fiscal Agency said the two taxes that would make the most impact on the state are the Michigan Business Tax and the income tax.
That said, analysts said it is nearly impossible to predict what type of revenue an increase in the MBT would bring because analysts haven’t seen a full year’s worth of returns yet. As for the income tax, that is also a hairy subject, because it depends on what the representative means by a “5 percent increase.”
If he were to literally add 5 percentage points to the current income tax rate and give Michigan an astoundingly high 9.35 percent income tax rate, that would rack up billions upon billions a year and perhaps lead to plenty of tax evasion, said HFA sources, who preferred not to be named.
For example, if the current 4.35 percent tax rate increased by .1 percentage point, it would generate a little less than $160 million a year.
A more likely scenario is to increase the current rate by 5 percent of itself, which amounts to .2 percentage points and would make the new rate 4.57 percent, which would raise about $300 million a year, depending on unemployment and other market fluctuations.
While other Democrats have made similar calls during appropriations meetings that they would rather work on increasing revenues than making the deep cuts that the budgets call for, none so far have drafted bills to that affect.
Perhaps one reason for that phenomenon is that the 2010 elections are right around the corner.
While some recent polls, such as the one last week from the Early Childhood Investment Corporation, have suggested that a majority of people would agree to a tax hike to keep services, some would argue it would be a great political risk to ask people suffering from record high unemployment numbers and the longest recession in history to pay even higher taxes.
Durhal said executive office budget officials have in fact warned him that “it’s going to be tough to get a tax increase passed.”
“Everyone knows we’re sick,” Durhal said. “But no one wants to take the medicine.”
Asked whether he thought election year jitters might keep his colleagues from supporting his bill, Durhal (who is up for reelection next year but in a 98 percent Democratic district) said although it’s natural for legislators to fear voter backlash, they must first take care of their duty to balance the budget without sacrificing necessary services.
While he said he hasn’t yet officially asked anyone to sponsor his bill, he thinks his plan to start a conservative budgeting approach that would zero out budgets might help convince some people to get on board.
“Instead of starting off with a certain amount of so many millions or billions of dollars to give to each department, and they come to us each budget and ask for more, they should have to come to us and explain why the need every dollar,” said Durhal, who sits on four appropriations subcommittees.
Zero-based budgeting as been discussed by the Legislature over the years, but has never been implemented in any permanent way.
On that last point at least, Senate leadership agrees with Durhal.
Matt Marsden, spokesperson for Senate Majority Leader Mike Bishop (R-Rochester) said there are still cuts out there, cuts that so far the House has been unwilling to make in its versions of the budgets, before the Legislature even discusses revenue.
“We increased revenue in 2007 (with MBT changes) and did that solve the budget crisis?” he asked “No. After that, there’s no way we’d support a tax increase.”
He said a tax increase would only serve to drive people out of Michigan, people who he admitted will get less services because of budget cuts but that he thinks will let the government know when the cuts are too deep.
So far, he said, Bishop’s constituency has said: “hold the line” on increasing taxes and keep the cuts coming in order to balance the budget, and, by following the Senate Fiscal Agency’s recommendations, that is just what the Senate plans to do.
He said no one relishes the cuts to departments that provide services such as mental health, education and welfare. But, he added, perhaps there are some services that government has been doing that it shouldn’t or can no longer afford to offer. He declined to state to which services he was referring.
While Senate leadership and Durhal have nearly opposite takes on taxes, they do agree that the budget has become bloated.
Durhal said he thinks the Department of Corrections still “needs to be looked at” as a way to reduce spending and likes the path the state is on by following suggestions to reduce incarceration time and recidivism by increasing community corrections.
He also said at some point, probably over the last 20 years or so, “the government grew too fast and too wide, setting the budget standard high and keeping it there.”
However, he said, if the state had its priorities in order bigger government wouldn’t necessarily mean bad government.
“Republicans have sold us on the idea that all taxes are bad,” he said. “I’m like (President) Barack Obama: the size of government doesn’t matter, it’s the effectiveness of government.”
He said he laments that people who have come to depend on services from their government and have assumed they would always be there are finding out that they can and have vanished.
While he would rope in spending in some areas and use taxes more responsibly if given the chance to increase them, he said the services he’d most fervently protect would be health, education and welfare.
Asked how he will get his message to the public knowing that they will likely not meet a proposal to empty their pockets with a smile, Durhal said he has a plan.
Besides meeting with small business groups and chambers of commerce, he said he will go to the public at barber shops, churches and picnics to convince them that his plan could keep the state from going from what he calls a “mini depression” to a major.
“Because of our lack of revenues, the governor just had
