Tax cut slam dunk ( The Michigan View 03.07.11)

Posted by hpayne on March 7, 2011

SnyderThe best defense is a good offense. By restoring a crucial tax cut, Governor Rick Snyder can go back on the offensive against a barrage of criticism from the political and media establishment over his budget.

Snyder’s budget eliminates the personal income tax cut to 3.9 percent scheduled for 2015, a cut that would have erased Jennifer Granholm’s unpopular – and ineffective – tax hike to 4.35 percent in 2007. The governor is now reaping the whirlwind of that fundamental mistake in his otherwise admirable state budget proposal.

By halting the reduction at 4.25 percent, Snyder not only has missed an opportunity to separate himself from his tax-happy predecessor, it has robbed him of crucial political capital as he lowers business tax rates while closing personal tax loopholes on pension, property, and personal exemptions.

The effect is that Snyder is arguing for a tax hike on individuals to pay for business tax breaks.

“Snyder’s plan represents a major shift in the tax burden to individuals, in order to pay for a $1.73 billion tax cut for businesses,” says the liberal, influential Michigan think tank, Center for Michigan.

Allowing the 3.9 percent tax break would have added an important 10 percent individual tax cut to Snyder’s quiver, enabling him to make a true flat tax argument that both cuts rates and closes loopholes. A flat tax cut would enable the governor to counter the predictable howls of protest over the closing of Michigan’s most-generous-in-the-nation pension loophole. (Snyder’s counter argument is that at 4.25 percent Michigan still would have the second-lowest tax rate in the Midwest – behind only Indiana at 3.4 percent – but Granholm could have made the same argument)

When asked about this tactic by The Detroit News, Snyder appeared politically tone deaf. “I think it’s being financially prudent to stop it at 4.25 (percent). You can always go back and reevaluate that issue,” he said last month.

The time to reevaluate has come.

“I knew the honeymoon would end,” Snyder told a WJR-Michigan Chronicle-sponsored “Pancakes and Politics” breakfast gathering in Detroit this morning.

He urged voters to take a step back and look at how it affects the state as a whole and its long-term future. But the governor’s budget is under siege not just from the liberal establishment jealous of its pet special interest loopholes. He is under siege from his own party. A survey of state senators by The Detroit News this week shows the pension tax does not currently have enough votes to pass.

Where to find the money to offset the tax cut?

There is still lots of fat in overpaid union wages and special interest freebies – none of which can survive Snyder’s fairness smell test.

“The most unfortunate part of the budget is the proposal to raise taxes on pensions,” says Mackinac Center fiscal analyst Michael LaFaive who otherwise applauds Snyder’s budget. “While the tax fairness and simplicity arguments are not invalid, it’s still a very large tax hike, and one that’s totally unnecessary — (the) $5.7 billion in potential government employee fringe benefit savings would save several times the estimated $700 million in new revenue from this tax.”

A broad personal tax cut would also expose the soak-the-rich politics of Democrats who only want tax cuts for politically-favored special interests.

Wayne County Executive and union lackey Robert Ficano, for example, told Snyder he wants him to put big special interest tax loopholes back instead of asking prospective industries to appear before the legislature and seek an appropriation.

“Ficano said that process seems too unpredictable and cumbersome,” reports The Detroit News. Too predictable is right. Without the transparency of public approps hearings, Ficano can’t cut special favors for his corporate crnoies and union pals.

If the governor’s team lowers tax rates for everyone – individuals and business – while closing down on the special interests – unions and corporations – his transformative budget will win. And so will Michigan.

Henry Payne is editor of The Michigan View.com

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