Michigan’s Tax Charade

No Michigan Tax Deal Is Ever Worth The Paper It Is Written On

Since our devious Governor and his RINO caucus pulled out all the stops to quash the HB 4001 decrements in the state income tax last Thursday, it has dawned on Michigan politicians that the optics of the SB 111 – 115 Dan Gilbertville tax breaks just got real ugly. You can’t hand $ 1.8 billion of state revenue over to politically connected developers after stiffing the public at large without gruesome consequences. This is going to decrement some Senators’ campaign finance committee balances.

No one should fault Speaker Leonard for putting HB 4001 up for a losing vote. Bottling up and fiddling legislation behind closed doors until a winning margin is assured is not an exemplar of government transparency. Brits and Europeans may regard such shifty back room shenanigans as the hallmark of sophisticated political process, but here in America constituents want to know exactly how they are being represented. Thursday’s vote told us more about the RINOs in the Michigan House than years of deceitful political media articles and reports.

Thank you Speaker Leonard for fostering genuine political transparency.  Long overdue in Michigan.

It now appears that killing both tax reductions was the plan all along. Bridge Magazine and the Michigan Municipal League just launched a trial balloon to gut the Proposal A constitutional amendment of 1994. Proposal A limited the tax depredations of government employees acting through their local units of government, a popular activity in Michigan’s more leftward big cities and counties. The sales tax was increased 50%, but property owners got some constitutionally protected tax relief in return.

Local government employees and their Democratic political puppets want to renege on the 1994 Proposal A tax deal. Well, not entirely. Just the constitutionally protected property tax relief. No one is offering to restore the 4% sales tax rate. What was it JFK said about negotiating with the Soviets? “We cannot negotiate with people who say what’s mine is mine and what’s yours is negotiable.” Public employees and their subservient Democratic politicians have a lot of gall claiming that President Trump is a Russian stooge and a neo communist tyrant to boot.

The underlying issue here is pension and ‘other post employment benefits’ (OPEB, mostly retiree health care) underfunding, something that the Michigan Municipal League and their mouthpieces at Bridge somehow fail to mention. Government employee pensions whose funding is the responsibility of the Michigan state government are underfunded by $ 31.3 billion. No one has put up an estimate of underfunded local govenment OPEB’s, but their aggregate OPEB number is at least as large as the pension underfunding – if not a lot larger.

This has occurred due to the Federal Reserve zero interest policy, lavish promises made in government employee contracts, creative local government budgeting, and reckless pension fund investment strategies. The Federal Reserve’s zero interest rate policy has not just screwed seniors living off their nest eggs, it also screwed pension plans. None of Michigan’s government pension plans and OPEB funds have hit their historical 8% rate of return lately, but you would not know this by reading their CAFRs. Crunch time has arrived.

Article IX § 24 of the Michigan Constitution prohibits diminishment or impairment of the accrued pension benefits of government employees at all levels, so Michigan’s establishment is going to increase state taxes by that $ 31.3 billion. Plus whatever is necessary to cover the even bigger underfunding of OPEBs. OPEBs are not constitutionally protected by Article IX § 24, but they have been treated as such by emergency managers and in the Detroit bankruptcy deals.  The state government is not negotiating these local government employee contract terms, but Article IX § 24 leaves our state government holding the bag when irresponsible local governments go belly up financially.

Local units of government run by irresponsible Democrats and their public employee enablers will force huge state tax increases (or service cuts) on every Michigan resident, regardless of where they live. Residents who will derive no benefit whatsoever from the sweetheart deals being funded with their state taxes. Perversely, these higher taxes will encourage yet more financial irresponsibility on the part of beneficiary government units. They will be back for more in another 23 years, if not sooner. They know a sucker when they see one. Note here that employees of responsible local government units which fully fund their retirement accounts will actually be penalized by this charade along with the rest of us.

Were Bridge and MML honest, they would point out that that Article IX § 24 could be repealed through the very same mechanism which will be required to repeal Proposal A, but they won’t. Nor will our nitwit media, who are held in a complete thrall by the administrative state. Everyone in Michigan’s administrative state expects the governed to accept this latest fait accompli.

Bridge and MML are promoting the government employee gravy train in Michigan – that’s who they represent. Michigan’s local government employees are now much better paid than Michigan’s private sector workers. They have generous pensions and OPEBs that are but a distant memory to Michigan’s private sector workers.

The blatant unfairness of our administrative state’s perquisites got Donald J. Trump elected President. Reneging on the 1994 Proposal A deal will get them more Trump.

You Betcha! (13)Nuh Uh.(1)

  4 comments for “Michigan’s Tax Charade

  1. Arlene Pearson
    February 28, 2017 at 5:12 pm

    I am hoping HB 4001 will be revisited. Three more votes is all that is needed for passage. 3/10's deduction in income tax over 4 yrs - to this taxpayer that seems plausible and very important for the people (taxpayers) to be done - perhaps more to improve their belief and trust in politicians than a big increase in their income.

    You Betcha! (1)Nuh Uh.(0)
  2. KG One
    February 28, 2017 at 8:05 pm

    While I agree 100% with you that Slick Rick is pulling the strings behind the scenes to put the kibosh on ANY proposal to abolish, or in any way diminish the Michigan income tax, I disagree with you regarding why he is doing it.

    It certainly had nothing to do with gov't employee pensions.

    Not only did he make this point crystal clear when he signed PA 38 of 2011 into law (with the aid of Lil' Guv Calley), but he got an imbecile by the name of Justice Stephen J. Markman to perform some serious legal chicanery when writing the opinion which argued that Art 9, Sec 24 essentially isn't worth the paper that it's printed on.

    From the legal opinion (page 50):

    "Reducing or eliminating the statutory exemption for public-pension incomes as set forth in MCL 206.30 does not impair accrued financial benefits of a “pension plan [or] retirement system of the state [or] its political subdivisions” under Const 1963, art 9, § 24"

    He's up to something with that money.

    Right now, only he knows what he wants to use it for.

    You Betcha! (0)Nuh Uh.(0)
    • 10x25MM
      March 1, 2017 at 1:07 pm

      Governor Snyder made it clear from his inauguration in 2011 that his fundamental financial goal is improving Michigan's credit ratings from Moody's, S&P, and Fitch. Michigan's credit ratings are prominently displayed in his now ignored 'Dashboard'. No other fundamental goal better explains Governor Snyder's political gyrations in office, including PA 38 of 2011, Proposal 2015-01, and his myriad surreptitious efforts to increase revenue and frustrate tax reductions.

      Michigan's credit ratings have received some small positive increments during Governor Snyder's tenure, but they are effectively an average of both the state government's finances and local units of government finances because those local units of government issue many bonds tacitly guaranteed by the State of Michigan. Those local units of government are also legally extensions of the state government; hence emergency management. This has limited the upside for Michigan's credit ratings, and the unfunded burdens of government pensions and OPEBs are the foremost reasons.

      Governor Snyder has demonstrated no ideological bias against increased government spending, as long as it is accompanied by equal government revenue increases. The Flint water fiasco has shrunk his political base to government employees; no one else. So he intends to fix underfunded government employee pensions and OPEBs with increased revenue. He is not going to challenge pension spiking or rampant local unit of government underfunding which should be prohibited by the second sentence of Article IX § 24.

      Justice Markman's legal opinion on PA 38 of 2011 is an exercise in originalism based upon the recorded statements of Con-Con Delegate Richard Van Dusen as printed on page 13 of MSC Opinion 143157. Not stated, but extremely important to consider, is the fact that Michigan did not even have a personal income tax when Article IX § 24 was written during the 1961 - 1962 Con-Con. The Michigan personal income tax was established by Public Act 281 of 1967.

      The Michigan Constitution of 1963 was very clear about what taxes it prohibited and limited, such as the graduated income tax prohibition of Article IX § 7, But the Michigan Constitution of 1963 clearly established the power of the Legislature in Article IX §§ 1 & 2 to create any taxes not elsewhere explicitly prohibited or limited. The plain text of Article IX § 24, the total absence of an income tax in 1962, and the stated explanation of Article IX § 24 from Delegate Van Dusen make it clear that § 24 was about pension vesting, not taxation.

      You Betcha! (3)Nuh Uh.(0)
      • Arlene Pearson
        March 2, 2017 at 8:31 am

        To his credit Governor Snyder has been very fiscally responsible addressing MI's budget more honestly and competently than most Governors/politicians. What he has also done, however, which I disagree with, is expanded MI services, which increases costs to taxpayers, whether via state or Federal taxes - to provide bike paths, mass transit, tax deductions to the specially chosen businesses, energy monopolies/subsidies, and Medicaid expansion. i am surprised that our Gov. has not pushed for more innovation to provide residents' services more economically be it by Direct Physician Services - provides better medical care at cheaper cost than Medicaid - or utilizing new improved road composites, requiring less patching/replacement; thus saving taxpayers money with time, yet fixing our roads and providing medical care to our most vulnerable.

        On a side note, re: the "con-con" reference above, let me respond. Any abuse to our Constitutions - state or Federal - by legislatures or Congress, needs to be repaired by legal means, amendments or laws, not nullification. I do not support anarchy or nullification as a means to return our government to a "fiscally sound, limited govt." I support rule of law and civility with vigorous and frequent public debate. I am against sanctuary cities, an example of what nullification is - local govt. ignoring Federal immigration law. Let's change our laws, not ignore them.

        We, the taxpayers, seem forgotten - "the forgotten man" as Trump calls us. Let's hope our voices will be heard by our MI legislature and they resubmit HB 4001. My appreciation to Rep Chatfield and Rep. Leonard for bringing the idea of fulfilling Governor Granholm's insincere promise of a "temporary" income tax to fruition. Restoring the trust between the electorate and their elected "representatives" may be more important than the actual return of their hard earned tax dollars.

        You Betcha! (2)Nuh Uh.(0)

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