Barack Obama’s economic plan for the country doesn’t represent change. His plan isn’t new. It has been tried before, many times. President Jimmy Carter tried the same programs in the late 1970’s with disastrous results.
Michigan’s Governor, Jennifer Granholm, has supplied us with a real life example of what happens when you put Obama’s proposed tax and spend programs in place. Granholm’s destruction of the Michigan economy is a real life illustration of what is to be expected with an Obama victory in November.
Note that both Granholm and Obama learned their economic theory at Harvard Law School, even though Harvard Law doesn’t really teach economic theory. The theory adopted by Granholm and Obama is not the sole theory taught at that prestigious school. Why did these politicians adopt the particular theory they believe in? It might be due to the fact that neither spent their formative years in the US. (Obama in Indonesia, Granholm in Canada). They favor a more Socialist Europen Economic Model of the world. (Europe is presently in a recession and relative to the US, is in a more negative position) or it may just be that the Liberal wing of the Democratic Party has always favored this type of “progressive” tax and spend model. The conservative wing of the Democratic Party (Clinton White House) does not favor this “tax and spend philosophy”.
THE MICHIGAN MODEL
What has happened
Granholm, Michigan’s intensely unpopular Governor, took office in 2003. The Michigan economy had begun to slow in 2002, the year prior to her coming into office. The state unemployment rate was 6.2%, the national average was 5.7%. By the end of 2003 the jobless rate had grown to 7.2 percent, the national rate was 5.7%. There was a job loss of 35,000, however, the unemployment numbers only reflected an additional 4,000 out of work because 31,000 people left the state.
At the end of 2004 Michigan’s jobless rate was 7.3 percent, the National jobless average 5.5%. The state lost an additional 35,000 residents and thousands of additional jobs.
At the end of 2005 the jobless rate dipped to 6.1% while the National rate dipped to 4.2%. The State continued both its job loss and population flight.
At the end of 2006 Michigan’s jobless rate jumped to 7.2%, the National average was 5.0, one third lower than in Michigan. The State lost a net 90,000 jobs and over a hundred and fifty thousand residents.
At the end of 2007 Michigan’s jobless rate was 7.6%, the National rate was 4.9%. The state lost 120,000 jobs.
Between 2003 and 2008 two people fled Michigan for every person coming into the state. The total job loss (the unadjusted number of jobs eliminated from the State) totaled almost 2 million, the net job loss number is lower because auto or industrial jobs were replaced by service industry jobs.
Warning before the storm
When Granholm first took office in 2003 she announce a long list of liberal social experiments she described as “investment opportunities” to improve Michigan’s economy. Of course she wouldn’t increase the taxes of the “working classes”, just taxes on businesses and the “rich” to fund these “investments” in “infrastructure”.
The first warnings came in 2003. Numerous publications (Wall Street Journal, Detroit News, Free Press, NYT, etc) and scholars from around the country and world warned that increasing taxes in a slow or stalled economy was a risky proposition. The advise was not heeded.
The first of the tax increases took place in 2003.
The Governor was warned that this would start a vicious cycle – increased taxes make the products or services produced in your state more expensive and less attractive – those products and services are less attractive to buyers – they buy fewer of the goods and services – delivering less tax money -meaning another tax increase is necessary and so on and so on ….. This is exactly the type of death spiral Michigan is in at this time.
How many tax increases?
The first property tax increases were made in 2003. The have continued annually. Property taxes continue to escalate out of control.
The Michigan foreclosure crisis is not fueled by adjustable rate mortgages, it is being fueled by job loss, population flight and citizens being taxed out of their homes.
Michigan currently has 1.2 million more dwellings than families to fill the dwellings. One of the darker jokes about Michigan is that the only thing slowing the population flight is the fact that home sales are so slow.
Home values and home ownership
The middle class working families of Michigan had a long history of multiple home ownership. Tens of thousands of Michigan residents had summer homes or cottages in Michigan’s “north country”. Higher property tax rates and the elimination of decades old property tax credits forced the sale of thousands of these “summer homes”, previously held by some families for generations.
The average home price in Michigan is approximately $200,000. A home valued at $200,000 in 2003, is now valued at $150,000. In 2003 the property tax on the $200,000 house was $3,000. The tax today on the $150,000 home is $7,000.
The Michigan sales tax increased from 4% to 6%.
Business and personal income taxes have been increased repeatedly. Michigan’s Single Business Tax was replaced, to create a better business climate and “lower taxes”. The replacement, the Michigan Business Tax, was not only, dollar for dollar, identical to the prior tax, but the rates have been substantially increased.
As the Michigan economy continued a downward spiral the warnings continued throughout 2004, 2005 & 2006. Pundits and professors warned – STOP THE TAX INCREASES. The warnings were not heeded.
Taxes have continued to increase year after year.
In November 2007 a huge additional tax increase was passed. Business taxes went up 22% and other taxes on the residents of Michigan by 13%. The tax increase was intended to raise over 1 Billion dollars – the money would be used for additional “investments”. The Governor promised the new tax would solve the problems of the State and “bring prosperity to all”. The Billion plus dollar tax increase was passed despite the continued warnings that it would further slow the economy and would never generate the promised revenue.
In May 2008 the State announced that additional tax increases will be necessary to prevent a suspension of services. Last years 1 Billion increase is generating $500 million less than expected, creating yet another budget shortfall and the need for additional taxes. The improved economy promised by all these increases is no where in sight.
Michigan’s 2008 budget is $44.8 Billion dollars. In 2003 the budget was $38 Billion. The State has lost 2,000,000 jobs while increasing taxes by $6 Billion dollars. The people of Michigan are now the 5th most taxed in the nation.
Michigan government employees have not felt the pinch or belt tightening of the average Michigan resident. According to the Mackinaw Center for Public Policy the average salary and benefits package of a state employee is $75,000 a year, private sector workers have an average salary and benefit package of $58,000 – this number is still substantially above the national average of $48,200. Rarely will you see such a gap between state employees and those they serve.
Michigan’s median income continues to drop. Poverty is on the increase. Detroit’s poverty level is 33%, the highest poverty level of any major city in the Country. Flint and Kalamazoo are tried for 5th in the nation (cities with a population between 65K & 250K) with a poverty rate of 35.5%.
There appears to be no end in sight.
THIS PROBLEM DID NOT ORIGINATE IN WASHINGTON, THIS PROBLEM IS HOME GROWN IN MICHIGAN.
Michigan led the Nation into the recession, how can following Michigan’s economic policies lead the nation out?
THE ROAD TO RECOVERY
Michigan has at least two, major, stumbling blocks to recovery.
The first is education. The state ranks 39th out of 50, The state needs better educated workers, better educated to complete for world class jobs. Educated well enough to stop electing officials who continue to tax the state to ruin.
The second stumbling block to reversing this cycle is tax reductions, Michigan must drastically reduce the tax burden it imposes if it wants to attract businesses and the jobs they bring.
Compare what Granholm has done to Michigan with what Democratic Governor Strickland is doing in Ohio.
FALSE CLAIM OF LOSING JOBS OVER SEAS
Michigan’s auto jobs are not moving over seas. The are moving from Michigan to other States where the economic environment made auto production more competitive. The BIG THREE – renamed the Detroit Three – by Nancy Pelosi, the Democratic Speaker of the House – are losing sales volume – even in Michigan. In Michigan Toyota car sales are up 36% while US auto sales are declining. The Toyota’s are being built in the US, just not being built in Michigan.
Barack Obama’s suggested economic change is not new … its a return to the past, to the policies of Jimmy Carter. To see his economic principles in practice just look to the economic success of Michigan. The Country cannot afford to be this successful.