Democracy Tree: Corporate tax breaks wreak fiscal havoc

“Temporary fluctuations in statewide tax collections are normal, and the House Republicans have spent six years budgeting responsibly to prepare for situations just like this.” — Republican House Speaker Kevin Cotter

Michigan lawmakers are about as myopic as Mr. Magoo when it comes to fiscal policy, and House Speaker Kevin Cotter’s tone-deaf hubris last week simply iced the cake.

Just as both the Senate and House Fiscal Agencies adjusted projected revenues to be considerably lower than expected from estimates voiced at the January consensus conference, Cotter used the occasion to boast about GOP tax and spending policies:

“We have reduced unnecessary spending, saved money and made strong investments in key priorities like schools, roads and public safety.  We are prepared to handle this with minimal impact on state programs and services.”

Yet, the House Fiscal Agency specifically cited sluggish corporate tax revenues as a primary cause for the “temporary fluctuation” in revenues. Gov. Snyder’s 2011 corporate tax cuts were in large part paid for on the backs of schools, low-income workers, and retirees. And now we learn that Lansing may again nick per pupil spending to balance its books. The Detroit Free Press reports that State Budget Director John Roberts said that projections for the School Aid Fund could be reduced.

With the Flint water fiasco, the looming financial collapse of Detroit Public Schools, and a roads spending plan that is charitably described as laughable, Speaker Cotter is clearly blowing nothing but sunshine in lieu of making an honest assessment of Michigan’s eminent fiscal death spiral.

To be sure, the genesis of the crisis predates Gov. Snyder’s reckless 2011 corporate tax cuts — a fact that makes his signature policy all the more foolhardy. He cut taxes at precisely the moment he should have been considering asking corporations to pony up more to support the state, and the infrastructure they burden so heavily.

The Citizens Research Council of Michigan released a tax revenue analysis this month that paints a picture of continued decline in the state’s ability to sustain itself under current tax conditions. The longitudinal study documents troubling patterns, both in and out of the control of policy makers.

Michigan has diminished measurably in its economic stature, going from a high revenue state, to among the lowest, over the course of several decades. Being both the leader and lagger in the multi-state rust-belt decline, Michigan’s local units of government continue to collect taxes at antiquated rates levied against shrinking tax bases and dwindling populations, while other states have moved on to grow their economies with robust tax-based revenues.

The CRC report echoes the House Fiscal Agency’s findings, pointing specifically to corporate tax policies as a major contributor:

 “It can also be attributed to policy changes, most notably Michigan’s method of taxing corporate income.” 

Michigan’s tax revenues have slipped below the national average as a portion of per capita income in all categories except property, where they remain about average. In 1983, Michigan ranked 12th in the nation in per capita tax revenues, but by 2013, it slipped to 35th place — collecting just $3,750.40, compared to the national average of $4,598.77 — leaving Michigan at just 82 percent of the national norm.

Lansing’s Great Tax Heist

Lansing has been robbing Peter to pay Paul to balance the state budget — taking money not just from schools, but from municipalities by denying them their statutory revenue sharing. Last year, the Michigan Municipal League reported that Lansing has diverted billions in revenues since 2003 — taking money away from critical revenue sharing intended for local units of government to bolster other state spending priorities. Referring to the diversion of funds as a “heist,” the author of the report explained:

This data begs the question: did municipalities ignore their duty to manage or did someone else change the rules of the game and then throw a penalty flag at them? I see yellow flags all over the playing field.

The figures, based on Michigan Department of Treasury data, adjusted for inflation, found that an estimated $6.2 billion had been robbed from Michigan cities from 2003-14.

Turning a Blind Eye to Corporate Bullies

Update 5-19-16: House Bill 5578 to eliminate the “dark store” loophole is being considered by the House.

Lawmakers continue to sit on important bipartisan legislation that would protect communities and school districts from predatory private sector bullies. The corporate “dark store” scheme works like this:

First, developers propose construction projects that often include plans for multiple super-sized stores. Part of the pitch to local officials includes the enticement of increased revenues due to the development. Subsequently, the mega-retailers file suit to have their taxes reduced to a level similar to that of abandoned structures in the community. The Michigan Tax Tribunal (MTT) has consistently sided with the retailers, granting the abatements.

Then, when these big box retailers inevitably relocate to newer facilities, they place deed restrictions on the old property thereby preventing competing retailers from operating there — creating a win-win for the seller — no competition, and a ready example of an abandoned structure to bolster their “dark store” argument with the MTT. For the community however, it’s a lose-lose — leaving them suffering from blighted buildings and the loss of tax revenues.

Last fall, a bipartisan group of lawmakers proposed legislation to close the two loopholes. Both HB 4909 and SB 524 remain in committee with no action as yet taken.

It’s high time Republican lawmakers crawl out of their ideological trenches on matters of fiscal policy, and attempt to see past their noses for the sake of Michigan’s future. It is doubtful they will do so anytime soon.