Wednesday, October 24, 2007

Was raising taxes the right thing to do in Michigan?

In case you don’t know the state of Michigan has been going through tough times recently. We have the second highest unemployment in the United States, in fact employment is near depression levels. We are in the top 3 states when it comes to people facing foreclosure on their homes. At the same time the state was hugely in debt.

The government of course have been making moves to try and get out of this mess, such as trying to lure in new business to fell the void lift from the fleeing auto industry.

Something that has been in the news recently is the fact that Michigan faced a shut down because the state’s house of reps had a long out battle of the best way to balance the state’s budget. Most of the Republicans wanted to cut programs and most of the Democrats wanted to raise taxes. During the end the state didn’t close and they came to an agreement to both raise taxes and cut programs (so we get the worst of both worlds).

The fact that Michiganers now have to pay more in taxes has many living in the state upset. Many small businesses fear a down turn on business because the sales tax has been extended to cover many services. Of course there are also people upset over the fact that they now have to pay more in income tax.

I honestly don’t care much about the people getting angry over their increased income taxes mainly because Michigan will still have some of the lowest income tax rate in the nation (I think we are around 36th). In some ways I think the raise in tax is really just the market correcting it self via increasing it’s revenue to cover it’s expenses.

But giving the fact that Michigan has such a low employment rate right now I am not sure if expanding sales tax to cover a number of services is really the smart thing to do at this time. Most jobs are created by small and middle-sized business and by expanding the sales tax on these business people will spend less on them, which would lead to a slow down (or even a shrinking) of their business.

If anything this is a time that the Michigan government should be looking at what it could do to increase business in it’s state. Instead of expanding the sales tax, maybe the government should have looked at ways that it could lower fees that small and medium sized businesses face. Thus lowering their cost, which would help the business already in the state of Michigan as well as maybe draw others, which would be good for the state’s economy.

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