Gov. Gretchen Whitmer’s new executive budget combines a worthwhile goal with bad economics. The governor says she wants to lower costs for Michigan families, but her plan to create targeted tax breaks and subsidies for certain goods and services or certain groups of people will produce few savings even for its beneficiaries. And the costs of several new tax hikes also included in the plan swamp whatever small benefits the subsidies might produce.
Some seniors may get a property tax credit. They will still owe all of their property taxes, but they would receive a refundable tax credit based on how much they pay. The credits are likely to have income limits, so they would only apply to seniors meeting eligibility rules.
The governor also recommends a sales tax exemption on clothing items under $100, school supplies under $20 and computers under $1,000 on a weekend in August. How many people are likely to benefit from a back-to-school shopping tax holiday?
Some elements of Whitmer’s plan involve moving expenses around rather than making anything cheaper. Giving free preschool and school meals to households that can afford these themselves does not reduce the price of preschool or childcare. Likewise, subsidizing community college tuition does not reduce the price of tuition. The subsidies only move the cost to taxpayers. It is a zero-sum game for the state. Subsidies transfer costs to taxpayers, which saves money for only some people — often just a sliver of the population. And subsidizing demand when supplies are limited actually increases prices.
All told, the governor expects these proposals to save beneficiaries $105 million for the upcoming budget year. These savings in state-mandated costs would be smaller than the tax hikes she recommends. Her tax hikes are not general increases in income or sales taxes but rather increases on smokers, vapers, gamblers, digital advertisers and people who use landfills. These hikes are expected to increase costs on these taxpayers by $879 million.
Nor would the beneficiaries of these taxpayer subsidies necessarily save themselves money. Parents who might have used grandparents to look after their kids wouldn’t save money if they enrolled them in a taxpayer-funded preschool instead. A person who quits a job to take advantage of taxpayer-supplied tuition might end up with less money to spend. (This might pay off, but lawmakers don’t bother to check whether these subsidy programs actually work.)
Talking up affordability is good politics. Prices are up 24% since 2020, according to the Bureau of Labor Statistics. Prices had only increased 9% from 2015 to 2020. People around the country hate inflation, and elected officials feel the need to address it.
But taxes are the most important cost the state government imposes on people, and state policymakers control tax policy. Whitmer’s proposed relief only applies to narrow bands of taxpayers.
Overall, the Whitmer budget recommends tax hikes, subsidies and tax breaks. The tax hikes increase costs on select taxpayers. The subsidies do not lower prices but merely shift costs to taxpayers. The proposed tax breaks only apply to a sliver of the population.
There are better options. Elected officials should regulate electricity for cost and reliability rather than for impossible net-zero goals. Lawmakers can reduce the taxes they assess on everyone rather than giving breaks to a few. State policy can legalize more and different kinds of housing to reduce the cost of living.
Lawmakers have the power to lower many costs that families face. They’d be better off aiming for broad reductions in prices rather than shifting responsibility for some costs to taxpayers while targeting relief to select groups of people.
James Hohman is the director of fiscal policy at theMackinac Center for Public Policy.
This article originally appeared on The Detroit News: Hohman: Whitmer’s budget proposals do not lower costs
Reporting by James Hohman / The Detroit News
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