Governor Granholm ought to look at Prop A for guidance on how to handle Michigan’s budgetary woes. Even though Prop A raised sales taxes, it got popular support because it curbed property taxes and lowered taxes overtime. Any new tax-scheme to replace the SBT and fill the latest fiscal hole needs to do the same. Anything less will dampen economic growth and exacerbate the budget’s structural problems.
To do that, first and foremost, Granholm should suspend the recently expanded $100 million-plus Merit Award Scholarship. Also, she should quit talking about universal health coverage and expanding Medicaid, the fastest growing state program that already consumes a quarter of the budget. Instead, she should cap the state’s existing Medicaid liabilities by handing vouchers to beneficiaries to purchase their own health insurance. Nor will across-the-board cuts to government departments alone stop the fiscal hemorrhaging anymore. She needs to reduce the size and scope of government by: lowering health and pension costs of state employees; disbanding the Michigan Economic Development Corporation and ending corporate welfare; selling state assets; and, like Indiana, privatizing non-core government services.
Shikha Dalmia is a senior analyst at Reason Foundation, a free market think tank. An archive of her work is here. Reason’s privatization research and commentary is here.