Friday, September 28, 2007

A Radical View: American States Shouldn't Fail

Will the Last One to Leave Michigan Please Turn Out the Lights?
In 1950, Michigan was one of the most prosperous states in America. There were 1,800,000 people in Detroit, and Detroiters enjoyed the highest per capita income of any large city in the country.

Today, Michigan is an economic basket case. Its unemployment rate is a crushing 7.2 percent -- the highest in the nation. And to make matters worse, Michigan taxes are higher than the national average.

So with no jobs and high taxes, it's no surprise that Michiganders are going elsewhere to live and work. Its population is declining so much that the wry joke in Michigan is that the last one to leave please turn out the lights.

But there is a way forward for Michigan. It's not complicated, and it's not theoretical. It's a simple story, taken from Michigan's recent history, of government in the world that works.

When former Gov. John Engler (R.) was leading Michigan, its economic outlook was much different. Gov. Engler brought Michigan to 3.2 percent unemployment, the lowest unemployment rate in the state's history. And he did so while cutting taxes and controlling spending.

And Gov. Engler did something else that was critical to Michigan's prosperity: During his time as governor, Michigan regained its AAA bond rating. The reason this is critical is because a state's bond rating determines how much its taxpayers pay on the state's debt. The better the rating, the less taxpayers pay. The less taxpayers pay, the more money is available for tax cuts or other priorities.

It's the virtual circle of prosperity of the world that works: Lower taxes means more jobs means higher revenue from a bigger economy means controlled spending means a better bond rating. And a better bond rating means a lower cost of debt which means more money available for lower taxes which means the creation of even more jobs.

That's the world that works. Now we get to the world that fails.

In 11 short months after gaining power, Democrats in Michigan managed to lose the AAA bond rating. As I told my audience of Michigan Republicans gathered on Mackinac Island last weekend, it was like a teenager getting a credit card and not realizing that he has to pay.

So, today, Michigan is in the virtual circle of the world that fails: It's losing jobs, losing people and losing money, and now it has to pay even more to service its debt.

And, predictably in the world that fails, the solution that Democrats in Lansing are proposing is a huge tax increase to close the gap between the state's higher costs and declining revenues.

Higher taxes are precisely what Michigan does not need right now. So far, the battle over the tax increase has been a fairly partisan one -- with a Democratic majority in the legislature and a Democratic governor pushing for the taxes, and Republicans, under the leadership of state party Chairman Saul Anuzis and others, pushing for lower spending.

But this doesn't have to be a partisan battle. The guiding principles of the world that works aren't red versus blue. They're red, white and blue. Michigan simply needs to do what we know works and have the courage to carry it out.

by Newt Gingrich

No comments: