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Published: Friday, 2/9/2007

Can the 'two penny plan' save Michigan?

LANSING, Mich. - Michigan lawmakers are not, by and large, a theater-going bunch. But they are about to play a variety of roles in what, if it went on stage, might best be called The Twopenny Opera.

No one can say whether Bertolt Brecht, author of the revolutionary classic musical, The Threepenny Opera, might have been amused. For one thing, he is dead, and for another, well, he was a Communist. But there are certain uncanny parallels.

Both the literary classic and Michigan's budget mess feature a main character named Jenny. Both involve a bunch of characters squabbling over too little money. And while the theatrical work gave us "Mack the Knife," Michigan is taking a knife to the state budget - at the same time citizens will be asked to fork over more cash.

Michigan is, to put it politely, on the rocks. Current estimates put the size of this year's budget deficit at $800 million to $900 million.

That is, however, before you consider that the Single Business Tax, which raises $1.9 billion a year, was impulsively repealed last fall (effective next December) by a legislature that knew most of that money had to be replaced, but had no plan for doing so.

Now, the crisis is at hand, with experts saying the state has, at most, four months before the bond rating falls to somewhere below Brazil's and the state has difficulty fulfilling its obligations.

For weeks, ever since it was clear how bad conditions really were, the state has been waiting to see what Gov. Jennifer Granholm, newly re-elected by a stunning landslide, would propose.

Democrats won control of the Michigan House last November, but Republicans kept a grip on a tightly gerrymandered state Senate. And there, they have been defiantly circling the wagons.

"We think any tax increase is the wrong way to go." Senate Majority Leader Mike Bishop (R., Rochester Hills) said early this week.

Most everyone else thinks otherwise. Indeed, a bipartisan panel of experts - including former Senate Majority Leader Dan DeGrow, also a Republican, unanimously said the state had to raise taxes.

Everyone waited for the governor's State of the State speech Tuesday night to see what she would recommend. The governor is, by common consent, the most spellbinding speaker in Michigan.

Everyone expected her to use this occasion - and a statewide television audience - to explain what she intended to do, and to make a case for her plan. But she did none of that. Instead, to the astonishment of many, she made a largely feel-good speech trumpeting her accomplishments and promising new programs, including free community college for laid-off workers.

Finally, toward the end of her hour-long address, she said only that she would propose a mixture "of cuts, reform, and revenues."

Ed Sarpolus, vice president of the polling firm EPIC/MRA, said the governor made a mistake "in not explaining how bad the budget really was. It's going to be a hard sell to talk about tax increases if the public doesn't understand real pain."

The next day, it became clear what the governor will in fact propose: A new 2 percent sales tax on services.

Michigan now has a 6 percent sales tax - but on goods only. Buy a Buick, pay sales tax. Hire a lawyer to sue Buick, pay no tax.

This would change that, and produce an estimated $1.47 billion in new revenue. The "two penny plan," as the governor's aids were calling it, would not be imposed on medical or educational services.

State Rep. Marie Donigan (D., Royal Oak), a political moderate, approved of the plan and said it was overdue. She noted, as many economists have, that Michigan's economy had dramatically shifted to be more service-based. "We've gotten away without paying for services for years and it's come back to bite us."

The governor's budget-balancing plan has a number of other small bells and whistles, such as cigarette and liquor tax increases (but not on beer) and a tax on estates over $250 million. New car buyers would get a small sales tax break. State budget officials estimated that, all told, the governor's package would cost the average family with an income of $57,600 about $65 a year.

In return, the governor backed down from insisting that the Single Business Tax be fully replaced. Instead, she proposed a new Michigan Business Tax that would give Michigan businesses a $550 million cut, while raising taxes on out-of-state firms by $100 million.

What wasn't clear was whether she could get Republican lawmakers in the Senate to go along - though by yesterday, Mr. Bishop had retreated a bit from his no-new-taxes-ever position.

Indications were that some form of the governor's plan is likely to pass. But it was less clear whether this would provide what the governor, serving her last term, promised in her State of the State: A long-term "progressive" solution "that would end our debilitating fiscal crisis, and allow us to invest in our own people."

With more tough times expected, that's one of those questions for which the answer is only time will tell.



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