By Steve Horton

The state of Michigan either needs more money to fund vital services like K-12 education, colleges, law enforcement, revenue sharing with local governments, health care to the poor and disabled, and prisons or face drastic cuts in those services now and in the coming years. Because of the recession, the slump in domestic auto sales, and the slide in the state's manufacturing activity, not enough revenues are coming into the Treasury under the existing tax collection structure. It's unlikely this situation will improve; more likely, in fact, that it will continune to deteriorate.

The Republican legislators have declared their unwillinghness to increase taxes to keep these services at current levels or to temper them with only modest reductions. The Democrats-- with an eye on next year's election-- are reluctant to propose any revenue enhancements without GOP cooperation. Gov. Granholm, meanwhile, is exercising her veto pen to balance the budget, but also pushing for more revenues, i.e. taxes or increased fees. All three groups, of course, have certain services (interest groups) they champion at the expense of their opponent's priorities.

Affected stakeholders including teachers, the state police, colleges, and cooperative extension have lobbied to avoid being severely impacted by the budget reductions or vetoes. They prefer someone else fall on the sword. Thus, the state is at loggerheads. With tht election year looming ahead, the process promises to be even more politicized and polarized in the coming months.

I got out my crystal ball (after reading newspaper atricles about the issue and listening to radio reports) and here's my prediction about how the current and potentially ongoing budget crisis will be solved.

The sales tax on purchased goods (except food and medicine), now at 6 percent, will be reduced. However, a wide and encompassing list of services wil be added, broadening out the tax base. As a trade-off, the surcharege on the Michigan Busienss Tax will be eliminated and perhaps the tax, itself, will be phased out or reduced over the next few years.

The alternative (one I think is a better solution) would be a modest increase in the state income tax rate; a return to what it was before Gov. John Engler, in hopes of polishing his vice presidential credentials back prior to the 2000 Presidential election, championed a multi-year reduction in the rate. State government, since his departure, which coincided with the start of the state's recession, have paid the consequences.  That reduction has slowly starved the state of revenues it would have otherwise had. There's also the alternative of switching to a graduated income tax with the well-to-do paying a higher percentage than the lower income brackets. The trade-off with either scenario could be the elimination of the Michgian Business Tax.

A change in the state income tax, either raising the rate and/or switching to a graduated rate, is a non-issue with a split state government.  So, the expansion of the sales tax would seem to be the most likely, coupled with changes to the Business Tax. We'll see if my soothsaying has any validity.