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Thread: and here's some ominous economic news ...

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    Default and here's some ominous economic news ...

    ... actually, this is an unavoidable consequence of a bad decline in a state / local economy - which reduces private sector tax revenues - but which cannot or will not reduce expenditures on gov't services and social welfare programs ...



    (snip)"Michigan Lawmakers Reach Budget Deal Hours After Government Shutdown

    Monday, October 01, 2007

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    LANSING, Mich — The state Legislature agreed early Monday to raise the income tax and expand the sales tax to services in a historic deal with the governor that quickly ended a partial state government shutdown.

    For just over four hours early Monday, fewer state police were on Michigan highways, campgrounds were closed, road construction projects and lottery sales were stopped, and more service interruptions were on the horizon for later in the day until the final pieces were sent to Democratic Gov. Jennifer Granholm.

    Applause broke out in Granholm's office at the Capitol as soon as the final vote was announced at 4:18 a.m. The deal prompted Granholm to call off the partial shutdown of government that began at 12:01 a.m.

    "This budget agreement is the right solution for Michigan," Granholm said in a statement. "We prevented massive cuts to public education, health care and public safety while also making extensive government reforms and passing new revenue. With the state back on solid financial footing, we can turn our focus to the critical task of jump-starting our economy and creating new jobs."

    Granholm signed a 30-day extension of Michigan's budget that technically expired at midnight. The continuation budget keeps government running.

    The Legislature agreed to raise Michigan's income tax rate from 3.9 percent to 4.35 percent and expand the 6 percent sales tax to some services. Granholm signed both measures. Structural changes to state government — including the management of teacher and other public employee benefits — also are part of the package.

    The tax increases should erase most of a projected $1.75 billion deficit in Michigan's next budget. The final budget for the new fiscal year will include $440 million in spending cuts, including no inflationary funding increase for public universities and community colleges, Granholm said.

    The Republican-led Senate finished passing the package at the end of a draining, marathon session that covered parts of three days. Members of the Democratic-controlled House stopped voting and left the chamber before 4 a.m. since the only key vote related to the deal remained in the Senate.

    "Nobody wanted a shutdown. I think that is true across the board," said Liz Boyd, a spokeswoman for Granholm.

    Michigan already has the nation's highest unemployment rate — 7.4 percent in August — and just went through a two-day strike involving the United Auto Workers and General Motors Corp. Disrupting services from state parks to road construction risked further upsetting an already unsettled public.

    But Boyd said the months-long debate over Michigan's new budget is about defining the state's future and making sure enough money was available to support education, public safety and health care.

    Senate Majority Leader Mike Bishop, R-Rochester, said he was disappointed that taxes are going up but added that Republicans successfully pushed for spending cuts and government restructuring changes.

    "It's been a long, long couple of days," he said. "We're coming out of this having been through a lot and I think we're better for it."

    Without a budget deal in place, 35,000 of the state's roughly 53,000 workers would have been barred from going to work Monday morning and all state services except those needed to protect health and safety would've halted.

    Employee paychecks would have been reduced to reflect any hours missed because of a shutdown, but Granholm asked them all to report to work as usual Monday. The state last withheld some employee paychecks in 1959, when a cash-starved state budget resulted in what became known as the Payless Payday crisis.

    "It's always tough in a recession to look at doing a revenue increase," said House Speaker Andy Dillon, D-Redford. "But I think it was clearly unavoidable. We also need reforms, and we are getting substantial reforms as part of this agreement."

    Some of the toughest votes were for tax increases, especially in the Republican-led Senate.

    The Senate split 19-19 twice, forcing Lt. Gov. John Cherry to cast the tie-breaking vote in favor of the income tax bill and expanded sales tax to cover some services.

    Four Republican senators voted for the higher income tax — Patricia Birkholz of Saugatuck, Tom George of Portage, Ron Jelinek of Three Oaks and Gerald Van Woerkom of Norton Shores. Democrats Glenn Anderson of Westland and Dennis Olshove of Warren voted against the income tax increase.

    Three Republicans senators — Jelinek, Valde Garcia of Howell and Wayne Kuipers of Holland — voted to expand the sales tax to services. Anderson was the lone Democrat opposing the sales tax expansion.

    The House passed the income tax measure 57-52. Democrats hold a 58-52 edge in the House, but three Democrats — Martin Griffin and Michael Simpson of the Jackson area and Lisa Wojno of Warren — voted against it. Two Republicans, Chris Ward of Brighton and Ed Gaffney of Grosse Pointe Farms, voted in favor of the proposal.

    No House Republicans voted for the bill placing the 6 percent sales tax on services — a proposal stiffly opposed by the business community. All Democrats did, except for Reps. Marc Corriveau of Northville and Kate Ebli of Monroe, who voted no.

    The sales tax would not apply to tickets to sporting and entertainment events or accounting services. But businesses and consumers would pay the tax on ski tickets, administrative and investment services, consultants, warehousing and storage, interior design, commercial landscaping and janitorial services, among other services.

    Raising the state's income tax to 4.35 percent will raise an additional $765 million for the state"(snip)


    this new budget law also technically now imposes a 6% sales tax on all lap dances sold in Michigan strip clubs. As to how the state intends to account for the sale of lap dances, how the state intends to collect the sales tax, and how the state intends to reconcile the income from lap dances sold against the Michigan tax returns filed by dancers, remains to be seen.

    It is also speculated that other states with high social welfare spending i.e. California / New York / New Jersey / Massachusetts are going to be facing a similar situation of declining private sector tax revenues forcing either a cut in gov't spending (not) or an increase in state and local tax rates on remaining private sector workers / businesses.

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    Default Re: and here's some ominous economic news ...

    of course there are some new tax laws which simply can't find enough votes for passage no matter how much 'common sense' they appear to contain ... ever wonder why ?

    (snip)"Levin, Coleman, Obama Introduce Stop Tax Haven Abuse Act

    Bill targets $100 billion in lost tax revenue each year from offshore tax dodges

    WASHINGTON – Today, citing $100 billion in revenue drained from the U.S. Treasury at the expense of honest, hardworking American families who pay their fair share, Sen. Carl Levin, D-Mich., Sen. Norm Coleman, R-Minn., and Sen. Barack Obama, D-Ill., introduced comprehensive legislation [pdf] to stop offshore tax haven and tax shelter abuses.

    For more than four years, Levin and Coleman, the Chairman and senior Republican of the Permanent Subcommittee on Investigations, have led an in-depth Subcommittee investigation into offshore tax havens, abusive tax shelters, and the professionals who design, market, and implement these tax dodges. Experts have estimated that the total loss to the Treasury from offshore tax evasion alone approaches $100 billion per year, including $40 to $70 billion from individuals and another $30 billion from corporations engaging in offshore tax evasion. Abusive tax shelters add tens of billions of dollars more.

    “With a $345 billion annual tax gap and a $248 billion annual deficit,” said Levin, “we cannot tolerate a $100 billion drain on our Treasury each year from offshore tax abuses. We cannot tolerate tax cheats offloading their unpaid taxes onto the backs of honest taxpayers. Offshore tax havens have declared economic war on honest U.S. taxpayers by helping tax cheats hide income and assets that should be taxed in the same way as other Americans. This bill provides a powerful set of new tools to clamp down on offshore tax and tax shelter abuses.”

    “It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to shelter trillions of dollars in assets from taxation,” said Coleman. “These tax schemes cause a massive revenue shortfall and, sadly, it is the honest American taxpayer who must bear a disproportionate burden of investing in areas like education and healthcare. We are introducing this bill to close these loopholes, shut down offshore tax schemes, and ensure that every American pays their fair share of taxes.”

    “This is a basic issue of fairness and integrity,” said Obama. “We need to crack down on individuals and businesses that abuse our tax laws so that those who work hard and play by the rules aren’t disadvantaged.”

    The Stop Tax Haven Abuse Act is a strengthened version of a tax reform bill that Levin, Coleman, and Obama introduced in the last Congress. The legislation was strengthened as a result of a year-long Subcommittee investigation which resulted in a hearing and report on August 1, 2006, examining a series of case studies showing how U.S. taxpayers are using offshore secrecy jurisdictions to dodge U.S. taxes.

    “None of these offshore schemes would work,” said Levin, “without the secrecy that prevents U.S. agencies from enforcing our laws. Our bill offers innovative ways to combat offshore secrecy. We can’t let the offshore tax havens hide $100 billion in U.S. tax revenues which are needed to protect our troops, fund health care and education, and meet the other needs of American families.” (snip)


    Obviously, the repeated failure of proposed legislation intended to knock down offshore tax havens / anonymous offshore hedge fund investing etc. has a very important political and financial purpose. It allows our legislators to call for major tax increases on the 'rich' in mainstream media, while at the same time allowing the 'very rich' to quietly continue to escape actually having to pay those taxes !

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    Default Re: and here's some ominous economic news ...

    Isn't it strange that when families or individuals experience a reduction in Income or when a business's revenue declines that they are ALL forced to adjust to the new reality. Whatever it may be. Almost always by reducing spending in accord with reduced revenue. And government almost never seems able to follow suit. They always have to spend MORE than they did last year.

    Whenever I see a Government shut-down I stand up and cheer.The problem is no one seems willing to stick to their guns long enough to effect genuine, radical change. It's equally telling that during these times of so-called "crisis" the most sanguine are usually those dependent on Government checks for sustenance. Why ? Because they KNOW their checks will keep coming. It's the people dependent on that check being spent and those whose job it is to dole out that government check ( and their unions of course ) who squeal the loudest.

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    Default Re: and here's some ominous economic news ...

    Well, at least they chose not to tax sporting tickets and accounting services. Phew!!!

    I think this is an example of what will happen when the going starts to get tough for us in the future.

    P.S. No way are they gonna be able to tax themselves out of this problem. The problem is the state isn't bringing in income like it use to when it had exportable products. There will be more of the same next year - just watch. (As well those businesses on the borders hopping over the fence.)

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    Default Re: and here's some ominous economic news ...

    P.S. No way are they gonna be able to tax themselves out of this problem. The problem is the state isn't bringing in income like it use to when it had exportable products. There will be more of the same next year - just watch.
    Actually, the forecasts are for a worse budget deficit next year. A. remaining private sector businesses / workers / taxpayers have a stronger incentive than ever to jump the state line to cash in on an instant tax reduction. B. Social welfare benefit recipients have little or no incentive to go anywhere, as their benefits are indexed for inflation, so next year's bigger checks will still keep flowing. On the plus side, there IS some federal tax money being funneled into Michigan, but in the grand scheme it amounts to peanuts when compared to the private sector tax revenue losses which are auto and real estate related. But ultimately, the fact must be acknowledged that states cannot 'print' money, that states cannot 'borrow' money without having to pay interest plus principal, and that ultimately a state must strike a balance between a rational tax burden / cost of doing business on those who are adding value and paying taxes vs the benefit levels being paid out to those not adding value and collecting social welfare benefits paid for by their neighbors.

    Michigan does have one 'secret weapon' up it's sleeve though. According to the new UAW contract, GM promised not to close any more plants in the USA - which will translate into some borrowed time job security for remaining UAW workers in Michigan plants. However, GM made no such promise about not closing CANADIAN plants - and with an apparent 14% increase in Canadian plant wages and benefit costs having taken place in the last couple of months (via the rapid rise in Loonie exchange rate) it's pretty damn certain that GM will be shedding some Canadian auto jobs very very soon !

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