The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

State of Michigan:
Squeezing Laboring People to Feed Billions to Corporations

Apr 24, 2010

The ink was barely dry on the current 2010 budget when State of Michigan officials announced a projected budget deficit of 1.6 billion dollars for Fiscal Year 2011, which will start October 1, 2010. This was, in effect, an announcement of a new round of attacks on the population.

Sure enough, this 1.6 billion dollar deficit “guesstimate” became the justification for politicians in both parties to propose new cuts to the next budget. On January 20, Michigan Senate Republicans announced their own “six-point plan.” It included several huge attacks on state workers and other public workers in Michigan, as well as people dependent on social programs. Medicaid would be cut another 500 million dollars in services that politicians call “optional,” including nursing home, dental, pharmacy and mental health, and reductions in coverage for younger recipients; another 610 million more dollars would come from proposed changes to healthcare coverage for all public employees in the state; and the pay of each and every public worker in the state would be cut by five percent, whether elected officials or teachers, whether state employees or local.

Other parts of the Republican plan include reductions in the budget for local police and fire departments and even more cuts to Michigan’s K-12 education budget. All told, the Republicans would remove over 2.4 billion dollars from state spending. And every part of their proposal is an attack on the population.

This reduction of all public workers’ salaries and medical coverage is such a drastic and wide-ranging proposal, requiring all union contracts to be torn up, that the Republicans would need to put a referendum on the ballot to make a constitutional change. And that’s exactly what these demagogues proposed to do.

In response, House Speaker Andy Dillon, a Democrat, said, “It’s good to see that Senate Republicans have finally embraced serious reform proposals, several of which the House [which the Democrats control] has already acted upon.” Governor Jennifer Granholm, also a Democrat, agreed with the Republicans that cuts in social programs and employee wage cuts need to be made, but said that a constitutional amendment would be too slow – she wants them now!

Granholm proposed a wide range of cuts in her Executive Budget, including: 106 million dollars from the Department of Community Health; 100 million dollars from the Department of Human Services, including eliminating all funding to before and after school programs; 164 million dollars from K-12 spending, including a reduction in per-pupil spending by $59; and 100 million dollars from higher education funding. (The state Senate wants to cut per-pupil spending by $118; so they all agree to attack K-12 education – their only question is by how much.)

Granholm also had her own proposals to attack state workers, pushing to gut health benefits of new hires: premiums would more than double to over $3,500 for a family, copays for prescriptions would triple to up to $120, and emergency room copays would quadruple to $200. And on top of all the copays and deductibles, the biggest attack was the addition of a “co-insurance” – a charge of ten percent on any visit, up to $3,000 for the year.

Granholm also threatened to reduce retirement income and benefits of any workers or teachers who do not agree to retire by September 2010, pushing out more experienced, better-paid teachers to replace them with newer, more poorly-paid teachers. The state Senate recently acted upon this proposal with a bill forcing state workers who don’t retire by October 1 to contribute three percent of their salary toward their retirement, and putting new public school employees into a combination reduced pension and 401(k) retirement plan.

Granholm also proposed to effectively raise the sales tax, by lowering the overall rate by a tiny amount, from 6% to 5.5%, for show – but then broadening the tax to a wide range of services not currently covered – including the “luxuries” of arts, entertainment and recreation. So if working people can finally afford a night out, that’s a luxury that Granholm wants to tax.

Clearly, this attack on working people shares broad bi-partisan support. There may be differences in just how the attack is carried out, but both parties are ready to make working people pay for this mess in state finances that workers didn’t create and aren’t responsible for.

And we can expect that this is only the beginning – since, last year Granholm and the legislature came back time after time with new proposals for more attacks, ultimately cutting almost 2 billion dollars from the 2010 budget and another 400 million dollars from its then-current 2009 budget.

Attacks on State Workers and on the Population

This is only the latest in a series of cuts and attacks going back years.

The state began demanding wage cuts from its workers as far back as 1992, when it forced through a wage and benefit freeze on state police officers. Other state workers over the next decade did not keep up with inflation: their spending power, indexed by inflation, went down 11% from 1992 to 2002. State employees hired after 1997 lost pensions and now have only completely inadequate 401(k) plans.

The state government has drastically cut its budget and its workforce. Between 2001 and 2007, General Fund spending, the main part of the budget of concern to the public, covering Medicaid, public assistance and public services, was cut by 6.5%. Higher education spending dropped by 8.8%. School Aid spending didn’t rise as the state’s student population rose: per-pupil funding dropped, by $127 in 2009 alone, resulting in severe cuts to programs.

The biggest budget attacks were to cities in Michigan. Revenue sharing to cities and counties, which the state had agreed to in previous years to compensate for suppressing certain local taxes, was slashed by 58.3% between 2001 and 2007, the Citizens Research Council of Michigan (CRC) reported in 2008. State funding was decreased by another 12% in the 2010 budget passed last year. This has enormous implications for the cities and counties, which depend on the state for 25% of their budgets on average. The localities eliminated local services to the population. Michigan Department of Transportation money going to the counties has been virtually eliminated, for example. The effect of this can be seen this past winter: Counties across the state announced that roads would be salted only once during a snow-storm – and fewer roads would be cleared or salted. They were saved from the most disastrous results of those choices only be an unusually mild winter. Choices like this are certain to translate into a greater number of accidents and deaths in the future – the human cost of decisions made by state and county politicians.

State workers have shouldered a big part of the reduction. Since 2000, the overall number of state workers has been reduced by over 15%, bringing the number of state employees below the level of 1974. The hardest hit departments are those directly serving the population. The Department of Human Services (DHS) has 3,600 fewer employees, declining to less than 10,000 now – a reduction of 28%. The Department of Agriculture has lost 25% of its employees; the migrant labor housing inspection program has been cut in half. The Department of Natural Resources (DNR) has 38% fewer employees than in 2000.

Workforce reductions in state departments not only put more people out of a job, adding to the unemployment, but they also make it that much more difficult for people to get their needs met. The DNR cuts mean a major decline in fire officers and others patrolling and protecting state public lands. The DHS cuts came just when the need for these services skyrocketed: just in the past year, the number of clients handled by the DHS jumped by more than 20%, to 2.2 million. Food assistance cases alone have increased 205% since 2000. These cuts guarantee that services will be delayed or even denied – services that people desperately need. Seven state DHS workers testified before the Human Services House Appropriations Committee about the effects that overload has. They told of long lines and dangerously over-packed lobbies, resulting in severely delayed payments, as well as anger and frustration on the part of clients, often directed against DHS workers.

Beyond the cuts in staffing the state has also directly cut the benefits tied to social programs. Benefits paid to unemployed workers are not indexed for inflation and haven’t been increased in years. Medicaid and other programs that provide basic protections for people, especially necessary in a crisis like today’s, have been slashed; Medicaid reimbursements were reduced by eight percent in 2009, amounting to tens of millions of dollars. Dental care for adults on Medicaid has been dropped, condemning 600,000 people to potential lost teeth or even serious diseases resulting from infections. On October 7, a woman with dangerously infected teeth died from those infections because Medicaid would not pay for their extraction. Medicaid patients with malnutrition from cancer or other illnesses are no longer allowed paid liquid supplements – not until they deteriorate to the point of being near death and needing tube feeding. State politicians sit callously calculating how to squeeze the last little drop of blood from workers and the poor, with catastrophic results for the population.

The state politicians have engaged not only in an attack on basic services, but also in an attack on the quality of life for the vast majority of the population of the state. Local libraries, zoos, museums, orchestras and day-care facilities all have had state funding cut. Schools are cutting back on arts and culture classes and “only teaching the basics.” Libraries have been closed; and those that haven’t closed completely are closed some days and have shortened hours other days. Cultural institutions like the Detroit Zoo and the Detroit Institute of Arts (DIA) have been forced to let themselves be taken over by private interests that now charge admission prices unaffordable for many working families. The DIA, which had in earlier years been free, has, as its state funding decreased, charged a fee and raised it in several steps to $8.00.

The one department whose budget increased in recent years was Corrections – by 15.8%. That is a blatant demonstration that the state’s only answer to the crisis is to throw more people in prison.

Claiming to serve the population, the state government does nothing to alleviate the conditions people confront in the economic crisis; on the contrary, it reinforces these conditions.

The Crisis Is Their Excuse – It Should be the Reason to Increase Spending!

State politicians justify these cuts by pointing to Michigan’s economic crisis and its effect on state revenues.

Of course it’s true that Michigan is in dire straits since the entire country has been hit by a severe economic crisis. And yes, Michigan is in an even worse situation than most. It’s had the highest unemployment rate of all the states since 2001.

And of course, the bad economy translates into lower revenues for the state: income tax, sales tax and property taxes are down because income, sales and property values are all down. Tax receipts have diminished by 32% over the past ten years, from 9.79 billion dollars in 2000, to 6.95 billion dollars at the end of 2009. State officials themselves say that in inflation-adjusted dollars, revenue is at a 45-year low.

But the cyclical decline in the economy is only part of the story for the state’s budget problems – a small part. It does not explain the structural reasons for continued budget deficits year after year.

The whole reason for year-after-year deficits is because the state has systematically cut taxes to the corporations. In 1990, the share of state and local tax revenue coming from corporate and other business taxes was 16%. In 2005, businesses were paying only eight percent. Today, with the enormous tax breaks of the past two years, it’s undoubtedly even less than that.

Corporations Escape Taxes

During the last two budget years, when the state has claimed large deficits, it has doubled the amount it gives to businesses in tax breaks. The state itself estimates that in 2009 alone, it gave away 1.94 billion dollars in what it calls “Business Privilege Tax Expenditures” – nearly twice the 1.1 billion dollars given away in 2008. In 2009, these tax credits made up two-thirds of the announced budget deficit of 2.8 billion dollars. The state could nearly wipe away its deficit just by dealing with this one set of business tax breaks – only one set among many other means of making sure businesses pay little or no taxes.

In addition, Michigan cities have been issuing property tax abatements lasting twelve years to companies promising to “preserve” or expand jobs in the city. (City property tax revenues are de facto linked to state revenues.) These abatements have cost cities over one billion dollars per year in lost property tax revenue. Combined with the Business Privilege Expenditures of 1.9 billion, it equals more than the 2.8 billion dollars the state said it had to cut out of its budget. In other words, the state and cities, whose budgets are inextricably tied together, have been robbing the working population and the poor in order to hand over money to the corporations and the wealthy who own them.

These different tax breaks have become a pet method for the state government to hand out money to corporations. Once established, tax breaks roll over automatically year after year. They don’t appear in the budget, so the role they play in creating the deficit stays hidden.

A Big Tax Shift

But tax breaks are just the beginning. In the past several decades, the state has not only been giving major tax breaks, but has also been decreasing the corporations’ actual legal tax obligation. The consequence is a much greater tax burden shouldered by the working population.

In 1994, the state wiped away many of the property taxes paid by corporations. In order to make that more palatable, it at the same time made changes decreasing local individual property taxes for the population as well. To make up for the decrease in revenue, the state increased its sales tax by 50%, from four to six percent. (This was all part of a package of tax changes known collectively as Proposal A, which was supposedly going to equalize funding for school districts across the state. That didn’t happen – not even close.) However, localities started raising individual property taxes almost immediately; by 2003, they were back up to their previous levels. The corporate property taxes are still virtually nonexistent.

In 1999, the state began decreasing its Single Business Tax (SBT) by one tenth of a percent every year, with the goal of wiping it out completely. This affected the state’s revenues so much that Michigan had a permanent deficit problem as early as 2001. The Single Business Tax rate was 1.9% in 2005.

On top of that, in 2007 the state removed its Single Business Tax and replaced it with the Michigan Business Tax (MBT), which, though it raised the base rate, came along with a whole raft of extra business tax exemptions. This had the effect of cutting taxes even further for two-thirds of Michigan businesses – including the biggest corporations. The state hasn’t yet begun to measure the impact of that change.

Not only has the state cut taxes to the corporations; but its personal tax structure is also written in favor of that very same wealthy class that owns them. Given Michigan’s very regressive individual tax structure, workers pay a much larger share of their income in taxes than the wealthy do. And while the poor may pay no income tax, they do pay a big share of their revenue in other Michigan taxes and fees.

To begin with, Michigan has a flat income tax: every individual in the state pays income tax at the same rate, no matter how much money they pull in. That’s supposed to be fair? Not at all! Taxes paid by a person earning $30,000 a year cut rapidly into money for daily expenses like food, clothing and utilities – while people pulling in over a million dollars never feel the tiniest touch of pain.

This flat personal income tax rate was raised in 2007 from 3.9% to 4.35%. This is supposedly temporary, to be phased back down to 3.9% between 2011 and 2015. Don’t hold your breath; but whatever the rate, it doesn’t change the fact that the flat tax is in fact regressive. And the higher the tax rate, the more pain it causes to those who can least afford it.

Second, a large share of the tax revenue comes from the state sales tax, which in effect is even more regressive than the flat income tax. By 2007, sales taxes accounted for 29% of Michigan tax revenue – the highest source of tax revenue in the state. As with the income tax, even though everyone pays the same percentage, sales taxes hit workers much more deeply than they hit the wealthy. In 2007, the lowest 20% of the population, those making less than $15,000, paid seven percent of their income in sales tax, compared with one percent in sales tax for the top one percent of the population – those making over $365,000. And now the governor wants to extend the sales tax so broadly that it is estimated to double the amount of sales tax the average person will pay in a year.

Third, in recent years politicians have increased fees for everything from the use of state parks to driver’s licenses and auto registration. They’ve even snuck in extra fines. For example, it had always been the practice that a driver needed to renew their license plates by their birthday. Often, people would wait until the end of their birth month to do so. Suddenly, without notice, people who waited were hit with a fine of about 25% of their registration fee.

Even at such petty levels, officials scheme to squeeze the most they can out of working people.

And all of that comes on top of the high local property taxes (which everyone pays, either directly on their own home or indirectly in their rent), and in many cities, local income taxes.

And then, the state pushes the Lottery – hard. It’s impossible to watch the television, listen to the radio, walk into a convenience store, or even drive down the freeway without seeing ad after ad for one Lottery game or another. Of course, no one is forced to play the Lottery. But who plays it the most? Poor people who hope against hope for a quick fix to their money troubles! The lottery itself amounts to another tax on the working class.

All these regressive taxes and fees mean that working people pay a much bigger share of their income to the state than do wealthy people. Putting all taxes together, someone who made between $15,000 and $32,000 paid out almost ten percent of their income in state and local taxes in 2007. Those who raked in over $365,000 paid out just over five percent. And with these recent tax and fee changes, an even greater weight for the budget has been foisted on the shoulders of the working class.

Attacking the Population to Bail Out the Capitalists

Social services and public services may be in worse condition in Michigan, but the fact is that all the states have been afflicted – and for the same reason.

States across the country have offered corporate tax breaks for years as well. Between 2001 and 2003, when nationally the economy was supposedly peaking and corporations were posting huge profits, fully 71 major corporations paid absolutely no state income taxes – in any state whatsoever. In the wake of the crisis in the past two years, cuts have been enacted in 45 states, for programs covering health care, services to the elderly and disabled, K-12 education, and other programs. This year, many governors’ budget proposals have included more cuts. Just a few examples: California’s governor wants to abolish its welfare program; Arizona’s governor wants to get rid of its children’s health care program; Mississippi’s governor proposes to cut state funding by over nine percent, and close four state mental health clinics; and New York’s governor wants to end revenue sharing for New York City.

And all of this is against a backdrop of cuts made on the federal level that “trickle down” to the states.

As far back as the 1970s, the Carter administration started cutting unemployment compensation. It continued through the Reagan and Bush I administrations, as the federal government passed costs down to the states with unfunded mandates and “block grants,” which don’t keep up with inflation, rather than “revenue sharing.” At the same time, corporate taxes, as well as taxes on the wealthy, have been shrinking. And under Clinton in 1994, the welfare “reform” resulted in further attacks.

The 2009 bank bailout shows how much more extreme the situation is now: the federal government handed trillions of dollars to the banks in order to push up their profits. Those trillions have to come from somewhere; and while some of it may simply come from government printing presses, a great deal of the bailout comes from federal programs that benefit the population. For example, Social Security this year gave no inflation adjustment to seniors, with the government claiming there was no inflation. So the Social Security surplus goes into government coffers to cover part of the debt run up for the banks.

One of the marks of the current decades-long crisis is that the capitalists have been finding it harder and harder to keep up their profit rates. Politicians at every level, federal, state and local – servants of those corporations – have put that problem at the top of their list of priorities, and sometimes as the only item on their list of priorities: using the powers of the government to make working people carry the burden of the economic crisis.

From the Federal government through the states on down to the cities, governments have been engaging in a massive handover of wealth from workers to the capitalist class.

Rahm Emmanuel, Barack Obama’s chief of staff, said as Obama was taking office, “You never let a serious crisis go to waste. And what I mean by that is it’s an opportunity to do things you think you could not do before.” It’s absolutely what the politicians in Michigan and around the country have been trying to do, using the economic crisis as an argument to get people to accept the dismantling of services, to accept that billions be handed over to corporations, and to accept that the state take more and more of the wealth that workers create, part of which they pay to the state in taxes – to put it into the hands of the wealthy. They use the crisis to sell the idea that everyone is in the same boat, that “we all” must make sacrifices, and to get the population to accept attacks on their standard of living and quality of life.

The State’s Workers Resist

There has been some resistance by workers in Michigan to these attacks.

In 2003, when the state demanded wage and benefit concessions from all its state employee unions, amounting to each worker losing $4,000 every year, there was an immediate response from rank and file workers who started organizing petition drives against concessions at their offices. The fight against concessions was spearheaded by UAW union militants – the UAW being the state’s largest union – but activists from the state’s five other unions followed this lead. Union workers took part in two demonstrations out in front of the State’s offices in Downtown Detroit; 700 took part in an April demonstration, and 1,000 turned out for another in September. The union rank and file pressure reached its pinnacle at a rally on October 2, 2003, where 3,500 state workers – 10% of the unionized workforce – angrily denounced the attacks at the state capitol in Lansing.

Faced with that opposition, the state took a big step back and offered a “compromise” called “Banked Leave Time,” or B.L.T. In this scheme, workers donated labor “for free” with a “promise” of reimbursement at retirement. Cuts also included unpaid furlough days. In the end, the state took approximately $2,000 per worker instead of the $4,000 they wanted. The state also signed a “no layoffs pledge,” which it did abide by for the limited period of the agreement, though they found other ways to decrease the workforce – like not filling jobs that became vacant.

The fight made by state workers at that time made the state retreat a bit. It would wait several years before it tried again for concessions.

But by May 2009, the state officials felt the reason to come to the union locals demanding concessions, including the elimination of longevity pay, freezing step increases, deferring a one percent pay increase and a two-tier healthcare structure. When unions refused to reopen their contracts to allow this, the state imposed six unpaid furlough days. Specifically, it asked UAW Local 6000 to agree to reword its contract so that those furlough days could be assigned non-consecutively. The Local contract stated that any furlough days must be assigned consecutively, which would allow furloughed workers to collect unemployment compensation for that time. State officials didn’t want to lay off their workers, only to turn around and pay them unemployment compensation; they wanted to be able to furlough workers in bits and pieces, one day at a time, and not have to pay unemployment. When Local 6000 officials refused, the state went to the UAW International, which signed a letter of understanding forcing non-consecutive furlough days on every UAW state employee in the state of Michigan. The International, in other words, changed the Local contract unilaterally, without the right to do so, and without bringing it back to the bargaining committee or the membership for approval.

UAW state workers immediately barraged the UAW International officials with furious phone calls, emails and letters denouncing this betrayal. The International official who had signed the letter, Jimmy Settles, feeling this heat, claimed he would not do anything like this again, saying, “The Local’s position is my position.” Actions, however, speak louder than words, and it didn’t take long for International officials to support the governor’s demands for big concessions – against the union workers.

In February 2010, state officials demanded the reopening of union contracts to create a two-tier health care system in the state, under which new hires will get a very inferior medical plan. All unions at first refused to accede to the demands for more cuts.

But then the leadership of SEIU Local 517M broke ranks and agreed to those cuts.

And what a coincidence – the SEIU bureaucratic apparatus that pushed the concessions had just received a big tax break from the state on a new building where it will run a consulting business!

Soon after that, another small union, the MCO – Michigan Corrections Organization, the union for prison guards – voted to accept the concessions, despite some resistance.

Confronting the resistance on the part of its major unions, UAW Local 6000, MESA and AFSCME, the state threatened to impose ten more unpaid furlough days for 2010, and to apply one furlough day every two weeks for half a year. This would amount to a ten-percent pay cut for each paycheck during that period, with no decrease in workload – since the work doesn’t go away, state workers would have to do more on each of the other nine days of every two weeks.

On the other hand, the state officials, aided again by the UAW International, presented the two-tier health care as something that would not affect current workers – just future workers. UAW Local 6000, with 17,000 workers scattered across the entire state, exists in a big bureaucratic structure that has no provision for mass meetings to learn of contract proposals and discuss what to do before voting. The demands are simply presented with a mail-in ballot. Even so, members of the local’s bargaining committee who opposed the concessions fanned out across large portions of the state, holding meetings day after day in local workplaces, to which large percentages of the workforce turned out.

Many workers clearly did not like the concessions; but presented with a choice between a ten-percent pay cut and a health care cut for future workers, the vast majority of UAW workers decided not to vote. The overall turnout was very low – much lower than previous contract votes had been. UAW workers seemed to be feeling that they had two bad choices – so why bother to choose? The workers who didn’t vote saw no way out, but they refused to vote to attack future workers. And even though the concession did pass, the no-vote percentage was much higher than it had been previous times.

And in union elections held soon after, the workers voted overwhelmingly in favor of the candidates who had opposed the concessions – and against the candidates backed actively by the International, which had pushed hard for the concessions. If workers could not see a way out of this “damned if you do, damned if you don’t” trap, they voted for representatives who clearly stood against the contract concessions.

Another Result Is Possible

Workers’ level of militancy and determination in the next period will determine whether they can push back this new round of attacks and gain back the ground that has been lost. Certainly the situation means that every worker is under attack, which means that state workers could have allies among other public workers and workers throughout Michigan in a fight against concessions and for jobs. Just in the Detroit area alone, the past year has seen demonstrations by city workers and teachers, not to mention the vote of Ford workers against planned cuts in their wages and benefits. Public workers at all levels, auto workers and the unemployed all have a reason to find a common cause.

And there IS something that workers could impose. It is outrageous that the state gives its money away to major corporations, while working people remain without work and income. The profits of the corporations could be tapped and used to truly create jobs: to directly hire people, to rebuild the state’s crumbling infrastructure, and to produce the services that state residents so desperately need. Much more could be spent on social programs, putting money directly into people’s pockets – money that people then could spend on needed goods and services, creating a demand and even more jobs to fulfill that demand.

Certainly, Michigan workers alone won’t throw back the whole capitalist class, bankers and all, but they could get things going and draw other workers behind them.