Court of Appeals Holds State Cannot Increase Taxes on Civil Service Employees

Okay, so the Court of Appeals didn't exactly say that, but that's certainly one interpretation of the court's opinion in AFSCME v State Employees Retirement System, published yesterday.  And it's a troubling one.

Here's the background:  The State Civil Service Commission has the authority under the Michigan constitution to fix the compensation for all civil service employees, although its decisions can be changed by 2/3 vote of the Michigan legislature within 60 days of the CSC's recommendation.  During the last days of the Granholm administration, the state and its civil service employee unions agreed to a collective bargaining agreement (CBA) that froze hourly wages for the fiscal year 2008-2009, but increased them by one percent for fiscal year 2009-2010 by three percent for fiscal year 2010-2011.  Various resolutions were introduced in the legislature to reject these increases, but none were passed.

Fast forward to 2011, in which the legislature enacted and the governor signed MCL 38.35, requiring a three percent employee compensation contribution to finance public employee retirement health care.

In a series of consolidated lawsuits, the unions and their employees argued that MCL 38.35 was unconstitutional, because it reduced employee compensation and had not been passed by 2/3 vote of the legislature within 60 days of the CSC's recommendation.  The court stated:

In the present case, civil service employees were not given the option of participating in the retiree health care funding act.  Moreover, there is no correlation between the three percent reduction in compensation for individual civil service employee and the contribution into the system.  That is, there is no escrow of the individual’s contribution into a fund for that individual.

So, requiring civil service employees to pay 3 percent of their compensation into the state retirement fund is unconstitutional because (1) it wasn't voted on properly, (2) employees have no option of participating or not, and (3) the individual's contribution isn't escrowed into a separate fund for that employee's benefit.

So what's the difference between the 3 percent contribution and taxes?  Taxes are not voted on according to the civil service schedule and rarely pass with 2/3 of the vote, employees have no option of paying taxes or not, and their individual "contributions" aren't escrowed for the employee's benefit.  According to the court's reasoning, therefore, any tax increase not voted on within 60 days of a CSC recommendation and passed with 2/3 of the vote is unconstitutional.

How does the court answer this?  With one sentence:

Taxes imposed by the federal and state government are standard rates that apply based on income levels.

In the words of Joe Pesci as the title character in My Cousin Vinny, "That's it??"  "Standard rates that apply based on income levels"  -- that's your reasoning?  How does that even relate to the issues here? 

The CSC set the compensation levels.  The legislature did nothing to change those levels, other than order a deduction for retirement savings.  That does not change the total compensation ordered by the CSC.  If it does, so do taxes.  The court is clearly wrong here, unless it also believes that civil service employees are exempt from tax increases unless the legislature enacts them by 2/3 vote within 60 days of any CSC recommendation.  Of course, the court won't go that far, but that is the inescapable conclusion of its opinion.

The only way out of this box is to say, as the court tried but could not bring itself to say, that taxes are different.  No reason, no logic, just a statement, as though it is axiomatic:  taxes are different.

By the way, of the three judges on this panel, one was elected and two were appointed by Granholm.  All were Democrats before assuming their non-partisan positions on the bench.

Accounting for the Tax Cut Extension Compromise

Not a long post today, just something that bugs me.

Some people are assailing the just-announced compromise on extending the Bush-era tax cuts, complaining that it will cost the government hundreds of billions of dollars.

This is sheer nonsense or, as we say, sophistry.

Keeping tax rates the same means that the government will continue to extract the same percentage of income from you and me that it has taken in the past. Thinking of that as "costing the government money" is to argue that it is the government's money to begin with.

Get it?

Taxes cost US money. Keeping taxes where they are does not "cost" anything.

Maintaining tax rates at their current levels "costs" the government the same way that steel vaults "cost" bank robbers or alarms "cost" car thieves.

Shovel Ready? Oh. Never Mind.

The centerpiece of The One's economic "stimulus" program was financing for infrastructure improvement nationwide, the idea being that needed roads, bridges, and buildings would be built or repaired, creating jobs and boosting the economy. Many experts, including the Congressional Budget Office -- hardly a bastion of conservatism -- disputed The One's absurd claims of job creation and preservation, pointing out that much of the proposed spending would not happen until 2011 or later.

The One and his minions countered that there are many, many, many projects that are "shovel ready," needing only the cash to get things moving. This cash, they promised, would be funneled through the states and all would be rosy.

Not so fast. As it turns out here in the Enchanted Mitten, our governor has decided not to put the shovel in the ground and has cancelled 137 projects worth $740 million, on the grounds that Michigan does not have the cash.

So, where's the stimulus money? Why were these projects, presumably "shovel ready," scheduled in the first place if the money wasn't in hand? How much have we lost just getting these 137 projects to this stage?

I have a good idea -- let's shut down state government for 9 weeks, just like GM is being forced to do. That should save us roughly 9/52 or a little more than one-sixth the annual cost of state government, about $7.5 billion. Isn't that enough to address our cash flow problems?

Look, I know this is an overly simplistic approach, but isn't it better than leaving the entire machinery of government in place while the governor and her pals slap band-aids on our hemorrhaging economy?

The Lessons of Baseball

Baseball is a miracle. How could Alexander Cartwright have foreseen that 90 feet is the perfect distance between the bases, that 60 feet, 6 inches is the perfect distance from the mound to the plate, and that three outs per team per inning over 9 innings is the perfect length for a game? And yet, when Mr. Cartwright, the Father of Baseball, established the rules of the modern game, he created a sport unlike any other -- a perfect blend of speed, strength, and strategy.

Watching my son's team play a doubleheader this past weekend, I reflected on the nature of baseball. The rules are the rules, and they are followed, even though there is a human element that intervenes occasionally (a moving strike zone or a bad call on the bases, for example). Successful teams ignore -- or better, overcome -- the human element and continue to play hard, within the rules, giving their maximum effort.

And the effort is a thing of beauty and grace -- nine players in the field moving as one in a coordinated response to the direct confrontation between pitcher and batter. There is always something happening, and each player must fulfill his individual responsibility while at the same time being part of a team that works together.

This is the value of team sports -- players learn teamwork and individual responsibility at the same time, while learning to play by the rules. The rules don't change in the middle of the game.

Now, if only our elected officials could learn this lesson.

Rules, though they may be unwritten, govern our society. Things like "supply and demand," "if you tax something you get less of it," and "do unto others as you would have them do unto you," make a society livable and understandable. Americans are amazingly resilient, and we will adapt to changing conditions, but we cannot change the rules in the middle of the game, and we cannot apply different rules to different people.

Our governor and our president need to remember these truths. Our governor tries to attract business by giving targeted tax breaks, but does not apply that approach to the rest of the state, preferring instead to raise taxes while refusing to rein in spending. Our president will spend hundreds of billions on the financial industry with no accountability whatsoever, but forces the auto companies to jump through impossible hoops, give away ownership, and even then to file for bankruptcy protection. He runs up incredible, unprecedented budget deficits, then decides to raise taxes in the middle of a severe recession. He has decided that he knows what cars Americans "want to buy," just as our governor has decided she knows what energy sources are best for Michigan, cancelling coal-fired plant permits a year or two into the process, dooming us to outrageous energy prices.

That's the irony of what our president and our governor are doing -- they are actually applying the law of supply and demand, but artificially manipulating the supply side of the equation, as I explained previously, and as is evident from the stated purpose of the president's "cap and trade" program (to cause electricity prices to "skyrocket").

It's impossible to play by the rules when our elected officials see rules as something to be gotten around or manipulated, not something to be followed. In baseball, the strike zone varies depending on the home plate umpire. Players understand this, and they will adjust. All they ask is that the calls be consistent and fair.

Is that too much to ask from our president and our governor?

Selective Free Market Economics and the Decline of Freedom

I double majored in economics and mathematics in college, the mention of which causes my wife to roll her eyes and make that finger-in-the-throat gagging gesture. Nevertheless, I'm glad I did the two majors together, as I have used them many times in my law practice. I am also finding them invaluable now, as I watch our society unravel.

One interesting phenomenon that characterizes today's modern Democrats is the way they use free market economics to accomplish certain goals that will inevitably deprive us of more of our freedoms and the way, when it benefits their own pet projects, they successfully use the supply side economics they deride in all other cases.

A couple examples:

Our governor, Tinkerbell, refuses to cut taxes (or spending, for that matter) to make Michigan a more business-friendly state generally. But, when it comes to liberals' most cherished industry -- entertainment -- she had no problem pushing through tax cuts and trumpeting their success in turning Michigan into a Midwest Hollywood. These tax cuts produced an entirely rational and self-serving response from the movie industry -- they moved to where their costs were lower! This must have shocked our governor into paralysis, because she hasn't tried this since, and she shows no inclination to do the same thing for the rest of Michigan's economy.

Meanwhile, in Washington, the One is pushing his cap-and-trade plan for carbon dioxide emissions that he even says will "necessarily cause electricity prices to skyrocket." Gee, thanks a lot. That's just what we need right now. Why is he doing this? Apart from the darkest possible explanations (he wants to cripple our manufacturing base), he obviously wants to drive prices of coal-power generated electricity up so that we will look to other sources of electricity, such as those wonderful windmills and the sun. This is another example of market interference that relies for its success on rational behavior by consumers -- searching for lower cost and hence lower priced power.

While decrying the market, both Tinkerbell and the One use market economics and classical supply and demand theory to manipulate events for their own purposes. Film production tax credits and cap-and-trade depend for their success on the very thing that both of them deplore -- people acting in their own self-interest. When they don't like it, they call it greed.

In the same year our nation was founded, Adam Smith published his magnificent The Wealth of Nations, in which he described the phenomenon of the "Invisible Hand," which holds that if consumers are allowed to choose freely what to buy and producers are allowed to choose freely what to sell and how to produce it, such a free market will result in prices and a distribution of goods and services that benefit all members of a community, and hence the community as a whole.

People are driven by self-interest and the desire to increase their own income and utility (a word economists use instead of satisfaction or happiness, to be measured in utils. Not kidding.). Since the income and happiness of society is the sum of individual incomes and happiness, all benefit from the individual pursuits motivated by the Invisible Hand.

When it pleases them, the Democrats employ the mechanisms of the free market in a twisted and horrific way, but they absolutely refuse to allow the market to work generally, believing instead that they, individually, can make better decisions than the collective result of millions of decisions made by consumers and producers every day. This is arrogance, pure and simple.

Beyond arrogant, though, the behavior is dangerous. Raising the cost of electricity astronomically is the only way to make "alternative" energy sources competitive, but all energy sources will be at much higher prices than they are now, which means consumers and businesses will use less energy, which means less economic activity, which means fewer and fewer jobs and lower incomes for those who are fortunate enough to work. This will, of course, translate into demand for government assistance, intervention, and, like we are seeing now, ownership of what we used to call private enterprise.

Freedom? In the future, it will be a luxury the government won't let us afford.

By picking winners (movies and windmills), the Democrats impose higher costs on everyone else who must pay the added burden. Thus, those who are not winners are, instead, losers. What has our governor done to pick up the auto industry? All we hear is that we are too dependent on the auto industry and we need to diversify. That's fine, but in the meantime, they could use a little help. They're not getting it from Lansing, so they're gradually disappearing, first in Michigan, then it will be the rest of the country, until we don't have a domestic auto industry any more. About that time, Tinkerbell will probably want tax cuts for drive-in movie theaters. Driven by windmills, of course.

Lt. Gov. Cherry -- You're Kidding, Right?

Somehow, somebody somewhere put me on a list to get emails from the Democrats. They are a joy. Consider this one I got today from something called "People for Cherry":

Today, a group of municipal officials became the latest to join "A Whole Lot of People Supporting John Cherry."

"Local elected officials know that we need to make changes in how we operate here in Michigan," Traverse City Mayor Michael Estes said. "Cherry is the most appropriate individual to institute those changes and make them work.

"As a retired teacher, I have been impressed by John Cherry's focus on improving education," said Berkley Mayor Marilyn Stephan. "He has made a difference by helping to increase our number of college graduates."

I love the comment that "we need to make changes in how we operate here in Michigan" and that Cherry is "the most appropriate individual to institute those changes and make them work."

What? You're kidding, right?

Exactly what has our bold Lt. Guv been doing for the past seven years? Oh yeah -- NOTHING! And what changes need to be made? Not specified.

And why haven't these necessary changes been made over the last seven years? Good question.

These empty endorsements are so meaningless they're laughable. Unspecified changes. Increasing numbers of college graduates who promptly leave the state. Higher taxes, bigger deficits, dumber policies.

Remember the days when, if you called something "cherry" it was cool?