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ECONOMIST: CLINTON TAXES WOULD HURT MICHIGAN MOST

 FARMINGTON HILLS, Mich., Feb. 18 /PRNewswire/ -- Patrick Anderson, an expert on the Michigan economy and senior policy analyst with Mackinac Center, presented a grim picture of the impact on Michigan of the tax increases outlined by President Clinton Wednesday night, but agreed with the president that spending reductions would aid the economy.
 "The tax increases proposed by President Clinton would not affect all states uniformly," said Anderson, "unfortunately, they would hurt Michigan's economy worse than almost any other state, given our manufacturing emphasis, cold weather, and concentration on durable goods like automobiles for export to other states. On the plus side, a reduction in the deficit would help Michigan, but that is only likely if true spending reduction is achieved. Unfortunately, the president was much less clear on spending reductions than on tax increases."
 Anderson highlighted how the president's plan would affect Michigan's economy:
 -- The "energy tax" would hit homeowners the most in cold-weather states like Michigan, and those whose primary industries are heavy energy users. Michigan's manufacturing emphasis makes it one of the top energy-using states in the nation. "An energy, or BTU tax, would hit Michigan homes hard during the winter, and all year round at our factories," said Anderson.
 -- The energy tax on gasoline would raise fuel prices at the pump, discouraging consumers from purchasing the mid-sized and larger cars that are profitable models for the Big Three automakers. "Higher gasoline taxes push people into small cars. Unfortunately, imports have a larger share of the small-car market, and the domestically made small cars we do sell are not very profitable."
 -- Higher income and corporate taxes mean less disposable (after- tax) income, which translates directly into reduced demand for durable goods like automobiles. "When consumers have less take-home pay, they often postpone the purchase of big-ticket items like cars," said Anderson. "Even though the Michigan economy has diversified, we still rely heavily on the sale of automobiles, furniture and other big-ticket items," he explained.
 -- Positive notes in the Clinton proposal were an investment tax credit, and the possibility of lower interest rates if true spending reductions are achieved. "Michigan's automobile and other industries continue to invest heavily in plant and equipment, and reducing the after-tax cost of those investments will help keep us competitive with other nations. The investment tax credit has a good chance of passing, since it has broad support among both parties."
 "On the other hand, real spending reductions are necessary before we see a decline in the deficit and lower interest rates. In the 1990 budget agreement, tax increases led to more spending and a higher deficit. If federal spending is actually reduced, though, Michigan will be a big beneficiary," he concluded.
 Anderson has authored a number of articles on economic policy for The Wall Street Journal, The Detroit News and Crain's Detroit Business, as well as detailed analyses of tax policy and the Michigan economy published by the Mackinac Center and other think tanks. He is a member of the Detroit Area Economic Forum and both the Detroit and the National Association of Business Economists. The Mackinac Center for Public Policy is a Midland, Mich.-based research and educational organization.
 -0- 2/18/93
 /CONTACT: Patrick L. Anderson, 313-489-4404, or Kurt Weber, 517-631-0900, both of Mackinac Center for Public Policy/


CO: Mackinac Center for Public Policy ST: Michigan IN: SU: ECO

SB-SM -- DE018 -- 8019 02/18/93 15:10 EST
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Date:Feb 18, 1993
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