Does Michigan Have Europe's Disease?

Rich Lowry reports on Michigan:

It has long been the only state with a European-style, value-added tax — the Single Business Tax. A company can be in bankruptcy and still have a tax liability, making Michigan a bad state even to lose money in. In a 2002 filing for relief from the tax, General Motors explained that it would operate at a loss, but one of its projects would still create a $7 million-a-year tax liability.

Michigan recently repealed the Single Business Tax effective at the end of 2007, but has punted the decision about how to replace it. A relative moderate, Gov. Granholm has resisted general tax increases, but levied new fees, sin taxes and other “revenue enhancers.” The state still insists on trying to target tax incentives and other special breaks to favored businesses, in a doomed replay of 1970s-era industrial policy.

Meanwhile, unions make the state an inhospitable place to do business. A company can be bankrupt in Michigan and still face threats of a strike, as Northwest Airlines and the auto-parts maker Delphi have learned. Michigan’s unionization rate of 21.8 percent is much higher than the national average of 13.5 percent. This accounts for it having the second-highest unit-labor cost in the nation, according to the Mackinac Center. States with right-to-work laws, and consequently less unionization, experience more growth and create more jobs, at the expense of troglodytes like Michigan.

It used to be that unions could force unnaturally high wages and benefits on U.S. manufacturers, and the costs would be passed along to consumers. Those were the days prior to globalization when the U.S. auto industry had a lock on the domestic market and experienced little international competition. It was inevitable that Michigan would find the new competition disruptive, but not that it would react to it so poorly.

Unions mean artificially high costs.