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Monday, May 12, 2014

For 20 years Michigan has cut taxes with little to show for it

Every society functions at least partly on a set of myths. Sometimes these have been highly destructive. For example, believing you are the master race and everyone else deserves to be slaves has potentially destructive consequences.
America has largely operated on good myths, good because most of them had some grain of truth.
For example, the theories that all men are created equal, or that anyone can become rich or succeed at any occupation they choose. Those ideas have, by and large, encouraged hard work and a belief in the future.
However, there’s another myth too many of us have been blindly following for years, and that’s the belief that lower taxes are always a good thing.

In its classic form, it goes like this: The more you cut taxes, the more business and industry will flock to the state. So much money will pour in that government will take in more revenue even at sharply reduced tax rates.
That’s a wonderful theory, but one that unfortunately has little basis in reality.
True, if you set tax rates too high they are certain to drive away business and destroy any incentive to work. But for 20 years Michigan has been vainly cutting taxes with little to show except poorer public services and considerable damage to education.
Those are the findings of a study released yesterday called the Drake report, named for its author, Douglas Drake, a former head of the state treasury department’s office of revenue and tax analysis.
The study was, indeed, funded by people who have an agenda: a coalition of teacher and school administrator groups and unions, but it is not just propaganda. Its methodology looks sound, and its conclusions are clear.
To quote Drake himself:
“We can see from Michigan results since 1994, or from national data doing back to the Great Depression, dramatic cuts in taxes do not increase prosperity as measured by the income of average citizens.”
What such cuts have meant, according to Drake, is that state and local revenues in Michigan have been cut by a total of $51 billion over the last 20 years. Three quarters of that loss was to education.
The Drake report found that Michigan businesses pay a smaller percentage of the overall state and local tax burden than in 48 other states, and we have virtually nothing to show for it.
Michigan is worse off in nearly every way since the tax cutting orgy started.
Granted, the vast downsizing of the automotive industry was a big part of this as well, but there is more than enough evidence here to support Drake’s claim that "the [tax-cutting] experiment has failed, and we should stop repeating it."
There is some sign that people are starting to get it.
Republicans in the state Senate began talking about another tax cut late last winter before they were set upon by furious constituents.
They didn’t want a tax cut, they demanded the roads be fixed.
If Michigan is ever to prosper, we need services, schools, good roads and quality of life - and just like food, clothing and shelter, that costs money.
But trust me: Civilization is worth it.

Jack Lessenberry,  May 8, 2014

12 comments:

Allen said...

Thanks for your insight. I can't understand why so many have been taken in by Proposal 1. Local communities will be trapped in a system where only the governor's appointees can distribute the newly guaranteed funds, and there is no way to increase taxes. Nobody loses?
Wait 'til next year!

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