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Mon July 2, 2012
Commentary: Growing Inequality
Last week, I talked about the Michigan House of Representatives voting to slash the state income tax over the next six years. I thought this didn’t make a lot of sense, given that the state is having a hard time paying for essential programs now.
Later that day, I talked more about this with the man I think has the best overall knowledge of our state’s economy: Michigan State University professor Charles Ballard, author of the best little book there is on the subject: "Michigan’s Economic Future."
It took me a couple days to track him down; he is teaching this summer at Regent’s College in London. He agreed with me that while more tax-cutting might be politically popular in an election year, it didn’t make sense as far as our state’s future was concerned.
But he also said I should look at the bigger picture. “The best way to think of this is as another part of the biggest trend of our lifetime in the American, not just the Michigan economy,” he told me. “The phenomenal increase in income inequality. The main thrust of the tax cuts, federal and state, has been to reduce the tax liabilities of those at the top of the income scale.”
That means less state revenue, and that leads to more pressure for reduced spending, Ballard said -- “largely on programs that benefit low-and-middle income citizens.”
That, of course, is exactly what we’ve been seeing. In the last couple years alone, cash assistance has been cut off forever to tens of thousands of Michigan children. Unemployment eligibility has been reduced, and the state has cut other programs.
Professor Ballard talked to me before the Supreme Court decision on the constitutionality of the President’s health care plan was known. But he told me, “the folks who struggle most with these budget cuts are those who fall in the cracks of our health care system, most of whom are of modest means. The more affluent among us will still be able to afford health care.”
But increasingly, many other folks haven’t been able to, some of whom still won't be covered. He said, “the pattern of tax cuts for those at the top and spending cuts for those at the middle and the bottom only makes sense if you are comfortable with a distribution of income dramatically more unequal than the one we had 40 or 50 years ago.” And he added, “clearly, a lot of folks on the Michigan legislature are very comfortable with the increase in income inequality.”
Well, as a journalist, I am on shaky ground arguing economics with an economist. But I had to ask: What about the governor’s theory that the way to bring new business and cause new jobs to be created is to dramatically cut taxes? Ballard said, “as an economist who has studied this, I would never say that the responses of the private sector to tax cuts are zero, but they also aren’t huge.”
And, “if tax cuts were really such a surefire route to economic growth, we in Michigan would be doing fabulously.” Yet we are not.
What all this means, the economist told me, was that “when you are in a hole, stop digging,” if you want to get out.
Sometimes, I wonder whether some of our leaders really do.
Jack Lessenberry is Michigan Radio’s Political Analyst. Views expressed in the essays by Jack Lessenberry are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.