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Mon April 18, 2011
Rolling the Dice
We in the media have been paying a lot of attention to Governor Snyder’s attempts to push his program through the legislature. Mostly, we‘ve been preoccupied with the mechanics.
Last week, we talked about his compromise on the pension tax. Soon, we‘ll be discussing what seems likely to be the governor’s success at cutting spending for the schools. Occasionally, we remember to mention the reason for all this painful budget slashing.
Which is that the governor wants to give business a huge tax break, on the theory that this will promptly bring a flood of new jobs flowing in to the state. The hope is that a rising tide of employment will lift all our boats, tax revenue from the newly employed workers and businesses will flow into state coffers, and all will be rosy again.
This is, by the way, what Rick Snyder pledged to do when he was running for governor. And he can certainly argue that he has a mandate to do so; he won a solid fifty-eight percent of the vote. However, there’s a question few have bothered to ask.
Or maybe I should say, dared to ask:
Will the tax cut really work? And how long will it take?
Kyle Melinn, the editor of the non-partisan MIRS, or Michigan Information and Research Service newsletter, did ask that question in a column last week. Quote: “Who’s to say businesses won’t simply use the money to buy more equipment, update their technology or make other improvements that they’ve been putting off for years?”
He added, “Business owners, many of whom have been taking reduced salaries during our state’s prolonged recession, may treat the state tax relief as their personal payday.”
True enough, Melinn is neither an economist nor a businessman. But some who are also are skeptical. He quotes Mitch Bean, director of the non-partisan House Fiscal Agency, who says “the idea that somehow this business tax would automatically create jobs in Michigan is nonsense.” Mayor Dave Bing, himself a successful businessman, told me a few days ago that while the tax breaks will help in job creation, nothing was going to happen overnight. Even the governor himself seems to be dialing down expectations. He told a regional chamber of commerce gathering in Lansing recently that he “can’t guarantee results.“ With equal caution, Lieutenant Governor Brian Calley said this month that “we do believe that our plan will create an environment that is likely to encourage job growth.”
That may be so, and virtually everyone thinks the old Michigan business tax was a failure and some tax relief was necessary. But if it does indeed take a long time till the new jobs appear, how do we fund schools and keep our infrastructure up in the meantime?
MSU Economics Professor Charley Ballard thinks we could raise the state income tax to 5.5 percent with essentially no negative effects. He would use that money to repair our crumbing roads and bridges and invest in early childhood education.
Which makes a good deal of sense, even in terms of attracting desirable businesses. Every successful gambler the Old West ever knew believed in hedging his bets. I’d feel a little more comfortable if Cool Hand Snyder would just do the same.
Business Tax Breaks