Textbook economic thought based on the religion of tax cuts continues to break all bonds with reality.
During the George W. Bush administration, we experienced two unprecedented tax cuts, unimaginably low interest rates, and the economic boost of two-long-term wars. Under fundamental economic thought, that combination of factors would lead to an overheated economy and a return to high inflation rates.
Of course, none of that happened. Studies have shown that the tax cuts provided little change in the economy while drying up revenues for government services. In fact, as the economy approached the abyss in 2008, the Bush administration tried directly sending every American taxpayer a $600 rebate check, $1,200 for couples who filed jointly.
It didn’t work.
Yet, despite all the mounting evidence to the contrary, some Michigan Republicans in the Legislature are pushing a proposal to eliminate the state income tax. No replacement for the billions in lost revenue is attached to the plan.
According to a new poll, voters aren’t buying it. The survey by Lansing-based EPIC-MRA found that voters oppose eliminating the income tax by 74-16% margin. Some 45% are “strongly opposed.”
The chief architect of the plan, state Sen. Jack Brandenburg, R-Harrison Township, said recently that seven states levy no income taxes and Michigan should become the eighth. He wants to gradually reduce the Michigan tax down to zero. What Brandenburg didn’t consider is that some states without an income tax, such as Florida, enjoy huge tax revenues based on tourism. Others, such as Alaska, receive considerable state revenues from the oil and gas industry.
The EPIC-MRA poll found that even in areas of the state most favorable to President Trump, the idea of eliminating the income tax is a bust.
In Macomb County, Brandenburg’s home turf, 66 percent of voters said they were opposed to this type of legislation; only 16 percent supported and 18 percent were undecided. In northern Michigan, 69 percent of respondents opposed, 16 percent supported and 15 percent were undecided.
The survey was commissioned by the Michigan League for Public Policy, which advocates for the poor and low-income families. The MLPP requested a secondary “push poll” question which told respondents that the income tax levy funds 40 percent of the state general fund and school aid budget, and eliminating those revenues “would mean cutting support for local schools, closing universities or requiring higher tuition, and cutting health care for poor children and the disabled.”
After hearing that statement by the pollster, opposition was even more overwhelming: 81 percent of Republican voters, 90 percent of independent voters, and 94 percent of Democrats.
“If lawmakers really want to help the people of Michigan, they should listen to what they want. Those saying tax cuts will improve our economy are ignoring reality—and their constituents,” said MLPP CEO Gilda Jacobs, noting that the state’s overall tax burden now ranks 36th in the nation, according to state officials. “We’ve tried tax cuts to boost our state’s economy and it hasn’t worked, and the people of Michigan clearly see that.”
At the Michigan Future Inc. research group in Ann Arbor, President Lou Glazer has repeatedly warned that the lure of tax cuts should be tempered by the experience in Kansas, a state that has become the poster child for failed economic policies which rely almost entirely on lower taxation.
Kansas has experienced arguably the worst state economic performance since the end of the Great Recession while also experiencing catastrophic cuts in state services. Nonetheless, Glazer wrote recently, GOP legislators in Michigan are “hellbent on replicating the failed Kansas playbook.”
The nonprofit, nonpartisan Michigan Future Inc. made the case again today that two high-tax states, California and Minnesota, have fared among the best in the nation in their post-recession economic recovery because they invested in education and infrastructure and have established “knowledge-based” economies that attract young professionals.
Barry Ritholtz, founder of Ritholtz Wealth Management, summarized last fall in a Bloomberg column why Kansas has experienced such a contrary path after cutting state incomes and business taxes:
The results … haven’t been very encouraging. Indeed, since the tax cuts were passed, almost nothing has gone as promised in Kansas. Revenue plunged and the state resorted to pulling money out of its rainy-day fund to plug the holes. A number of critical services, including for road maintenance and schools, were cut. The business climate has been poor, and the economy has lagged behind neighboring states as well as the rest of the country.
… The math is simple: Tax cuts tend to reduce revenue, in Kansas’ case much more than expected. To change people’s behavior requires more substantial incentives than changing things by a few percentage points. The reduced revenue led to spending cuts that lowered quality of life. In response, rising numbers of people and companies have left the state.