Michigan Shows That Supply-Side Econ Also Works When You Raise Taxes….
…. but in the wrong direction:
….. the latest news of Michigan’s deepening budget woe is a national warning of what happens when you raise taxes in a weak economy.
Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan’s biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state’s tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be “invested” in social spending and new businesses and lead to a Michigan renaissance.
Not quite. Six months later one-third of the expected revenues have vanished as the state’s economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state’s transaction tax on home sales.
When a government increases taxes on economic activity, it gets less of it, meaning that tax collections come in lower than expected, e.g., Michigan.
When a government cuts taxes on economic activity a bit, it gets a bit more economic activity, meaning that the expected reduction in tax collections ends up not being as high as expected.
When a government cuts taxes by enough to really matter, its get lots more economic activity, often to the point where tax collections end up being higher — sometimes a lot higher — than they were before, e.g., the 2001 and especially the 2003 Bush tax cuts.
Yet the reality denial by those who believe they can tax us into prosperity, like Michigan’s Granholm (and in Ohio, former Governor Bob Taft and the go-along General Assembly that cooperated with him), never stops.
This is especially true when you consider what the tax increase was meant to be spent upon. In the real world of business when you make an “investment” you do so in order to reap a profit or monetary gain. When you read the WSJ article, the Dems used the euphism of “investment” to mean spending more on social programs that supposedly at some ill defined point in the future will reap a monetary reward or at least spending LESS on services. As long as we allow Dems to fraudulently misuse business terms such as “investment” to bamboozle the public, they will find some way in which to fund their vote buying scams. In the history of “investments”, as they have defined social spending, has any Dem inspired program actually shown a monetary pay off or reduction in government spending??????
Even welfare reform I submit was a ruse to deceive the public as to the numbers of people dependent on government hand outs. Have the actual numbers of people receiving a hand out decreased???? NO!!!! they just parceled them out to a wide variety of other government programs to the tune of some $500 billion a year. Welfare reform was a FRAUD perpetrated upon the American Taxpayer initiated by BJ Clinton, the chief of the flim-flam artists!!! Ask yourselves the question, why are we increasing spending by Billions of dollars more every year on social programs when supposedly the numbers of people receiving TANF are shrinking every year?????? We have been lied to by the Dems for vote buying scams and the cowardly liberal Repubs like McCain who haven’t the guts to stop the Dems in their tracks least they be accused of being heartless Repubs.
Comment by dscott — May 28, 2008 @ 2:54 pm
#1, I agree with the first para, and disagree with the premise of the second.
Welfare reform has taken about 3 million families and 8.5 million recipients off of that particular dole. Very conservatively that’s about 30 billion (at 10K per family) in benefits not being paid out. The vast majority of the 3 million are working, and generating probably $75 billion a year towards GDP (at $25K per person, including fully-loaded taxes, benefits, and employer profit). That’s a $100 billion swing. Since a lot of that happened in 1997-2000, I would suggest that it was an important contributor, along with cap gains reduction, to the prosperity of those years (until fall 2000).
While it’s true that Food Stamp rolls have gone up and there are other goodies being disseminated, I don’t believe, except for basket case CA, that they have done anywhere near enough harm to offset the positives of welfare reform.
You are probably correct that the number of people receiving handouts is greater (i.e., Food Stamps, section 8, etc.), but I believe that the total amounts involved, esp the amounts per person, are lower (again, except in CA). You also have to remember that AFDC recipients were mostly doubling up and getting Food Stamps too.
Where you may get me with a comeback argument is Medicaid, which I consider a huge problem, but, perhaps artificially, separate from the govt’s provision of food, everyday living expenses, and shelter. But again the 12 million AFDC recipients, IIRC, had first-dollar medical coverage of everything.
Comment by TBlumer — May 28, 2008 @ 4:09 pm
Michigan has been run straight into the ground by Democrats. why do they keep electing them?
Comment by Ben Keeler — May 28, 2008 @ 4:43 pm
#3, see my answer at Nix’s place.
Comment by TBlumer — May 28, 2008 @ 5:45 pm
I am one of the unfortunate souls under the wheels of Great Society Leader Comrade Granholm and Great Ghetto Grandmaster Kwamikaze Kill-patrick. Michigan is a complete trainwreck and people are the most hopeless I have ever seen in almost 50 years of living here. High taxes got higher, wages are lower (unless you are a parasite on the public trough-government employees are ALL getting raises, gold-plated benefits, early retirements, double-dipping after retirement “rehirement” and collecting TWO paychecks,) extorting millage, bond, levy increases through stealth “elections”, etc. while folks in the private sector are laid off, outsourced, downsized, and can’t pay bills or feed their families with increased cost of gasoline, utilities, insurance, etc. while abandoning homes. Let these buffoons be a national shame and an example of what is coming YOUR way when you vote for Statism.
Comment by Ben Dover and Phil McCracken Michigan — May 30, 2008 @ 8:56 am
#5, if there’s any good to come from your pain, that would be it. It should never have come to this point, though.
Comment by TBlumer — May 30, 2008 @ 9:28 am