Skip to comments.Why Michigan Needs a Tax Cut
Posted on 03/17/2014 6:31:00 AM PDT by MichCapCon
With a projected $971 million surplus for next fiscal year, Michigans Legislature is considering cutting the states income tax rate from 4.25 to 3.9 percent.
The cut would be phased in over time and would be contingent upon the budget remaining in surplus. When fully phased in, this would result in a $170 annual tax cut for the typical Michigan family.
Will such a small tax cut have a major effect on Michigan's economic growth? Recognize first that this is a very small marginal tax cut, so thoughts that this policy alone will bring a new era of prosperity is just wishful thinking.
Still, the vast majority of economic studies confirm that lower tax rates result in faster growth a result that holds for both countries and individual states (see my recent paper in the Cato Journal). Importantly, reducing the tax rate to under 4 percent would make Michigan more competitive in comparison to nearby states, such as Indiana (3.4 percent) and Pennsylvania (3.1 percent), that currently have flat income tax rates well below Michigan's. When labor and capital are mobile, tax competitiveness matters.
But promoting faster economic growth is not necessarily the most important reason to favor the proposed tax cut.
When governments run large surpluses, they have two options: take less from taxpayers or increase spending. While either might seem as good as the other at first glance, the problem is that expansions in government spending are almost never temporary. History shows that government expansions often undertaken during times of supposed crisis almost never return to their prior levels even after the conditions that brought about the expansion are long gone.
Instead, as Robert Higgs documented in his 1987 book, "Crisis and Leviathan," the ratcheted up government becomes the new normal. And in the long run, the economy is worse off since the increase in government spending crowds out spending in the private sector, which is generally more efficient at allocating society's scarce resources.
Returning Michigan's surplus to the taxpayers, rather than boosting government spending, will give the state far more flexibility to address fiscal challenges down the road. Furthermore, the more competitive economic environment that lower tax rates will create will make those future challenges less arduous.
Once again. I love Michigan.
We could love it a whole lot more if they would cut spending.
Yes, indeed - cut spending & ELIMINATE the state income tax - phase it completely out over the next 5 years. The ones who want a nanny state can move to New England or the Left coast. Michigan would turn it around very quickly if that happened.
They owe us, that’s why. Jenny screwed the state up so much we almost became Ohio.
...cause it will really p*ss off those dweebs down in Ohio?
If I were governor I wouldn’t be fixated on green energy and tech jobs. They would be welcome but I would concentrate mostly on inviting good old blue collar manufacturing jobs with tax cuts across the board.
I would be wooing the east coast gun manufacturers with our gun friendly climate, pool of knowledgeable machinists, and relative closeness to the east coast for an easier move.
Quit yer bitchin, you won Toledo fair and square.
Drooling on the keyboard...but we are coming.
Hey, I married a Gander. I live with this every day.
I like your suggestions - a rebirth of real manufacturing is essential to Michigan and the country’s survival. I agree with you on the ‘Green’ energy boondoggle/scam - Every time I drive up US-127 around St. Louis and see all those bloody wind turbines out in the farmers’ fields, I want to screaaaaammm... actually I do really scream. This definitely is not the way to go in Michigan. The energy footprint is way too large and unreliable, not to mention very ungreen when you consider the toxic materials used to manufacture the batteries the turbines need to operate. The truth needs to come out in a big way about ‘Green’ baloney. Perhaps a Seuss book would do the trick.
I think we should get this rhyme going - shall we do it via the Mail function or right here?
I do not like the Green energy scam.
It is nothing but one big Flam.
Wouldn’t fixing Detroit be a priority? I mean try to make it into a Republican area by showing people by bringing in non-union jobs and beautifying the area. I think that Detroit could easily become a Republican area if they tried.
“Michigans Legislature is considering cutting the states income tax rate from 4.25 to 3.9 percent.”
In other words the great gods of the Michigan Legislature
has allowed it to cross their minds that they might allow
it’s hard working subjects to keep one third of one
percent more of their income. Michigoons should fall to their
knees and be grateful of the well intended thought. And vote
No. Detroit is NOT a priority. It’s at the bottom of the wish-list barrel.
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