Skip to comments.A New Financial History of Detroit
Posted on 09/17/2013 11:31:52 PM PDT by JerseyanExileEdited on 09/17/2013 11:50:50 PM PDT by Sidebar Moderator. [history]
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What the Detroit Free Press did...is probably the only investigative journalism that I’ve seen in the past ten years out of the US.
It’s a five-star....requiring at least an hour to read over, analyze, and reach some startling conclusions.
First, when property values start to slide with momentum...either you react as a city, or you create a secondary wave that will be even worse.
Second, when you sign on as a city to pay higher healthcare costs and pensions....it’s another wave that you will face in ten years (the statistics that DFP displays proves this in rich detail).
Third and final....throughout the 1970s and 1980s...there were minor steps that the city of Detroit could have taken...which would helped to avoid where they are today. In each case, they simply looked away, and did nothing. A decade ago....is when five-star corruption arrived and really gutted the cities remaining financial assets....that was the concrete for this mess to exist.
I’d put the DFP up for a national journalism prize. It’s the last newspaper with real investigative capability.
So how, with 4 tax hikes, can the city income fall?
The chart on taxes is most telling, because property taxes in Michigan are used to pay for schools. Detroit arguably has the worst school system in the nation (if not civilized world) and that’s primarily because while revenues for schools were falling, teachers and administrators were getting a bigger and bigger chunk of them every year and contract cycle. Falling property taxes and the educrat bureaucracy meant less money for the kids. It’s why just a few years ago, stories were being done about kids having to bring their own toilet paper to school because the district couldn’t afford it.
The bottom line is the “takers” (unions and other parasites) raped and pillaged the city and left it for dead.
“So how, with 4 tax hikes, can the city income fall?”
Fewer people paying taxes. The fall of property taxes tracks with the flight of people and businesses from the city.
“So how, with 4 tax hikes, can the city income fall?”
Perhaps that’s an obvious rhetorical question, or sarcasm, but I’ll treat it as an honest question since a surprising number of voters and politicians in this country just don’t get it.
An increase in the tax RATE in no way guarantees an increase in tax REVENUE. This is one of the amazingly simple elements of economics that seems to get overlooked, a lot.
Imagine if we had a 99% tax rate. Think what your budget would look like if the government took 99 cents out of every dollar you made. How many new cars would you purchase? How many times a month would you eat out? How many new consumer electronics would you purchase? How many homes would you buy in your lifetime? How would you budget for your children’s college education?
Well, if everyone in the nation is burdened with an excessively high tax rate, consumer spending decreases. Auto manufacturers start posting losses, and then start laying off employees and closing down, which results in fewer people earning wages to be taxed and fewer corporations earning profit that can be taxed. The companies that supplied resources and services to those companies will soon be laying off employees and closing down as well.
People spending less on luxuries like fast food or restaurant visits would result in lower profits (and fewer taxes paid) and eventually layoffs and closures which also result in fewer taxes being paid. Home prices would collapse, as well as the construction industry. Over decades, the reduced access to technical training and higher education would reduce the earning potential of potential new taxpayers.
Eventually, economic growth starts grinding to a halt, and even reverses. At the end of it all, 99% of a 0$ paycheck is still $0.00.
The fact of the matter is, your expenses and discretionary expenditures are someone else’s revenue. If you have to lower or eliminate your discretionary purchases, and reduce your expenses, due to an increase in government taxation the industries that rely on you and people like you as customers will suffer. When those industries suffer, jobs are lost and tax-paying businesses close their doors.
The result is not only less money for consumers, corporations, and eventually the government, but also a reduced standard of living, a slow-down of technical research and innovation, and eventually even a backward slide in life expectancy (which we’re already seeing in a few socio-economic categories). Without money for private research, you’re not going to be getting iPhone5’s and Google Glass. Without money for private research, you’re not going to be getting new drugs like Viagra, statins, or SSRI anti-depressants. Everything the government does to retard the growth of the economy takes technology, health, and years of life away from your children and grandchildren.
The quickest surest way to destroy an economy is to keep raising the tax rate. The quickest and surest way to stimulate the economy is to lower the tax rate. These twin facts are the reason that tax hikes tend to reduce tax revenue, and tax cuts tend to increase tax revenue. This is easily demonstrable with a quick, cursory examination of history - Reagan effectively halved the federal tax rate by cutting key categories significantly, and within two years the tax revenue doubled due to the massive economic growth caused by simply letting people keep their own goddamned money. Further, the transformation of the Republic of Ireland from one of Europe’s poorest nations into one of its richer nations over the span of a decade (the Celtic Tiger) was the result of a very wise and very limited tax policy.
Even ignoring the more onerous effects that government spending have upon an economy due to waste, corruption, inefficiency, the crowding out of private capital in the debt and equity markets, and lowering the velocity of money, it’s easy to see that government is best which governs least(and taxes and spends least).
However, if you want to turn your nation into a third-world-shithole within a generation, then taxing heavily while likewise going into debt is a sure-fire recipe.
“...if you want to turn your nation into a third-world-shithole within a generation, then taxing heavily while likewise going into debt is a sure-fire recipe.”
Taxing, spending, and borrowing are the three ingredients required for economic collapse, and the Feds excel at all three. The country is about to go the way of Detroit.
This is a terrific bit of journalism.
Yes, the story is pretty clear. If you don’t offer people a good bargain in terms of the taxes they pay and the services they receive, those who can will leave.
The ability to commute contributed to the demise of Detroit (which is ironic). Detroit along with many other “old” cities in the U.S. have collapsed. But, not all. And, outside the U.S., in Canada and Europe, we don’t see this happening.
For a time, New York City was in decline. Then came Rudy and things dramatically turned around. All things considered, Bloomberg has been a fine mayor. But, what’s going to happen when a stark raving progressive socialist takes over?
A couple take-aways:
Cities should be required to adopt “defined contribution” pensions for their workers; and, should be severely restricted in their ability to borrow. This way, all costs are borne by those who receive the benefits they seek from their municipal government.
Cities should focus on the police function of government. Maintaining law and order, so that people can gain the advantages associated with high population while law and order are maintained.
Relying on local taxes for education and welfare is potentially the death of cities. Once you reach a tipping point in tax rates, cities rapidly lose their tax base.
In rural areas, there are a lot of props for public schools. Without speaking about the advantages enjoyed by public schools in rural areas, I’ll just say the big city public school systems suck. On the other hand, population density and diversity make parental choice a real option. So, state-financed vouchers is a good option for financing primary and secondary education for big cities.
With regard to welfare, this should be folded into our income tax system. People at the low end should receive non-cash benefits from the government (such as food stamps and health insurance subsidies), lose these benefits as they have income and assets until they come to a break-even point, after which they start paying taxes. The rate of losing benefits and the rate of paying taxes should be at the very most 50 percent, but let’s see if we can make a lower number work, maybe 20 percent.
Read another article here yesterday where there was about a 47% uncollected tax base amounting to billions...
Curious thing about urban cities. The mayor, the councilmen, aldermen, et al think that it is “constituent maintenance and goodwill” to keep the city’s tax collectors from foreclosing on voters’ homes in their areas because of delinquent taxes. This is a regular thing in Atlanta and there have been newspaper articles about it.
The national government has a big advantage over Detroit: they can legally print money. So we’re more likely to end up like Argentina than Detroit.
“Perhaps thats an obvious rhetorical question, or sarcasm...”
It’s not either, although I have a general idea of it I have learned that when, instead of presuming I know something, I often learn more when I blatantly ask a question to clarify it.
And yes, I did learn from your answer. Thank you:)
The more you look @ it Pepsi, the more it looks like Obamacare was to Off-load AFSME and all the other Employee Union's Legacy Cost onto Uncle_Sugar so the Unions can live to fight another day and focus on the power that really matters to them, Managing their Pension Funds.
This was Obama's Gift one of many to the Unions, and Snyder in Michigan's way out getting out the liability as well rather than go with the Colbeck Free-Market Alternative.
As a Michigander, I can't pull the lever again for Snyder with the Expansion of Medicare, he can go pound sand...