Snyder’s Depression Mode

Rick Snyder hasn't a on tax cuts = JOBS clue: If you don't want to be clued in, don't read this:

"Neither the State of Michigan nor the federal government is broke. The federal government has no problem borrowing money at very low interest rates, and state and municipal bonds have a default rate of 1 percent, in contrast to corporate bond default rates of 14 percent.

"In addition, the untapped potential for tax revenue for both federal and state governments is enormous. The marginal rate of income tax on the wealthiest Americans has dropped from 94 percent in 1945 to 50 percent in 1986 to 35 percent on incomes over $373,650. A modest surcharge of just over 5 percent on incomes over $1 million would raise $50 billion a year for the federal government without any perceptible drag on the national economy.

"A similar scenario is valid for Michigan's state government. State and local governments collectively throughout the United States have a total outstanding debt of less than $2.5 trillion, compared to the $14.2 trillion debt held by America's financial industry and the $11.1 trillion debt held by the nation's non-financial businesses (Floyd Norris, "A Shift in the Balance of Debt Obligations," The New York Times, March 19, 2011). So much for the argument that state governments should be run like a business."

This insight above is from a column by Keith McClellan in "Unintended Results of Governor's Budget."  His is an independent voice, one of the many not controlled and manhandled by the Mackinac Center for Public Policy.

So as Nerdly Snyder presses ahead with his plate of left-overs from his gaggle of Englerites and hangers-on, such as Flanagan and Dillon, the Michigan corporate press drones on about Michigan's budget problems with the same old same old from the Mackianc Center and Prof. Wolfram & Co. They act as though they've never seen a projected Michigan state deficit of just over one billion (that's a big number alright), but Engler faced a similar number at the start of his tenure, and Engler (all thought of it suppressed) left one equally as large for Jennifer Granholm.

Michigan is trouble, that is true However, Snyder's harsh reactions may make it exponentially worse.

Here are some of the reasons for Michigan's economic fall off, taken from McClellan's article:

1.) National economic recession

2.) The extended mismanagement and decline of the American automobile industry, which was centered in Michigan and for nearly a century was the economic engine for the state

3.) Michigan's reliance on a sales tax and a low, flat income tax rather than on a graduated income

4.) Tax shifting - with all of its loopholes, exemptions, and carve-outs - which has placed a disproportional tax burden on the individual income of middle-class taxpayers. These structural problems make tax collection vulnerable to economic fluctuations, while concurrently reducing taxes on those who can most afford to pay higher taxes - the very wealthy and the corporations that are shifting jobs and resources outside the country.

The first two items would garner near unanimous agreement, it's the next two that are solvable, but not by Snyder and Company who have set their partisan canines against new or different taxation. On that account, McClellan suggests Michigan's "structural problems cannot be solved by budget and tax cuts, and are likely to exacerbate economic inequality. The unhealthy financial inequalities that resulted from the tax cut policies of the Reagan and Bush administrations contributed to the economic meltdown of 2007-8 and significant additional unintended problems.... Ergo, some of Governor Snyder's tax changes, such as eliminating the Earned Income Tax Credit, are likely to create notable and expensive adverse, unintended consequences."

McClellan torpedo's the Mackinac Center's most threadbare, oft repeated mantra:

"Claims that high business taxes impede job growth in Michigan are unfounded. In truth, Michigan has a below national average tax burden on businesses." 

Those who have researched this, know it. Corporate media has no interest it making such a fact known, out of economic self-interest.

The impact of Snyder's massive tax shift and "gift-outright" to his business supporters and cronies is without adequate assurances that the end result will be worth the potential harm, disruption, and human cost festering in the Nerd-O-Nomics that are to be forced on the elders, the poor, and the children of school age and college students.

McClellan sends up a sober and important warning. Things may go wrong, worse yet radically bad wrong. The result may be a serious deterioration of Michigan's economy and commerce. How so?

Keith McClellan explains:

"We have been assured that spending cuts in public sector budgets will result in greater business confidence that will produce more jobs. But this has never proven to be the outcome in any country that has pursued harsh austerity spending cuts. Instead, this (Snyder) policy prolongs underemployment and unemployment and their side effects.

"One of the primary symptoms of an economic recession is the lack of consumer demand that results from unemployment and underemployment, the reduced value of assets, and the fear that savings will run out. The unintended consequence of cuts in government spending is a further reduction in consumer demand, increased unemployment, and a decline in tax revenue.

"This is particularly true when government cutbacks and tax policies deprive lower middle class and working poor employees and retirees of income.

"Cuts in teaching and other government jobs also affect female employment more severely than male employment."

Caution, Rick Snyder may be marching Michigan into Depression Mode.


Original Post.