MI's Flat Tax Debacle: Poor Pay More, No One Wins

Yesterday, everyone was sharing Stephen Henderson's column that made the very unsurprising point that: (a) Michigan's tax burden was shifted from business to people, specifically people who can least afford to shoulder it, which led to (b) no measurable positive impact on the growth of the state's economy.

People pay more.

Businesses pay less.

And the jobs picture is still clouded by slow growth and unemployment.

Four years into Gov. Rick Snyder's first term in office, that's the net effect of the signature tax reforms he pushed through the Legislature in 2011.

Snyder's plans relied heavily on the premise that lower taxes for businesses would create a stellar turnaround, ending the depression that gripped the state when he took office. And many of his changes made good policy sense.

They made sense only theoretically, and only if you didn't jibe them with how we understand a market-based economy to work and didn't look back on 30 years of this theory being put to practical effect in shaping how tax and spending policy works at the federal level.

Back before it became the "in thing" that everyone knew was going to work aaaaaaany second now, George H.W. Bush called it something very different.

The problem is that the idea that you spur growth by cutting taxes for the top earners is still taken on such faith in our media and political elite circles that Rick Haglund's column yesterday about why we should look at a graduated income tax was greeted with a sigh of relief (as in, "Finally, someone said it!") in some corners and ignored in others.

The last time we talked about a graduated income tax in this state was just last decade, during the 2007 budget showdown. Someone brought up a graduated income tax as an alternative to a hike in the flat rate, and Mike Bishop said it would prompt all of our rich people to flee for Florida because, well, "goin' Galt." Nobody bothered to ask him whether he was basing that on hard data of some kind or just because the idea of a graduated income tax bored him, and it was dropped until Haglund's column yesterday (the Michigan League for Public Policy trots it out every so often, but that's a lobby for poor people so no one pays any attention to them).

How entrenched is this idea? We're about to send Bishop to Congress.

The first step to reversing this denial is to stop pretending that there is anything interesting to an idea that further cuts taxes for the wealthy while hiking taxes on the working poor. For instance, the belief that business taxes had to be eliminating on a wide swath of businesses because the owners paid income tax at the end of the year and we needed "tax fairness" is hilariously awful.

If you own a storefront that gets broken in to, the police still show up and they draw tax-funded paychecks. The idea that paying for police and fire protection aren't legitimate business expenses is silly. But, that's what we got.

We have 30 years of experience on whether there was going to be an actual payoff to our benevolent overlord's tax shift. It was at the federal level, and there the data shows that, no, cutting taxes for the wealthy doesn't stimulate economic growth all that much.

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