Wednesday, January 02, 2008

Michigan Republicans wrong on taxation and cuts

Mike Bishop, AP interview, late 2007.

In 2008, Bishop thinks his job could be easier because Granholm already has said she won't raise taxes again.

"You've got to cut. That's a good thing," he said.


Wrong.

People that know what they are doing, Governing Magazine report on state tax systems and how they are failing in the modern economy, January 2008.

It is theoretically possible to use low tax rates to drive economic vitality. Robert G. Lynch, chair of the Department of Economics at Washington College in Maryland, points out that academic studies on tax rates "suggest that state and local tax cuts and incentives may help economic growth, provided that government services are not reduced to pay for the tax cuts."


So, cuts, not a good thing. Tell us more.

But as Lynch makes clear, in reality, lower taxes tend to lead to service reductions, some of which inevitably fall in areas that fuel economic vitality. Bruce Johnson, a former lieutenant governor of Ohio and head of economic development for that state, notes that "ground zero for economic development is a high-value workforce." That requires a considerable investment in education as well as in quality of life to enable states to compete effectively in the worldwide market for talent. Then there are investments in R&D at a time when innovation is key to economic development and in infrastructure, including broadband access, bridges, airports and, of course, roads.


But aren't low, low, low taxes the key to economic success, as Michigan Republicans like to claim?

Um, no.

There is now evidence that low tax rates by themselves are not a silver bullet. In his New Economy Index, Rob Atkinson, president of the Information Technology and Innovation Foundation, measures the progress of states in adapting to the new economy by looking at factors such as workforce creation, entrepreneurial activity and patent creation. Five of the eleven lowest-scoring states on his list are among those having the lowest tax burden: Alabama, Montana, Oklahoma, South Dakota and Wyoming. As Tom Clark, executive vice president of the Metro Denver Economic Development Corp. and the Denver Metro Chamber of Commerce, puts it, "If low tax rates were the only factor, Wyoming would be the economic epicenter of the world."


Michigan Republicans. Always wrong on economic issues. You can count on that.

Go read the whole story for a look at how taxation across America needs to change to keep up with the new global economy, and how the political reality of simple "cuts, good, taxes, bad!" rhetoric of Republicans like Mike Bishop holds us all back and hurts economic development.