Signs of the Times - and a question
 

In Michigan, the recession has been going on now for years. Probably since the dot-com bust, with a brief spike of activity around 2002 - 2005 or so. There was another pretty healthy stretch during the 1990's, so its fair to say that we've not really recovered much from the early '90's recession.

What really gets to me sometimes is driving through my city - Livonia, which is still ranked as a pretty favorable place to live - and seeing the for lease / for sale signs on building after building. Driving one mile on a stretch of light industrial and retail buildings, I counted 23 for lease or for sale signs. Some of the buildings were partially occupied, but many were vacant and in search of tenants.

It wasn't all that long ago that most of these buildings had tenants. That means that there were employees earning wages, paying taxes, spending their earnings supporting their families and the community. This has to change soon.

Blame cannot be placed fully on the current White House occupant for originating this stagnant economy. I don't even want to get into a political "blame game" for how we got to this point in my city and state. However, there are some things that can be done to spur economic growth, get folks working again to produce earnings and tax revenues, and support this community again.

Politicians love to talk about "Enterprise Zones". These are areas specifically targeted for re-invigoration of the business climate, and such plans are (probably for political reasons) typically reserved for urban areas where economic distress is wide-spread. The zones are created typically by state/local legislation. The centerpiece of such strategies is typically a reduction in local and state taxes designed to encourage business activity by making the zone "more competitive" than other areas.

This suggests that there is recognition that the strategy of reducing taxes spurs business activity, and the increase of activity is deemed to be good for the community. Also, Michigan wanted to try to shave off some film-making business and create "Hollywood East", so the state offered targeted incentives to film-makers and studios. The program met with some moderate success. So, here's the question:

If there is some agreement that the business climate can be made more favorable for business by reducing tax rates, then why does the current administration and many members of this board steadfastly oppose this strategy as a method of jump-starting the economy? In fact, there seems to be a recurrent mindset that such activity is essentially amoral? Why is this?


Not really trolling here, though I suspect some might take it that way. I'm just trying to understand the rationale for opposition to a strategy which, in other contexts, has been successful.

Read your post with interest and have given some thought to your question.

First, with respect to the 'Enterprise Zone' question: They can be successful (I've seen limited success with them) on a limited basis when the tax reduction/abatement/limitation is restricted to property tax (from what I've seen). When such a reduction extends to business income tax it appears to be a different matter which I will address below.

Across the board corporate tax reductions, in theory, encourage entrepeneurial activity. The problem with that is that when Reagan pressed for and got it through Congress in the 1980's big business did not engage in such activity. They engaged in business acquisitions with the cash gained.

Moreover, and I'm not trying to get into a point/counterpoint debate either, as was demonstrated in the 1980's a massive tax reduction balloons the deficit. Yeah, the 80's were a boom but 1) it was done on a credit card and 2) much of it was as a consequence of a massive defense build up.

My 2 cents, adjusted for stimulus.

There are a few problems with reducing taxes to attract businesses. First, the businesses that come tend to leave after the tax incentive expires. They leave behind the mess of abandoned buildings which blight neighborhoods, reduce property values, and increase crime rates.

Second, the reduced tax revenues must be made up in other areas or the citizens must do with fewer services. What usually happens is workers are taxed more either by income tax, sales tax, or property tax. Nothing is free.

If you are genuinly interested in this topic you might enjoy researching the subject of "race to the bottom".

LMAO!!!

Ya' think?

Do you have an example of where this has happened?

I can't tell if you are kidding.

For my part it is not so much that tax reductions are bad, (They not, per se.), it's how they are targeted and what we are told must be cut to pay for them.

I wouldn't mind seeing tax cuts for struggling businesses. I would not have a problem with government truly reducing waste and corruption to free up the funds to pay for for said cuts.

The problem is, this is usually not what we get. With Dems we seem to get higher taxes with no reduction in waste and fraud. Republicans always seem to suggest reductions in benefits for working folks and the poor while protecting tax cuts for the top earners, and no reduction in fraud and waste.

These two models make no sense to me. In one, we keep throwing money into a bottomless pit of corruption. In the other we give taxcuts to people who have no need of them and cut benefits to those most in need*,....while continuing to throw money into a bottomless pit of corruption.

So, like the rest of the country, I struggle to discern the lesser of the two evils.

Dave

*(To my mind, reducing benefits to the poor and working classes in order to give cuts to the top of the economic strata----IS a form of corruption.)

No desire here to debate the 80’s, as that will only lead to a pointless, polarizing discussion. I'm trying to scrupulously avoid that in this thread. I will say that while consolidation / buyout activities did occur in the 1980’s, such activity continued into the 1990’s and beyond. Also, unemployment decreased from 1983 onward across all industries, not just defense related industries. So, while some increase in economic activity can be tied to defense, such activity only accounted for a portion of the increase in GDP during that time.

More to the point, the Michigan example I cited was trotted out under a Democrat governor, and was a reduction in business taxes.

This has happened across the country, Noone. For a time we even had states building industrial buildings at taxpayer expense and offering to let businesses use them rent free, on top of tax incentives----to no avail. It was a complete waste of huge sums of money.

I agree with much of this, believe it or not. To me, the nature of our current tax code is such that the government is picking winners and losers with targeted tax breaks and loop holes. Protecting that structure is what the debate about "taxing the rich" is really all about. It's not about the rich. It's about protecting the tax system that keeps politicians in a position of power, able to elicit "tribute" in the form of campaign contributions from beneficiaries of certain tax treatment.