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A little matter of cause and effect

by: Eric B.

Sun May 06, 2012 at 10:07:42 AM EDT

I opened up Rick Haglund's column this morning, headlined "Why proposal to eliminate Michigan's personal property tax may be a job killer" expecting to see it connect what are expected to be a savage cut in revenues local governments depend on and job losses in the public sector. After all, during the Obama administration, the private sector has added jobs and what's kept unemployment so high has been cuts in public sector employment (more on this in a minute). Instead, I find that it makes a couple of points no one's made before (which is what makes Rick Haglund's column so valuable).
The reason: Most who will benefit from it are small business owners who “will not change their employment and business activity significantly regardless of taxes,” said Tim Bartik, senior economist at the Upjohn Institute for Employment Research in Kalamazoo.


Here’s why: The big story in manufacturing in the past 60 years or so has been an astounding increase in productivity. It takes just 177 manufacturing workers today to perform the same amount of work that required 1,000 workers in 1950, according to data complied by Chicago Federal Reserve Bank economist William Strauss.

The argument in favor of simply doing away with the tax is based on Old Economy thinking, that is. Large, industrial companies are discouraged to invest in equipment by an obnoxious tax. If they didn't have to pay it, they'd invest in equipment, which means they'd need to hire people to operate it.

Except that's not the way things work anymore. New equipment means being able to reduce labor costs, since that new equipment does work currently done by people. And, the economy of today and tomorrow -- leastways, the economy envisioned by benevolent overlord Rick Michigan -- is mostly about small businesses.  Remember all that economic gardening stuff from last year? That's all about growing small businesses within the state.  Those companies are less likely to simply add people because their tax burden is reduced, especially if there's no concurrent rise in demand. Their sheer size makes them more vulnerable to supply-and-demand cycles.

Where this is undoubtedly going to impact the jobs picture, however, is in public sector employment.  As noted above, public sector employment losses have mostly been responsible the last few years for keeping unemployment figures high nationwide. Much of that is driven by reductions in public sector employment in states with Republican governors and legislatures (benevolent overlord Rick Michigan, we're looking in your general direction) on the grounds that driving a snow plow and using the jaws of life to extract accident victims isn't noble work.  So, they're going to cut business taxes in a way that further reduces public sector employment, while doing not a whole lot to actually stimulate private sector employment gains.  It's a genius plan if, by genius, you mean poorly thought out and probably in the long run counterproductive.

By the way, I do have to note having had a conversation with a local business owner about this who is upset that equipment for his brewery business is taxed as personal property, but that the tax isn't reduced as the value of his equipment depreciates.  On the other hand, if he wants to sell beer from his brewery to his microbrew, Michigan's beer and liquor distribution laws are such that he has to send the beer from Mt. Pleasant to his beer distributor in Saginaw, who then trucks is back to Mt. Pleasant.  That might do wonders to help his business out, but as he said after having conversations with our state representative about eliminating the personal property tax without replacing the revenue (did I mention that he's also a local elected official), he essentially mirrored what I've heard universally from local officials statewide, "Lansing's going to do what the hell they want to, anyway."

Eric B. :: A little matter of cause and effect
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