The situation is this: New Yorkers are loosing their jobs at a rate not seen since perhaps the Great Depression. The housing market is still heading downwards. People have less, money is tight and prospects are gloomy.
The governor must turn in a budget to address each of these matters.
What do to?
Yes! Increase the size of the budget, therefore increasing the size of the government, and, to pay for it, raise taxes at a rate higher than at any other time in history! Take even more money from people! What a fantastic and original idea! (The Mayor of New York, team player Bloomberg, is following his governor’s lead.)
It worked for Michigan, didn’t it? Where governor Granholm two years ago faced the same crisis now confronting New York governor Patterson.
Granholm, seeing jobs fizzling out and housing prices falling so fast that many just abandoned their homes, instituted a host of new taxes and fees so that she could grow government and, as it naturally follows, fix everybody’s problems.
I don’t have to tell you what happened. Michigan is obviously now a worker’s paradise. Just ask Ford, GM, and Chrysler.
Also, once the crisis is over, I’m sure the governments in New York and Michigan will rush to revert to their former, smaller sizes.
Well, to be fair, the Big Three did play a role in their current situations. I think what would be interesting is to compare the business climates of states with “Non-Big Three” plants (Toyota, Honda, BMW, etc.) and see the regulatory and taxation regimes and how they compare. I don’t have that data, but it could be an interesting project.
And while one goes about raising taxes one must remember to provide enough loop holes in which friends and families may neatly slip away unseen so as to not exactly ruffle their financial feathers. That way only the unwashed will pay.
Sure seems like a good plan to me. But then I don’t live in NY or MI. And my own home state is still dribbling along from day-to-day hoping to win some type of “super-lottery”, apparently, but without buying the necessary tickets. What could go wrong with that?
Ari, indeed, it could be an interesting project. I hope you don’t mind if I use your idea for a student project next semester.
JH,
Only if you show me the results. 🙂
I got curious, however, and did some quick browsing:
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My very preliminary research shows that while Big 3 seem to be the only ones with major entrenchment in Michigan, they also have very large presences in other states, including OH, KY, DE (Saturn), TX, and others.
However, this does not control for corporate taxation. Michigan, interestingly, has a relatively low corporate tax rate.
Now, I’m not an accountant (only have two accounting classes under my belt, to be honest), but nothing sets off my radar YET with Michigan’s taxation rates. I can’t, however, say anything about the tax shields the state offers. That’s beyond the scope of this comment.
I do know, for better or for worse, that GM and Ford had a hard time with the “lean practices” that Toyota and Honda used, and never really achieved the level of modularity that others did in their plants (this being useful, of course, when markets shift suddenly).
Honestly, I just don’t see Michigan having that unattractive of a business climate. Unless I’m missing something in the variable costs (electricity? water?), it seems to me that we can safely say that the Big 3 weren’t getting hurt by Michigan.
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Sources
http://www.autointell.com/
http://www.taxadmin.org/fta/rate/corp_inc.html
New York always dukes it out with Maine and New Jersey for last place on various business-friendly indices. It seems as though Gov. Patterson really wants to push New York to the undisputed least business-friendly state in America.
It seems that Kondratief was right about the root cause of longer term business cycles. Each generation forgets what the previous ones learned and need to relearn it. So we are about to be treated to another round of governments trying to spend their way out of a deep recession. The Federals can run deficits, but the states need to either raise axes or get bailed out by the Federals. And so it will go again.
For how well it worked before there is no better source than Henry Morgenthau, FDR’s treasury secretary, who is quoted in May 1939 (Burton Folsome, “New Deal or Raw Deal” Simon and Shuster): “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises … I say after eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!”
I seem to recall our governor was signing in some expansion of governmental programs while the attorney general was filing some sort of suit at the Illinois Supreme Court. Blagojevich, who has been features on various television programs recently, likes to start new or expand existing programs. We have budget problems.
Ari,
It looks like tax trends are as consistent as climate trends, and depend on who’s measurin’.
http://www.taxfoundation.org/press/show/1369.html
The table in the link shows MI ranks 49th (high number bad) in the “Business Tax Index”.
But its overall rank is 26th based on other factors.
Also, these were compiled a few years ago, so may have changed.
I wonder what the correlation is between “Business Tax Index” and how hard these states are being hit by the recession.
“Also, once the crisis is over, I’m sure the governments in New York and Michigan will rush to revert to their former, smaller sizes.”
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This is like when Mayor Bloomberg said that the NYC trans-fat ban will be studied to determine its effectiveness.
Said the Mayor: “If we don’t see a decrease in mortality rates, of course we’ll rescind the ban.”
I think he’ll fund the study with his own money, too.
/sarcasm off
Just like boiling a frog.
Ari, Thanks. Yes, if anything comes out of it, credits must be given to the rightful person! Will check into the sources soon.
John M,
Note that the index doesn’t actually tell us the corporate tax rate, per se, but is some sort of goopy soupy multi-factor measurement that includes:
҉ۢ complex, multi-rate corporate and individual income taxes;
• above-average sales tax rates that don’t exempt business-to-business purchases;
• complex, high-rate unemployment tax systems; and
• high effective property tax rates, as well as a host of other wealth-based taxes. ”
That’s not to say that any of these things are “good” per se, but it’s not telling us that the nominal marginal tax rates are high. I also can’t figure out what the spread is between states. In other words, is there a big difference in “badness” between Kentucky, at 40, and Michigan, at 49?
I think my point is not so much that Michigan is a great state to be a business (it definitely doesn’t appear to be), but that the “Big Japanese Three” have done just peachy in only sort-of friendly states like Kentucky.
Of course JH will have to do most of the legwork, but for all we know Kentucky offered concessions like tax shields and friendly amortization schedules that other states did not. Or maybe the marginal cost of labor was low enough that the taxation scheme didn’t seem to matter much. The latter seems possible.
Once again I’m glad I didn’t keep taking accounting classes. So very glad.
Mike D,
I always thought the frog boiling thing was a myth?
Noblesse Oblige,
One of my former profs wrote an interesting– albeit flawed in my view– piece on the New Deal.
http://ideas.repec.org/p/fip/fedmwp/597.html
lucia,
I think you have more than just budget problems with Blagojevich.
Here’s an article on the location of the auto industry at http://www.newgeography.com/content/00403-geography-us-auto-manufacturing-industry
Michigan dominates in auto manufacturing jobs.
Thanks for all the information. Great.
Ari, never thought that I have such a high pressure job! And What a way to make sure that I get something done. And I am on my holiday vacation. ^_^