RUBE TAXBERG.

                         Here in Michigan, it seems like the tax code was invented by Rube Goldberg. Let’s look at it this way:  You have six business taxpayers:  Larry, Curly, Moe, Shemp, Wancker, and O’Reilly.  Lansing gets total revenue of $100. Wancker says “I can’t stay afloat here in Michigan,” so he moves to North Carolina.  Our Governor Jennifer Mulhern Granola* says “government needs that revenue, so we’ll jimmy the tax code to get 100 bucks. “ Now you have 5 businesses each paying $20 a year.

                So Larry says “I need a tax abatement to open a plant in the Inner City.” Lansing says “hurray! Our Central Cities Revival Plan is working,” and Governor Granola has great photo op. Larry gets an $8 break from his taxes. Now he’s paying $12 in taxes, while everyone else pays $22.

Tax Credit? Nyuk! Nyuk! Nyuk!

                Next Curly steps up and applies for a permanent New Technologies government tax credit. He gets it! Hurray! Governor Granola shows up, hands a big cardboard check and gets a great photo op. Its $8 per year and now Curly pays $14. Nyuk, nyuk, nyuk!! That means everyone else has to pick up the slack, and Larry’s share puts him to $14. Moe, Shemp, and O’Reilly are now paying $24.

                Moe says “hey, you knuckleheads!! I’m investing in Windmills, for Michigan’s Sustainable Energy future!” Governor Granola couldn’t be more pleased. Moe gets a Windmill Incentive Tax Break of $8 and Governor Granola gets a great photo op. Now Moe is paying $16. The extra tax burden shifts to the other guys. Larry bumps to $16, Curly is now at $16, too. Shemp and O’Reilly are paying $26.

Who's the the Dumbest Stooge?

                Everyone thinks Shemp is the dumbest of the Stooges, but when he says “gee guys, what’s worse than Death and Taxes?” everyone thinks he said “Texas,” and Lansing’s Economic Development team ask him what he wants to stay in Michigan. Shemp shrugs, and says “Nuttin’.” So Development gives him a 10 year total tax amnesty. Governor Granola gets a great photo op bragging about all the jobs she’s saved, Moe knocks Shemp in the head and gets squirted by a seltzer bottle. Now Larry, Curley and Moe are paying $22.5 apiece, Shemp pays zero, and O’Reilly’s bill balloons to $32.5.

                So Curley lobbies the legislature for a change in the tax code, “’cause dese taxes is killin’ me!” House and Senate agree, and vote the change so Curley shaves $9 off his bill. Now Larry and Moe are paying $25.5 in tax, Curley pays $13.5, Shemp still pays “nuttin” and poor O’Reilly shoulders $35.5 so that Governor Granola can have her revenue.

Five Businessmen, Five Tax Burdens.

                At this point we have five businessmen, paying different tax burdens that range from zero to over 35 bucks. What sets them apart? The preferences they get from the government. Michigan has become a “Preference Regime,” where net after-tax profit depends on how much favor you can get from the state. So what happens next? All of them start a furious race to compete for favors from the government. The tax code becomes a crazy quilt of abatements, credits, preferences, and incentives.

                What’s worse, the Preference Regime deters businesses from investing in and locating in Michigan, because the tax laws are crazy, and you’ll have to spend as much time lobbying Lansing for favors as delivering your product. Why not just skip the whole thing and move to North Carolina, along with Wancker?

So What's the Answer?

                So what’s the answer? Well, jumping on the gravy train and lobbying for your own preferences is one possibility. Another is to just eliminate the Preference Regime. Simplify the whole tax code, make it easy to understand and fairer. Charge everybody $20. Then business can spend less time figuring out how to work the system to gain favors, and more time being more productive while making better products. Maybe you cut government spending so everyone gets charged $18, for a net overall tax decrease. Everyone has more money in their pocket.  Then Wancker says “Michigan’s got its act together,” moves back home, and we now have more revenue than before while charging less tax.

                But be warned! If you do that, the guys like Curley and Shemp will raise fight like hell. They’ll claim you’re pushing a tax hike. And indeed you will be—on them. But you have to look at the tax system as a whole, and what’s good for business as a whole. The Preference Regime and its jury-rigged formulas of abatements, credits, and incentives strangle enterprise, kill jobs, and reward politicking, not production. And we have way too much of one and not enough of the other as it is.

(*If  you run SpellCheck for MS Word, it always suggests “Granola” for “Granholm.” Who am I to argue?)

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