The safety net in Michigan

Poverty in the United States has increased measurably in the past ten years, and this is particularly visible in the state of Michigan. (Here is a webpage provided by the Michigan Department of Human Services with some basic information on poverty in the state.)  State departments of human services and non-profit organizations alike are being stretched by the need for poverty-related services -- food assistance, childcare, heating assistance, job training, and the like. So how good a job are we doing to ensure that poor people in the United States have reasonable access to the necessities of life?

In general, the answer to the question seems mostly to be -- not a very good job. The amount of money available for services to the poor is under pressure in most state legislatures. The processes through which low-income people need to pass in order to apply for assistance are confusing and needlessly lengthy. And the "front doors" for providers are highly decentralized, so the potential recipient of assistance needs to conduct a lengthy search simply to find a possible source.

The United Way of Southeast Michigan is a highly capable social service agency that is genuinely committed to helping to improve the situation of Michigan's poorest residents (link). Here is a UWSEM report on the status of basic needs of the population in Michigan.  The report is worth reviewing in detail.  One point stands out very starkly -- a strikingly high percentage of the state's population falls in the status of poor or near-poor.  The report provides a very legible description of the composition of the 40% of Michigan's population who are "at-risk":

This is a truly sobering statistic: two out of five residents of Michigan fall within the groups of the persistent poor, working poor, newly poor, and potentially poor.

One of the United Way's current priorities is to do a careful review of the system of assistance as a whole in the state. Generally, their finding is that resources, agencies, and strategies are highly fragmented in the state, so it is easy to guess that the provision of services is somewhat sporadic and inefficient. More importantly, their analysis shows that over a billion dollars of federal assistance to individuals are left unused year after year -- at a time when the need for assistance is greater than it has ever been.  (This report should appear on the UWSEM website sometime soon.)

It's worth looking closely at the data compiled by UWSEM. Over $34 billion are expended on assistance to the poor in Michigan, with over 55% of the funds coming from Federal sources ($19.9 billion). The state's own resources represent roughly half that amount ($9.4 billion).  Foundations and private resources make up the rest.  Second, these $34 billion are expended through a large number of state agencies -- treasury, school aid, public housing, the department of human services, etc.  And finally, the funds flowing from these multiple agencies then re-aggregate at the level of the users in a variety of basic categories of need: workforce development, housing, family preservation, food, cash assistance, and healthcare.

There are several key conclusions that emerge from the UWSEM analysis. One is that this is a process that is plainly designed for providers and auditors, not users. The idea that the system of social services should be streamlined in such a way as to allow maximum access for eligible residents is clearly not the guiding design principle.

A second point is that the system is needlessly complex for the user. It should be possible to streamline services and application processes in such a way as to increase the impact of available resources for eligible people.

A third point is that it should be possible to use the Internet to significantly increase the accessibility and transparency of the system. It should be possible for the poor person to enter a single "portal"; enter his/her information into a database; and find out on one screen what programs and benefits for which he/she is eligible.

In short, it would appear that there are significant opportunities for public "safety net" providers in Michigan to increase the efficiency and reach of their services with some intelligent redesign of the delivery systems.  And we certainly need to make sure that the billion dollars of unexpended federal benefits find their way to eligible citizens.

(Here is a nice example of how universities and communities can work together to address the issues of poverty that their region faces (link).  This collaboration between Western Michigan University and various organizations in Kalamazoo, Michigan is aimed at providing easy access to data about poverty and well-being in Kalamazoo that can help guide programs and resources towards effective reduction of poverty.)

The safety net in Michigan

Poverty in the United States has increased measurably in the past ten years, and this is particularly visible in the state of Michigan. (Here is a webpage provided by the Michigan Department of Human Services with some basic information on poverty in the state.)  State departments of human services and non-profit organizations alike are being stretched by the need for poverty-related services -- food assistance, childcare, heating assistance, job training, and the like. So how good a job are we doing to ensure that poor people in the United States have reasonable access to the necessities of life?

In general, the answer to the question seems mostly to be -- not a very good job. The amount of money available for services to the poor is under pressure in most state legislatures. The processes through which low-income people need to pass in order to apply for assistance are confusing and needlessly lengthy. And the "front doors" for providers are highly decentralized, so the potential recipient of assistance needs to conduct a lengthy search simply to find a possible source.

The United Way of Southeast Michigan is a highly capable social service agency that is genuinely committed to helping to improve the situation of Michigan's poorest residents (link). Here is a UWSEM report on the status of basic needs of the population in Michigan.  The report is worth reviewing in detail.  One point stands out very starkly -- a strikingly high percentage of the state's population falls in the status of poor or near-poor.  The report provides a very legible description of the composition of the 40% of Michigan's population who are "at-risk":

This is a truly sobering statistic: two out of five residents of Michigan fall within the groups of the persistent poor, working poor, newly poor, and potentially poor.

One of the United Way's current priorities is to do a careful review of the system of assistance as a whole in the state. Generally, their finding is that resources, agencies, and strategies are highly fragmented in the state, so it is easy to guess that the provision of services is somewhat sporadic and inefficient. More importantly, their analysis shows that over a billion dollars of federal assistance to individuals are left unused year after year -- at a time when the need for assistance is greater than it has ever been.  (This report should appear on the UWSEM website sometime soon.)

It's worth looking closely at the data compiled by UWSEM. Over $34 billion are expended on assistance to the poor in Michigan, with over 55% of the funds coming from Federal sources ($19.9 billion). The state's own resources represent roughly half that amount ($9.4 billion).  Foundations and private resources make up the rest.  Second, these $34 billion are expended through a large number of state agencies -- treasury, school aid, public housing, the department of human services, etc.  And finally, the funds flowing from these multiple agencies then re-aggregate at the level of the users in a variety of basic categories of need: workforce development, housing, family preservation, food, cash assistance, and healthcare.

There are several key conclusions that emerge from the UWSEM analysis. One is that this is a process that is plainly designed for providers and auditors, not users. The idea that the system of social services should be streamlined in such a way as to allow maximum access for eligible residents is clearly not the guiding design principle.

A second point is that the system is needlessly complex for the user. It should be possible to streamline services and application processes in such a way as to increase the impact of available resources for eligible people.

A third point is that it should be possible to use the Internet to significantly increase the accessibility and transparency of the system. It should be possible for the poor person to enter a single "portal"; enter his/her information into a database; and find out on one screen what programs and benefits for which he/she is eligible.

In short, it would appear that there are significant opportunities for public "safety net" providers in Michigan to increase the efficiency and reach of their services with some intelligent redesign of the delivery systems.  And we certainly need to make sure that the billion dollars of unexpended federal benefits find their way to eligible citizens.

(Here is a nice example of how universities and communities can work together to address the issues of poverty that their region faces (link).  This collaboration between Western Michigan University and various organizations in Kalamazoo, Michigan is aimed at providing easy access to data about poverty and well-being in Kalamazoo that can help guide programs and resources towards effective reduction of poverty.)

The safety net in Michigan

Poverty in the United States has increased measurably in the past ten years, and this is particularly visible in the state of Michigan. (Here is a webpage provided by the Michigan Department of Human Services with some basic information on poverty in the state.)  State departments of human services and non-profit organizations alike are being stretched by the need for poverty-related services -- food assistance, childcare, heating assistance, job training, and the like. So how good a job are we doing to ensure that poor people in the United States have reasonable access to the necessities of life?

In general, the answer to the question seems mostly to be -- not a very good job. The amount of money available for services to the poor is under pressure in most state legislatures. The processes through which low-income people need to pass in order to apply for assistance are confusing and needlessly lengthy. And the "front doors" for providers are highly decentralized, so the potential recipient of assistance needs to conduct a lengthy search simply to find a possible source.

The United Way of Southeast Michigan is a highly capable social service agency that is genuinely committed to helping to improve the situation of Michigan's poorest residents (link). Here is a UWSEM report on the status of basic needs of the population in Michigan.  The report is worth reviewing in detail.  One point stands out very starkly -- a strikingly high percentage of the state's population falls in the status of poor or near-poor.  The report provides a very legible description of the composition of the 40% of Michigan's population who are "at-risk":

This is a truly sobering statistic: two out of five residents of Michigan fall within the groups of the persistent poor, working poor, newly poor, and potentially poor.

One of the United Way's current priorities is to do a careful review of the system of assistance as a whole in the state. Generally, their finding is that resources, agencies, and strategies are highly fragmented in the state, so it is easy to guess that the provision of services is somewhat sporadic and inefficient. More importantly, their analysis shows that over a billion dollars of federal assistance to individuals are left unused year after year -- at a time when the need for assistance is greater than it has ever been.  (This report should appear on the UWSEM website sometime soon.)

It's worth looking closely at the data compiled by UWSEM. Over $34 billion are expended on assistance to the poor in Michigan, with over 55% of the funds coming from Federal sources ($19.9 billion). The state's own resources represent roughly half that amount ($9.4 billion).  Foundations and private resources make up the rest.  Second, these $34 billion are expended through a large number of state agencies -- treasury, school aid, public housing, the department of human services, etc.  And finally, the funds flowing from these multiple agencies then re-aggregate at the level of the users in a variety of basic categories of need: workforce development, housing, family preservation, food, cash assistance, and healthcare.

There are several key conclusions that emerge from the UWSEM analysis. One is that this is a process that is plainly designed for providers and auditors, not users. The idea that the system of social services should be streamlined in such a way as to allow maximum access for eligible residents is clearly not the guiding design principle.

A second point is that the system is needlessly complex for the user. It should be possible to streamline services and application processes in such a way as to increase the impact of available resources for eligible people.

A third point is that it should be possible to use the Internet to significantly increase the accessibility and transparency of the system. It should be possible for the poor person to enter a single "portal"; enter his/her information into a database; and find out on one screen what programs and benefits for which he/she is eligible.

In short, it would appear that there are significant opportunities for public "safety net" providers in Michigan to increase the efficiency and reach of their services with some intelligent redesign of the delivery systems.  And we certainly need to make sure that the billion dollars of unexpended federal benefits find their way to eligible citizens.

(Here is a nice example of how universities and communities can work together to address the issues of poverty that their region faces (link).  This collaboration between Western Michigan University and various organizations in Kalamazoo, Michigan is aimed at providing easy access to data about poverty and well-being in Kalamazoo that can help guide programs and resources towards effective reduction of poverty.)

Taxes on business

What is a fair level of taxation for businesses in a state? How much should businesses pay relative to individuals in supporting the services provided by government? How should we even begin to answer this question?

The question is easier for individual taxation, since there are only a few possible alternatives: a flat rate income tax or a graduated income tax; more reliance on income taxes or consumption taxes; a tax system that attempts to shelter the most vulnerable in society or a tax system aimed at stimulating profitability and economic growth, ....  For individuals, the fundamental principle is clear: each individual should pay a share of the costs of government based on income, perhaps moderated by a graduated rate.

But with businesses the issues don't seem as clear. Businesses in a state have a clear economic interest in the services provided by government, from fire and police protection, to preservation of the environment, to provision of a skilled and well-educated workforce.  Business should pay its fair share in supporting the necessary costs of the state; but what is a fair share? And what is "necessary" when it comes to state services?

The situation is even more complicated when we bear in mind that business activity is itself an important source of good for citizens. More business activity means more employment and income. More jobs and wages mean more demand for services and products of all kinds -- and more income for people employed in those goods and service industries. Business disinvestment leads to significant hardship for citizens. A tax system that discourages business activity is harmful to the economic wellbeing of the state and its citizens. So business tax rates ought to be high enough to support a fair share of the costs of government, but not so high as to discourage business investment.

And the latter point in turn requires comparison with other feasible locations for business activity. If Michigan and Ohio assess business income at significantly different rates, we should expect some flow of investment from one to the other.

The state of Michigan is an interesting current example. Michigan's governor, Rick Snyder, has proposed a major change in the structure of business taxes in the state. He proposes abolishing the Michigan Business Tax, enacted only a few years ago, and replacing it with a 6% corporate income tax that applies only to the largest businesses and corporations in the state. This reform is promoted as one that is needed to simplify the tax obligations of businesses and to improve the business attractiveness of the state for future investment, and it has been welcomed with enthusiasm by the business community.  (According the the Tax Foundation's State Business Tax Climate Index, Michigan ranked 17th in 2010 and 2011 in the Tax Climate Index overall and ranked 48th on the corporate tax index, based on the existing Michigan Business Tax; link.)

Often tax reforms are put forward under the banner of "revenue neutrality" -- the rules are changed and simplified, but the "before" and "after" rules collect the same amount of revenue. This reform in Michigan is distinctly not revenue-neutral. In 2009 businesses in Michigan paid $2.6 billion under the Michigan Business Tax. Sales taxes collected $8.8 billion, and personal income taxes collected $6.0 billion.  (These data are presented in a 2011 report of the Citizen's Research Council in Michigan; link.)  In 2013 it is projected that the flat corporate income tax, when fully implemented, will collect only $749 million -- a decline of over 1.2 billion dollars in tax revenues for the state compared to the $2.0 billion estimated under the Michigan Business Tax if applied in that year.  (These estimates are provided in a February 17, 2011 report issued by the Michigan government; link.) This amounts to a greater than 60% reduction in the taxes paid by businesses in support of the general fund.  And this shortfall is being addressed in the state's fiscal plan through adjustments in the structure of individual taxes: pensions would be taxed for the first time and Michigan's Earned Income Tax Credit would be abolished. In other words, a billion dollars of tax reductions for business are being paid for by sacrifices by pensioners and poor people.

So here is a question worthy of discussion: are Michigan businesses being asked to pay their fair share under the revised business tax policies? Is 6% enough? Were businesses significantly over-taxed under the Michigan Business Tax? Should the corporate income tax be applied only to the small subset of businesses in the state that qualify, or should it be applied more broadly? And is a 6% corporate tax rate competitive with other states?

Let's look at the competitiveness question. It is broadly asserted by leading business organizations in Michigan that businesses pay too much taxes for the state to be competitive, and that 6% is about as high as the rate can go without losing investment to other states. But the facts appear to be otherwise.  The Tax Foundation provides annual data on corporate income rates by state (link). Here is the Tax Foundation data, ranked by the highest bracket.  (A number of states have a graduated rate, so small businesses pay lower rates.)

State corporate income tax rates (ranked by hightest bracket)
source: Tax Foundation
http://www.taxfoundation.org/taxdata/show/230.html
State	Rates		Brackets(a)	Rank
Iowa	12.00%		$250K	1
Pa.	9.99%		$0	2
D.C.	9.98%		0	3
Minn.	9.80%		$0	4
Ill. (c)	9.50%		$0	5
Alaska	9.40%		$90K	6
N.J. (b)	9.00%		$100K	7
R.I.	9.00%		0	8
Maine	8.93%		$250K	9
Calif.	8.84%		$0	10
Del. (a)	8.70%		$0	11
Ind.	8.50%		$0	12
N.H. (a)	8.50%		$0	13
Vt. 6%	8.50%		$25K	14
W.Va.	8.50%		$0	15
Md.	8.25%		$0	16
Mass.	8.25%		$0	17
La.	8.00%		$200K	18
Wis.	7.90%		0	19
Nebr.	7.81%		$100K	20
Idaho	7.60%		$0	21
N.M.	7.60%		$1M	22
Ore.	7.60%		$250K	23
Conn.	7.50%		$0	24
N.Y.	7.10%		$0	25
Kans.	7.00%		$50K	26
Ariz.	6.97%		$0	27
N.C.	6.90%		$0	28
Mont.	6.75%		$0	29
Ala.	6.50%		$0	30
Ark.	6.50%		$100K	31
Tenn.	6.50%		$0	32
Hawaii	6.40%		$100K	33
N.D.	6.40%		$50K	34
Mo.	6.25%		$0	35
Ga.	6.00%		$0	36
Ky.	6.00%		$100K	37
Okla.	6.00%		$0	38
Va. (a)	6.00%		$0	39
Fla.	5.50%		$0	40
Miss.	5.00%		$10K	41
S.C.	5.00%		$0	42
Utah	5.00%		$0	43
Colo.	4.63%		$0	44
Nev.	0.00%			45
S.D.	0.00%			46
Wash. (a)	0.00%			47
Wyo.	0.00%			48
Mich. (a)
Ohio (a)
Tex. (a)
Note: In addition to regular income taxes, many states impose
other taxes on corporations such as gross receipts taxes and franchise
taxes. Some states also impose an alternative minimum tax.
(a) Michigan, Ohio, Texas, and Washington do not have a corporate
income tax but do have a gross receipts tax with rates not
strictly comparable to corporate income tax rates.
(c) On January 12, 2011, Illinois increased its corporate income
tax from 7.3% to 9.5%, retroactive to January 1, 2011. Illinois’s rate
includes two separate corporate income taxes, one at a 7% rate
and one at a 2.5% rate.
Source: Tax Foundation; state tax forms and instructions.

The 6% rate proposed for Michigan falls at the bottom end of this ranking; 35 states have higher rates, extending to 12% in Iowa; four states have a 6% rate; and nine states have a lower rate.  It would appear that a 7% or 7.5% rate would still leave Michigan in a competitive position when it comes to the corporate income tax.  This would result in an additional $200 million in revenue -- and would permit significant dollars for the Earned Income Tax Credit.  So a larger share from business would permit a better outcome for poor and working people.

But the really difficult question is the "fair share" question: how should the costs of government be allocated across individuals and businesses? What principles of equitable contribution are helpful in addressing these issues?  And how would we try to judge whether Michigan's corporate tax reform plan results in a fair allocation of the costs of government across individuals and business?

(Here is an interesting post by Donald Barrett and James Steele on "Are Corporations Paying Their Fair Share of Taxes?".  In a word -- no!)

Taxes on business

What is a fair level of taxation for businesses in a state? How much should businesses pay relative to individuals in supporting the services provided by government? How should we even begin to answer this question?

The question is easier for individual taxation, since there are only a few possible alternatives: a flat rate income tax or a graduated income tax; more reliance on income taxes or consumption taxes; a tax system that attempts to shelter the most vulnerable in society or a tax system aimed at stimulating profitability and economic growth, ....  For individuals, the fundamental principle is clear: each individual should pay a share of the costs of government based on income, perhaps moderated by a graduated rate.

But with businesses the issues don't seem as clear. Businesses in a state have a clear economic interest in the services provided by government, from fire and police protection, to preservation of the environment, to provision of a skilled and well-educated workforce.  Business should pay its fair share in supporting the necessary costs of the state; but what is a fair share? And what is "necessary" when it comes to state services?

The situation is even more complicated when we bear in mind that business activity is itself an important source of good for citizens. More business activity means more employment and income. More jobs and wages mean more demand for services and products of all kinds -- and more income for people employed in those goods and service industries. Business disinvestment leads to significant hardship for citizens. A tax system that discourages business activity is harmful to the economic wellbeing of the state and its citizens. So business tax rates ought to be high enough to support a fair share of the costs of government, but not so high as to discourage business investment.

And the latter point in turn requires comparison with other feasible locations for business activity. If Michigan and Ohio assess business income at significantly different rates, we should expect some flow of investment from one to the other.

The state of Michigan is an interesting current example. Michigan's governor, Rick Snyder, has proposed a major change in the structure of business taxes in the state. He proposes abolishing the Michigan Business Tax, enacted only a few years ago, and replacing it with a 6% corporate income tax that applies only to the largest businesses and corporations in the state. This reform is promoted as one that is needed to simplify the tax obligations of businesses and to improve the business attractiveness of the state for future investment, and it has been welcomed with enthusiasm by the business community.  (According the the Tax Foundation's State Business Tax Climate Index, Michigan ranked 17th in 2010 and 2011 in the Tax Climate Index overall and ranked 48th on the corporate tax index, based on the existing Michigan Business Tax; link.)

Often tax reforms are put forward under the banner of "revenue neutrality" -- the rules are changed and simplified, but the "before" and "after" rules collect the same amount of revenue. This reform in Michigan is distinctly not revenue-neutral. In 2009 businesses in Michigan paid $2.6 billion under the Michigan Business Tax. Sales taxes collected $8.8 billion, and personal income taxes collected $6.0 billion.  (These data are presented in a 2011 report of the Citizen's Research Council in Michigan; link.)  In 2013 it is projected that the flat corporate income tax, when fully implemented, will collect only $749 million -- a decline of over 1.2 billion dollars in tax revenues for the state compared to the $2.0 billion estimated under the Michigan Business Tax if applied in that year.  (These estimates are provided in a February 17, 2011 report issued by the Michigan government; link.) This amounts to a greater than 60% reduction in the taxes paid by businesses in support of the general fund.  And this shortfall is being addressed in the state's fiscal plan through adjustments in the structure of individual taxes: pensions would be taxed for the first time and Michigan's Earned Income Tax Credit would be abolished. In other words, a billion dollars of tax reductions for business are being paid for by sacrifices by pensioners and poor people.

So here is a question worthy of discussion: are Michigan businesses being asked to pay their fair share under the revised business tax policies? Is 6% enough? Were businesses significantly over-taxed under the Michigan Business Tax? Should the corporate income tax be applied only to the small subset of businesses in the state that qualify, or should it be applied more broadly? And is a 6% corporate tax rate competitive with other states?

Let's look at the competitiveness question. It is broadly asserted by leading business organizations in Michigan that businesses pay too much taxes for the state to be competitive, and that 6% is about as high as the rate can go without losing investment to other states. But the facts appear to be otherwise.  The Tax Foundation provides annual data on corporate income rates by state (link). Here is the Tax Foundation data, ranked by the highest bracket.  (A number of states have a graduated rate, so small businesses pay lower rates.)

State corporate income tax rates (ranked by hightest bracket)
source: Tax Foundation
http://www.taxfoundation.org/taxdata/show/230.html
State	Rates		Brackets(a)	Rank
Iowa	12.00%		$250K	1
Pa.	9.99%		$0	2
D.C.	9.98%		0	3
Minn.	9.80%		$0	4
Ill. (c)	9.50%		$0	5
Alaska	9.40%		$90K	6
N.J. (b)	9.00%		$100K	7
R.I.	9.00%		0	8
Maine	8.93%		$250K	9
Calif.	8.84%		$0	10
Del. (a)	8.70%		$0	11
Ind.	8.50%		$0	12
N.H. (a)	8.50%		$0	13
Vt. 6%	8.50%		$25K	14
W.Va.	8.50%		$0	15
Md.	8.25%		$0	16
Mass.	8.25%		$0	17
La.	8.00%		$200K	18
Wis.	7.90%		0	19
Nebr.	7.81%		$100K	20
Idaho	7.60%		$0	21
N.M.	7.60%		$1M	22
Ore.	7.60%		$250K	23
Conn.	7.50%		$0	24
N.Y.	7.10%		$0	25
Kans.	7.00%		$50K	26
Ariz.	6.97%		$0	27
N.C.	6.90%		$0	28
Mont.	6.75%		$0	29
Ala.	6.50%		$0	30
Ark.	6.50%		$100K	31
Tenn.	6.50%		$0	32
Hawaii	6.40%		$100K	33
N.D.	6.40%		$50K	34
Mo.	6.25%		$0	35
Ga.	6.00%		$0	36
Ky.	6.00%		$100K	37
Okla.	6.00%		$0	38
Va. (a)	6.00%		$0	39
Fla.	5.50%		$0	40
Miss.	5.00%		$10K	41
S.C.	5.00%		$0	42
Utah	5.00%		$0	43
Colo.	4.63%		$0	44
Nev.	0.00%			45
S.D.	0.00%			46
Wash. (a)	0.00%			47
Wyo.	0.00%			48
Mich. (a)
Ohio (a)
Tex. (a)
Note: In addition to regular income taxes, many states impose
other taxes on corporations such as gross receipts taxes and franchise
taxes. Some states also impose an alternative minimum tax.
(a) Michigan, Ohio, Texas, and Washington do not have a corporate
income tax but do have a gross receipts tax with rates not
strictly comparable to corporate income tax rates.
(c) On January 12, 2011, Illinois increased its corporate income
tax from 7.3% to 9.5%, retroactive to January 1, 2011. Illinois’s rate
includes two separate corporate income taxes, one at a 7% rate
and one at a 2.5% rate.
Source: Tax Foundation; state tax forms and instructions.

The 6% rate proposed for Michigan falls at the bottom end of this ranking; 35 states have higher rates, extending to 12% in Iowa; four states have a 6% rate; and nine states have a lower rate.  It would appear that a 7% or 7.5% rate would still leave Michigan in a competitive position when it comes to the corporate income tax.  This would result in an additional $200 million in revenue -- and would permit significant dollars for the Earned Income Tax Credit.  So a larger share from business would permit a better outcome for poor and working people.

But the really difficult question is the "fair share" question: how should the costs of government be allocated across individuals and businesses? What principles of equitable contribution are helpful in addressing these issues?  And how would we try to judge whether Michigan's corporate tax reform plan results in a fair allocation of the costs of government across individuals and business?

(Here is an interesting post by Donald Barrett and James Steele on "Are Corporations Paying Their Fair Share of Taxes?".  In a word -- no!)

Taxes on business

What is a fair level of taxation for businesses in a state? How much should businesses pay relative to individuals in supporting the services provided by government? How should we even begin to answer this question?

The question is easier for individual taxation, since there are only a few possible alternatives: a flat rate income tax or a graduated income tax; more reliance on income taxes or consumption taxes; a tax system that attempts to shelter the most vulnerable in society or a tax system aimed at stimulating profitability and economic growth, ....  For individuals, the fundamental principle is clear: each individual should pay a share of the costs of government based on income, perhaps moderated by a graduated rate.

But with businesses the issues don't seem as clear. Businesses in a state have a clear economic interest in the services provided by government, from fire and police protection, to preservation of the environment, to provision of a skilled and well-educated workforce.  Business should pay its fair share in supporting the necessary costs of the state; but what is a fair share? And what is "necessary" when it comes to state services?

The situation is even more complicated when we bear in mind that business activity is itself an important source of good for citizens. More business activity means more employment and income. More jobs and wages mean more demand for services and products of all kinds -- and more income for people employed in those goods and service industries. Business disinvestment leads to significant hardship for citizens. A tax system that discourages business activity is harmful to the economic wellbeing of the state and its citizens. So business tax rates ought to be high enough to support a fair share of the costs of government, but not so high as to discourage business investment.

And the latter point in turn requires comparison with other feasible locations for business activity. If Michigan and Ohio assess business income at significantly different rates, we should expect some flow of investment from one to the other.

The state of Michigan is an interesting current example. Michigan's governor, Rick Snyder, has proposed a major change in the structure of business taxes in the state. He proposes abolishing the Michigan Business Tax, enacted only a few years ago, and replacing it with a 6% corporate income tax that applies only to the largest businesses and corporations in the state. This reform is promoted as one that is needed to simplify the tax obligations of businesses and to improve the business attractiveness of the state for future investment, and it has been welcomed with enthusiasm by the business community.  (According the the Tax Foundation's State Business Tax Climate Index, Michigan ranked 17th in 2010 and 2011 in the Tax Climate Index overall and ranked 48th on the corporate tax index, based on the existing Michigan Business Tax; link.)

Often tax reforms are put forward under the banner of "revenue neutrality" -- the rules are changed and simplified, but the "before" and "after" rules collect the same amount of revenue. This reform in Michigan is distinctly not revenue-neutral. In 2009 businesses in Michigan paid $2.6 billion under the Michigan Business Tax. Sales taxes collected $8.8 billion, and personal income taxes collected $6.0 billion.  (These data are presented in a 2011 report of the Citizen's Research Council in Michigan; link.)  In 2013 it is projected that the flat corporate income tax, when fully implemented, will collect only $749 million -- a decline of over 1.2 billion dollars in tax revenues for the state compared to the $2.0 billion estimated under the Michigan Business Tax if applied in that year.  (These estimates are provided in a February 17, 2011 report issued by the Michigan government; link.) This amounts to a greater than 60% reduction in the taxes paid by businesses in support of the general fund.  And this shortfall is being addressed in the state's fiscal plan through adjustments in the structure of individual taxes: pensions would be taxed for the first time and Michigan's Earned Income Tax Credit would be abolished. In other words, a billion dollars of tax reductions for business are being paid for by sacrifices by pensioners and poor people.

So here is a question worthy of discussion: are Michigan businesses being asked to pay their fair share under the revised business tax policies? Is 6% enough? Were businesses significantly over-taxed under the Michigan Business Tax? Should the corporate income tax be applied only to the small subset of businesses in the state that qualify, or should it be applied more broadly? And is a 6% corporate tax rate competitive with other states?

Let's look at the competitiveness question. It is broadly asserted by leading business organizations in Michigan that businesses pay too much taxes for the state to be competitive, and that 6% is about as high as the rate can go without losing investment to other states. But the facts appear to be otherwise.  The Tax Foundation provides annual data on corporate income rates by state (link). Here is the Tax Foundation data, ranked by the highest bracket.  (A number of states have a graduated rate, so small businesses pay lower rates.)

State corporate income tax rates (ranked by hightest bracket)
source: Tax Foundation
http://www.taxfoundation.org/taxdata/show/230.html
State	Rates		Brackets(a)	Rank
Iowa	12.00%		$250K	1
Pa.	9.99%		$0	2
D.C.	9.98%		0	3
Minn.	9.80%		$0	4
Ill. (c)	9.50%		$0	5
Alaska	9.40%		$90K	6
N.J. (b)	9.00%		$100K	7
R.I.	9.00%		0	8
Maine	8.93%		$250K	9
Calif.	8.84%		$0	10
Del. (a)	8.70%		$0	11
Ind.	8.50%		$0	12
N.H. (a)	8.50%		$0	13
Vt. 6%	8.50%		$25K	14
W.Va.	8.50%		$0	15
Md.	8.25%		$0	16
Mass.	8.25%		$0	17
La.	8.00%		$200K	18
Wis.	7.90%		0	19
Nebr.	7.81%		$100K	20
Idaho	7.60%		$0	21
N.M.	7.60%		$1M	22
Ore.	7.60%		$250K	23
Conn.	7.50%		$0	24
N.Y.	7.10%		$0	25
Kans.	7.00%		$50K	26
Ariz.	6.97%		$0	27
N.C.	6.90%		$0	28
Mont.	6.75%		$0	29
Ala.	6.50%		$0	30
Ark.	6.50%		$100K	31
Tenn.	6.50%		$0	32
Hawaii	6.40%		$100K	33
N.D.	6.40%		$50K	34
Mo.	6.25%		$0	35
Ga.	6.00%		$0	36
Ky.	6.00%		$100K	37
Okla.	6.00%		$0	38
Va. (a)	6.00%		$0	39
Fla.	5.50%		$0	40
Miss.	5.00%		$10K	41
S.C.	5.00%		$0	42
Utah	5.00%		$0	43
Colo.	4.63%		$0	44
Nev.	0.00%			45
S.D.	0.00%			46
Wash. (a)	0.00%			47
Wyo.	0.00%			48
Mich. (a)
Ohio (a)
Tex. (a)
Note: In addition to regular income taxes, many states impose
other taxes on corporations such as gross receipts taxes and franchise
taxes. Some states also impose an alternative minimum tax.
(a) Michigan, Ohio, Texas, and Washington do not have a corporate
income tax but do have a gross receipts tax with rates not
strictly comparable to corporate income tax rates.
(c) On January 12, 2011, Illinois increased its corporate income
tax from 7.3% to 9.5%, retroactive to January 1, 2011. Illinois’s rate
includes two separate corporate income taxes, one at a 7% rate
and one at a 2.5% rate.
Source: Tax Foundation; state tax forms and instructions.

The 6% rate proposed for Michigan falls at the bottom end of this ranking; 35 states have higher rates, extending to 12% in Iowa; four states have a 6% rate; and nine states have a lower rate.  It would appear that a 7% or 7.5% rate would still leave Michigan in a competitive position when it comes to the corporate income tax.  This would result in an additional $200 million in revenue -- and would permit significant dollars for the Earned Income Tax Credit.  So a larger share from business would permit a better outcome for poor and working people.

But the really difficult question is the "fair share" question: how should the costs of government be allocated across individuals and businesses? What principles of equitable contribution are helpful in addressing these issues?  And how would we try to judge whether Michigan's corporate tax reform plan results in a fair allocation of the costs of government across individuals and business?

(Here is an interesting post by Donald Barrett and James Steele on "Are Corporations Paying Their Fair Share of Taxes?".  In a word -- no!)

Urban and metropolitan problem solving

The issues that almost all large American metropolitan regions and cities are facing are important and messy. Here is a short list: racial segregation, concentration of poverty, poor health and nutrition, poor schools, crime and violence, and disaffection of young people. These problems are important because they hold back the personal lives of millions of Americans living in poverty and degraded urban neighborhoods. And they are messy because they are multi-causal and interconnected. Each problem feeds into another, and it is generally difficult to say what kinds of policy changes and plans would lead to eventual improvement. These are "wicked" problems (link) that require planners to work with complex and unpredictable processes in an effort to improve Cleveland, Chicago, Oakland, Miami, Houston, Kansas City, and Detroit.

There is another reason why urban and metropolitan problems are hard to solve -- the lack of political will to seriously address the problems in a long-term and sustained way. State legislatures often have an anti-urban bias. Regions often embody conflicts of interest between suburbs and city. Jurisdictions are often more concerned about their own narrow interests than in finding workable regional solutions. And the Federal government often fails for decades to mount serious and realistic urban strategies. So the result is often stasis -- nothing happens.

One aspect of the challenge is the availability of timely, reliable data about a region's health and performance. City governments collect a lot of data about health status, land use, and crime; but they are often reluctant to make their information available to researchers and the public. Foundations and individual researchers undertake studies focused on one problem or another; but often the reports are difficult to find and difficult to compare.

So we might hypothesize that the situation would be improved if there were an active, well-resourced clearinghouse for regional data from a wide range of sources: census, municipal departments, academic studies, land use surveys, and environmental surveys. Ideally these data sets would be managed by a professional staff who are able to integrate the various sources into a query-based GIS system, and ideally the data sets themselves would be publicly available (subject to appropriate privacy conditions). this kind of regional data warehouse would not directly solve the problems the region faces; but it would give a clear understanding of the scope and distribution of the problems that need to be addressed; it would provide an empirical base for proposed policy solutions; and it would provide a baseline for eventually evaluating the policies that are adopted.

Fortunately, there are good examples of exactly this kind of effort underway in various regions around the country. One such effort is underway at the Community Research Institute, part of the Johnson Center for Philanthropy at Grand Valley State University in Michigan (link). The Institute focuses primarily on several counties surrounding Grand Rapids, but it is also preparing to expand its coverage to other parts of Michigan. With a foundational database linking US Census data geographically, the Institute attempts to provide geographically linked data down to the neighborhood level. Here is an example of a map of the teen birth rate in neighborhoods of Grand Rapids (link). The Center has developed a general tool, MAPAS, that can serve as a platform for integrating and presenting a wide range of social data sources (link).

A similar effort is underway in the Detroit metropolitan region, under the rubric of Data Driven Detroit (link). D3 is attempting to create this kind of publicly accessible, spatially presented data warehouse for the city and the region, and the early results are promising.  Here is a report on a recent study conducted by D3 on housing stock in Detroit (link).

So how can data sources like these be folded into good planning efforts for urban and metropolitan progress? The city of Detroit under the leadership of Mayor Dave Bing is just beginning an important planning effort that ties into the need to adjust the cityscape to the dramatically smaller population it now contains. This effort is called the Detroit Works Project (link), and it is explicitly committed to data-driven decision making and planning.

Another effort that is underway is the Integration Initiative within Living Cities (link, link). Detroit is one of the cities that has been funded within the program.  Here is how Living Cities describes the national project of the Integration Initiative:

The Integration Initiative builds upon Living Cities’ 20-year history of investing in cities. It acknowledges both the power and limitations of the neighborhood as a lever for change and seeks to drive a broader perspective that recognizes the role systems and regions must play in securing economic opportunity for low-income people.

The Integration Initiative will provide at least $80 million in grants, loans and Program-Related Investments (PRIs) to five regions to help them tackle the greatest barriers to opportunity for low-income residents, including education, housing, health care, transit and jobs. Living Cities and its members are making a total investment of $15 million in grants, $15 million in PRIs and $50 million in commercial debt. PRIs are flexible, low-cost loans provided at below-market rates to support charitable activity.

In order for a project like this to succeed, it needs to be based on solid empirical data.  It is crucial for the progress of metropolitan Detroit, and other cities around the country, that the region succeed in creating a unified regional data source.

Urban and metropolitan problem solving

The issues that almost all large American metropolitan regions and cities are facing are important and messy. Here is a short list: racial segregation, concentration of poverty, poor health and nutrition, poor schools, crime and violence, and disaffection of young people. These problems are important because they hold back the personal lives of millions of Americans living in poverty and degraded urban neighborhoods. And they are messy because they are multi-causal and interconnected. Each problem feeds into another, and it is generally difficult to say what kinds of policy changes and plans would lead to eventual improvement. These are "wicked" problems (link) that require planners to work with complex and unpredictable processes in an effort to improve Cleveland, Chicago, Oakland, Miami, Houston, Kansas City, and Detroit.

There is another reason why urban and metropolitan problems are hard to solve -- the lack of political will to seriously address the problems in a long-term and sustained way. State legislatures often have an anti-urban bias. Regions often embody conflicts of interest between suburbs and city. Jurisdictions are often more concerned about their own narrow interests than in finding workable regional solutions. And the Federal government often fails for decades to mount serious and realistic urban strategies. So the result is often stasis -- nothing happens.

One aspect of the challenge is the availability of timely, reliable data about a region's health and performance. City governments collect a lot of data about health status, land use, and crime; but they are often reluctant to make their information available to researchers and the public. Foundations and individual researchers undertake studies focused on one problem or another; but often the reports are difficult to find and difficult to compare.

So we might hypothesize that the situation would be improved if there were an active, well-resourced clearinghouse for regional data from a wide range of sources: census, municipal departments, academic studies, land use surveys, and environmental surveys. Ideally these data sets would be managed by a professional staff who are able to integrate the various sources into a query-based GIS system, and ideally the data sets themselves would be publicly available (subject to appropriate privacy conditions). this kind of regional data warehouse would not directly solve the problems the region faces; but it would give a clear understanding of the scope and distribution of the problems that need to be addressed; it would provide an empirical base for proposed policy solutions; and it would provide a baseline for eventually evaluating the policies that are adopted.

Fortunately, there are good examples of exactly this kind of effort underway in various regions around the country. One such effort is underway at the Community Research Institute, part of the Johnson Center for Philanthropy at Grand Valley State University in Michigan (link). The Institute focuses primarily on several counties surrounding Grand Rapids, but it is also preparing to expand its coverage to other parts of Michigan. With a foundational database linking US Census data geographically, the Institute attempts to provide geographically linked data down to the neighborhood level. Here is an example of a map of the teen birth rate in neighborhoods of Grand Rapids (link). The Center has developed a general tool, MAPAS, that can serve as a platform for integrating and presenting a wide range of social data sources (link).

A similar effort is underway in the Detroit metropolitan region, under the rubric of Data Driven Detroit (link). D3 is attempting to create this kind of publicly accessible, spatially presented data warehouse for the city and the region, and the early results are promising.  Here is a report on a recent study conducted by D3 on housing stock in Detroit (link).

So how can data sources like these be folded into good planning efforts for urban and metropolitan progress? The city of Detroit under the leadership of Mayor Dave Bing is just beginning an important planning effort that ties into the need to adjust the cityscape to the dramatically smaller population it now contains. This effort is called the Detroit Works Project (link), and it is explicitly committed to data-driven decision making and planning.

Another effort that is underway is the Integration Initiative within Living Cities (link, link). Detroit is one of the cities that has been funded within the program.  Here is how Living Cities describes the national project of the Integration Initiative:

The Integration Initiative builds upon Living Cities’ 20-year history of investing in cities. It acknowledges both the power and limitations of the neighborhood as a lever for change and seeks to drive a broader perspective that recognizes the role systems and regions must play in securing economic opportunity for low-income people.

The Integration Initiative will provide at least $80 million in grants, loans and Program-Related Investments (PRIs) to five regions to help them tackle the greatest barriers to opportunity for low-income residents, including education, housing, health care, transit and jobs. Living Cities and its members are making a total investment of $15 million in grants, $15 million in PRIs and $50 million in commercial debt. PRIs are flexible, low-cost loans provided at below-market rates to support charitable activity.

In order for a project like this to succeed, it needs to be based on solid empirical data.  It is crucial for the progress of metropolitan Detroit, and other cities around the country, that the region succeed in creating a unified regional data source.

Urban and metropolitan problem solving

The issues that almost all large American metropolitan regions and cities are facing are important and messy. Here is a short list: racial segregation, concentration of poverty, poor health and nutrition, poor schools, crime and violence, and disaffection of young people. These problems are important because they hold back the personal lives of millions of Americans living in poverty and degraded urban neighborhoods. And they are messy because they are multi-causal and interconnected. Each problem feeds into another, and it is generally difficult to say what kinds of policy changes and plans would lead to eventual improvement. These are "wicked" problems (link) that require planners to work with complex and unpredictable processes in an effort to improve Cleveland, Chicago, Oakland, Miami, Houston, Kansas City, and Detroit.

There is another reason why urban and metropolitan problems are hard to solve -- the lack of political will to seriously address the problems in a long-term and sustained way. State legislatures often have an anti-urban bias. Regions often embody conflicts of interest between suburbs and city. Jurisdictions are often more concerned about their own narrow interests than in finding workable regional solutions. And the Federal government often fails for decades to mount serious and realistic urban strategies. So the result is often stasis -- nothing happens.

One aspect of the challenge is the availability of timely, reliable data about a region's health and performance. City governments collect a lot of data about health status, land use, and crime; but they are often reluctant to make their information available to researchers and the public. Foundations and individual researchers undertake studies focused on one problem or another; but often the reports are difficult to find and difficult to compare.

So we might hypothesize that the situation would be improved if there were an active, well-resourced clearinghouse for regional data from a wide range of sources: census, municipal departments, academic studies, land use surveys, and environmental surveys. Ideally these data sets would be managed by a professional staff who are able to integrate the various sources into a query-based GIS system, and ideally the data sets themselves would be publicly available (subject to appropriate privacy conditions). this kind of regional data warehouse would not directly solve the problems the region faces; but it would give a clear understanding of the scope and distribution of the problems that need to be addressed; it would provide an empirical base for proposed policy solutions; and it would provide a baseline for eventually evaluating the policies that are adopted.

Fortunately, there are good examples of exactly this kind of effort underway in various regions around the country. One such effort is underway at the Community Research Institute, part of the Johnson Center for Philanthropy at Grand Valley State University in Michigan (link). The Institute focuses primarily on several counties surrounding Grand Rapids, but it is also preparing to expand its coverage to other parts of Michigan. With a foundational database linking US Census data geographically, the Institute attempts to provide geographically linked data down to the neighborhood level. Here is an example of a map of the teen birth rate in neighborhoods of Grand Rapids (link). The Center has developed a general tool, MAPAS, that can serve as a platform for integrating and presenting a wide range of social data sources (link).

A similar effort is underway in the Detroit metropolitan region, under the rubric of Data Driven Detroit (link). D3 is attempting to create this kind of publicly accessible, spatially presented data warehouse for the city and the region, and the early results are promising.  Here is a report on a recent study conducted by D3 on housing stock in Detroit (link).

So how can data sources like these be folded into good planning efforts for urban and metropolitan progress? The city of Detroit under the leadership of Mayor Dave Bing is just beginning an important planning effort that ties into the need to adjust the cityscape to the dramatically smaller population it now contains. This effort is called the Detroit Works Project (link), and it is explicitly committed to data-driven decision making and planning.

Another effort that is underway is the Integration Initiative within Living Cities (link, link). Detroit is one of the cities that has been funded within the program.  Here is how Living Cities describes the national project of the Integration Initiative:

The Integration Initiative builds upon Living Cities’ 20-year history of investing in cities. It acknowledges both the power and limitations of the neighborhood as a lever for change and seeks to drive a broader perspective that recognizes the role systems and regions must play in securing economic opportunity for low-income people.

The Integration Initiative will provide at least $80 million in grants, loans and Program-Related Investments (PRIs) to five regions to help them tackle the greatest barriers to opportunity for low-income residents, including education, housing, health care, transit and jobs. Living Cities and its members are making a total investment of $15 million in grants, $15 million in PRIs and $50 million in commercial debt. PRIs are flexible, low-cost loans provided at below-market rates to support charitable activity.

In order for a project like this to succeed, it needs to be based on solid empirical data.  It is crucial for the progress of metropolitan Detroit, and other cities around the country, that the region succeed in creating a unified regional data source.