I've focused occasionally on the idea of "levels" of social arrangements, from the local to the intermediate to the higher levels, with the idea that higher levels are composed of structures and activities at lower levels. Generally I've had in mind examples from one specific area of the social sciences to illustrate these points -- sociology. How do these claims look, however, when we consider them in light of political science?
If we wanted to provide a brief definition of "politics", it might go along these lines: the institutions and patterns of behavior through which decisions about public policies and the expenditure of public resources are determined and implemented. This includes study of the personnel of governing institutions; the nature of governing institutions; and the strategies and behavior of all those affected by those institutions.
There is one clear sense in which politics and government contain "levels". This derives from the fact that governance systems have a hierarchical, semi-nested structure of ascending scope of control and authority. In the United States we have Federal laws, state laws, and county and municipal laws. And this differentiation also imposes a criterion of level: higher level means broader jurisdiction over territory and population. Each possesses a set of legislative institutions and officials, along with a bureaucracy focused on implementation and enforcement. These zones of governance authority differ in terms of scope and scale, with units of governance ranging from national to state to county and city.
However, these zones of political governance are not hierarchical in another important sense: the Federal level is not composed of the state or municipal governance systems. Rather, each is independent from the other. Higher-level units have the authority to enact rules and laws (in some instances) that constrain the actions of the lower-level jurisdictions. But the personnel, officials, and systems of the two jurisdictions are distinct and independent. And it is entirely possible, even predictable, that there will be policy disagreements between them.
A second clear interpretation of "levels" of governance corresponds to the formal hierarchy of a large administrative system. The President exercises authority at the highest level within the executive branch. Cabinet secretaries report to the president and manage and direct complex and extensive organizations (Departments) dedicated to specific functions: Justice, Environmental Protection, Education, ... Each department of the executive branch in turn consists of a descending proliferation of bureaus, regional offices, field offices, and the like. The Chicago field office of the XYZ department reports to a regional director, who takes direction from the Secretary. The layers of the organization of government can be referred to as "levels," differentiated by position within a hierarchical system.
It is also evident that the networks of power and influence that operate at the Federal level are distinct from those at the state or local level. The powerful individuals are different, the organizations through which they exercise their influence are different, and the sources of their power are different. The Daley machine in Chicago in the 1960s exercised great power in city politics, middling power in the corridors of Illinois government, and less influence at the Congressional level. So the different "levels" of government correspond to different loci of influence and activism, and the study of Congressional politics may lead to rather different findings from the study of state or municipal politics.
This means that scholars who are primarily interested in the political mechanisms through which various policies get chosen will select carefully the networks of individuals and organizations they study, in order to shed light on the operative level of governance. But it would be misleading to describe these as different "levels" of politics; rather, different people and organizations are at work in similar policy areas with uncoordinated results in Chicago, Cook County, Springfield, and Washington.
So the idea of "levels" of politics doesn't seem to be a particularly valuable conceptual scheme when it comes to analyzing political behavior and organization. It misleads us into thinking that politics has a fundamental structure from low to high. Instead, we are perhaps better served by a view that picks out various arenas of conflict over resources -- politics -- without the orienting language of higher and lower levels.
Wherever we start our examination of the social world, from the situation of particular individuals, to labor unions, firms, and faith organizations, to federal agencies and multinational trading regimes, the logic of the social world seems to be the same: there are groups of actors planning and acting in that locus, there are structures and rules that surround them, and there are organizations and structures that are broader in scope and jurisdiction and there are such at lesser levels of scope and jurisdiction. There is an up, down, and sideways everywhere in social action. And this is equally true in the zone of political action and institution.
Showing posts with label policy. Show all posts
Showing posts with label policy. Show all posts
Sunday, October 23, 2011
Levels of politics
I've focused occasionally on the idea of "levels" of social arrangements, from the local to the intermediate to the higher levels, with the idea that higher levels are composed of structures and activities at lower levels. Generally I've had in mind examples from one specific area of the social sciences to illustrate these points -- sociology. How do these claims look, however, when we consider them in light of political science?
If we wanted to provide a brief definition of "politics", it might go along these lines: the institutions and patterns of behavior through which decisions about public policies and the expenditure of public resources are determined and implemented. This includes study of the personnel of governing institutions; the nature of governing institutions; and the strategies and behavior of all those affected by those institutions.
There is one clear sense in which politics and government contain "levels". This derives from the fact that governance systems have a hierarchical, semi-nested structure of ascending scope of control and authority. In the United States we have Federal laws, state laws, and county and municipal laws. And this differentiation also imposes a criterion of level: higher level means broader jurisdiction over territory and population. Each possesses a set of legislative institutions and officials, along with a bureaucracy focused on implementation and enforcement. These zones of governance authority differ in terms of scope and scale, with units of governance ranging from national to state to county and city.
However, these zones of political governance are not hierarchical in another important sense: the Federal level is not composed of the state or municipal governance systems. Rather, each is independent from the other. Higher-level units have the authority to enact rules and laws (in some instances) that constrain the actions of the lower-level jurisdictions. But the personnel, officials, and systems of the two jurisdictions are distinct and independent. And it is entirely possible, even predictable, that there will be policy disagreements between them.
A second clear interpretation of "levels" of governance corresponds to the formal hierarchy of a large administrative system. The President exercises authority at the highest level within the executive branch. Cabinet secretaries report to the president and manage and direct complex and extensive organizations (Departments) dedicated to specific functions: Justice, Environmental Protection, Education, ... Each department of the executive branch in turn consists of a descending proliferation of bureaus, regional offices, field offices, and the like. The Chicago field office of the XYZ department reports to a regional director, who takes direction from the Secretary. The layers of the organization of government can be referred to as "levels," differentiated by position within a hierarchical system.
It is also evident that the networks of power and influence that operate at the Federal level are distinct from those at the state or local level. The powerful individuals are different, the organizations through which they exercise their influence are different, and the sources of their power are different. The Daley machine in Chicago in the 1960s exercised great power in city politics, middling power in the corridors of Illinois government, and less influence at the Congressional level. So the different "levels" of government correspond to different loci of influence and activism, and the study of Congressional politics may lead to rather different findings from the study of state or municipal politics.
This means that scholars who are primarily interested in the political mechanisms through which various policies get chosen will select carefully the networks of individuals and organizations they study, in order to shed light on the operative level of governance. But it would be misleading to describe these as different "levels" of politics; rather, different people and organizations are at work in similar policy areas with uncoordinated results in Chicago, Cook County, Springfield, and Washington.
So the idea of "levels" of politics doesn't seem to be a particularly valuable conceptual scheme when it comes to analyzing political behavior and organization. It misleads us into thinking that politics has a fundamental structure from low to high. Instead, we are perhaps better served by a view that picks out various arenas of conflict over resources -- politics -- without the orienting language of higher and lower levels.
Wherever we start our examination of the social world, from the situation of particular individuals, to labor unions, firms, and faith organizations, to federal agencies and multinational trading regimes, the logic of the social world seems to be the same: there are groups of actors planning and acting in that locus, there are structures and rules that surround them, and there are organizations and structures that are broader in scope and jurisdiction and there are such at lesser levels of scope and jurisdiction. There is an up, down, and sideways everywhere in social action. And this is equally true in the zone of political action and institution.
If we wanted to provide a brief definition of "politics", it might go along these lines: the institutions and patterns of behavior through which decisions about public policies and the expenditure of public resources are determined and implemented. This includes study of the personnel of governing institutions; the nature of governing institutions; and the strategies and behavior of all those affected by those institutions.
There is one clear sense in which politics and government contain "levels". This derives from the fact that governance systems have a hierarchical, semi-nested structure of ascending scope of control and authority. In the United States we have Federal laws, state laws, and county and municipal laws. And this differentiation also imposes a criterion of level: higher level means broader jurisdiction over territory and population. Each possesses a set of legislative institutions and officials, along with a bureaucracy focused on implementation and enforcement. These zones of governance authority differ in terms of scope and scale, with units of governance ranging from national to state to county and city.
However, these zones of political governance are not hierarchical in another important sense: the Federal level is not composed of the state or municipal governance systems. Rather, each is independent from the other. Higher-level units have the authority to enact rules and laws (in some instances) that constrain the actions of the lower-level jurisdictions. But the personnel, officials, and systems of the two jurisdictions are distinct and independent. And it is entirely possible, even predictable, that there will be policy disagreements between them.
A second clear interpretation of "levels" of governance corresponds to the formal hierarchy of a large administrative system. The President exercises authority at the highest level within the executive branch. Cabinet secretaries report to the president and manage and direct complex and extensive organizations (Departments) dedicated to specific functions: Justice, Environmental Protection, Education, ... Each department of the executive branch in turn consists of a descending proliferation of bureaus, regional offices, field offices, and the like. The Chicago field office of the XYZ department reports to a regional director, who takes direction from the Secretary. The layers of the organization of government can be referred to as "levels," differentiated by position within a hierarchical system.
It is also evident that the networks of power and influence that operate at the Federal level are distinct from those at the state or local level. The powerful individuals are different, the organizations through which they exercise their influence are different, and the sources of their power are different. The Daley machine in Chicago in the 1960s exercised great power in city politics, middling power in the corridors of Illinois government, and less influence at the Congressional level. So the different "levels" of government correspond to different loci of influence and activism, and the study of Congressional politics may lead to rather different findings from the study of state or municipal politics.
This means that scholars who are primarily interested in the political mechanisms through which various policies get chosen will select carefully the networks of individuals and organizations they study, in order to shed light on the operative level of governance. But it would be misleading to describe these as different "levels" of politics; rather, different people and organizations are at work in similar policy areas with uncoordinated results in Chicago, Cook County, Springfield, and Washington.
So the idea of "levels" of politics doesn't seem to be a particularly valuable conceptual scheme when it comes to analyzing political behavior and organization. It misleads us into thinking that politics has a fundamental structure from low to high. Instead, we are perhaps better served by a view that picks out various arenas of conflict over resources -- politics -- without the orienting language of higher and lower levels.
Wherever we start our examination of the social world, from the situation of particular individuals, to labor unions, firms, and faith organizations, to federal agencies and multinational trading regimes, the logic of the social world seems to be the same: there are groups of actors planning and acting in that locus, there are structures and rules that surround them, and there are organizations and structures that are broader in scope and jurisdiction and there are such at lesser levels of scope and jurisdiction. There is an up, down, and sideways everywhere in social action. And this is equally true in the zone of political action and institution.
Levels of politics
I've focused occasionally on the idea of "levels" of social arrangements, from the local to the intermediate to the higher levels, with the idea that higher levels are composed of structures and activities at lower levels. Generally I've had in mind examples from one specific area of the social sciences to illustrate these points -- sociology. How do these claims look, however, when we consider them in light of political science?
If we wanted to provide a brief definition of "politics", it might go along these lines: the institutions and patterns of behavior through which decisions about public policies and the expenditure of public resources are determined and implemented. This includes study of the personnel of governing institutions; the nature of governing institutions; and the strategies and behavior of all those affected by those institutions.
There is one clear sense in which politics and government contain "levels". This derives from the fact that governance systems have a hierarchical, semi-nested structure of ascending scope of control and authority. In the United States we have Federal laws, state laws, and county and municipal laws. And this differentiation also imposes a criterion of level: higher level means broader jurisdiction over territory and population. Each possesses a set of legislative institutions and officials, along with a bureaucracy focused on implementation and enforcement. These zones of governance authority differ in terms of scope and scale, with units of governance ranging from national to state to county and city.
However, these zones of political governance are not hierarchical in another important sense: the Federal level is not composed of the state or municipal governance systems. Rather, each is independent from the other. Higher-level units have the authority to enact rules and laws (in some instances) that constrain the actions of the lower-level jurisdictions. But the personnel, officials, and systems of the two jurisdictions are distinct and independent. And it is entirely possible, even predictable, that there will be policy disagreements between them.
A second clear interpretation of "levels" of governance corresponds to the formal hierarchy of a large administrative system. The President exercises authority at the highest level within the executive branch. Cabinet secretaries report to the president and manage and direct complex and extensive organizations (Departments) dedicated to specific functions: Justice, Environmental Protection, Education, ... Each department of the executive branch in turn consists of a descending proliferation of bureaus, regional offices, field offices, and the like. The Chicago field office of the XYZ department reports to a regional director, who takes direction from the Secretary. The layers of the organization of government can be referred to as "levels," differentiated by position within a hierarchical system.
It is also evident that the networks of power and influence that operate at the Federal level are distinct from those at the state or local level. The powerful individuals are different, the organizations through which they exercise their influence are different, and the sources of their power are different. The Daley machine in Chicago in the 1960s exercised great power in city politics, middling power in the corridors of Illinois government, and less influence at the Congressional level. So the different "levels" of government correspond to different loci of influence and activism, and the study of Congressional politics may lead to rather different findings from the study of state or municipal politics.
This means that scholars who are primarily interested in the political mechanisms through which various policies get chosen will select carefully the networks of individuals and organizations they study, in order to shed light on the operative level of governance. But it would be misleading to describe these as different "levels" of politics; rather, different people and organizations are at work in similar policy areas with uncoordinated results in Chicago, Cook County, Springfield, and Washington.
So the idea of "levels" of politics doesn't seem to be a particularly valuable conceptual scheme when it comes to analyzing political behavior and organization. It misleads us into thinking that politics has a fundamental structure from low to high. Instead, we are perhaps better served by a view that picks out various arenas of conflict over resources -- politics -- without the orienting language of higher and lower levels.
Wherever we start our examination of the social world, from the situation of particular individuals, to labor unions, firms, and faith organizations, to federal agencies and multinational trading regimes, the logic of the social world seems to be the same: there are groups of actors planning and acting in that locus, there are structures and rules that surround them, and there are organizations and structures that are broader in scope and jurisdiction and there are such at lesser levels of scope and jurisdiction. There is an up, down, and sideways everywhere in social action. And this is equally true in the zone of political action and institution.
If we wanted to provide a brief definition of "politics", it might go along these lines: the institutions and patterns of behavior through which decisions about public policies and the expenditure of public resources are determined and implemented. This includes study of the personnel of governing institutions; the nature of governing institutions; and the strategies and behavior of all those affected by those institutions.
There is one clear sense in which politics and government contain "levels". This derives from the fact that governance systems have a hierarchical, semi-nested structure of ascending scope of control and authority. In the United States we have Federal laws, state laws, and county and municipal laws. And this differentiation also imposes a criterion of level: higher level means broader jurisdiction over territory and population. Each possesses a set of legislative institutions and officials, along with a bureaucracy focused on implementation and enforcement. These zones of governance authority differ in terms of scope and scale, with units of governance ranging from national to state to county and city.
However, these zones of political governance are not hierarchical in another important sense: the Federal level is not composed of the state or municipal governance systems. Rather, each is independent from the other. Higher-level units have the authority to enact rules and laws (in some instances) that constrain the actions of the lower-level jurisdictions. But the personnel, officials, and systems of the two jurisdictions are distinct and independent. And it is entirely possible, even predictable, that there will be policy disagreements between them.
A second clear interpretation of "levels" of governance corresponds to the formal hierarchy of a large administrative system. The President exercises authority at the highest level within the executive branch. Cabinet secretaries report to the president and manage and direct complex and extensive organizations (Departments) dedicated to specific functions: Justice, Environmental Protection, Education, ... Each department of the executive branch in turn consists of a descending proliferation of bureaus, regional offices, field offices, and the like. The Chicago field office of the XYZ department reports to a regional director, who takes direction from the Secretary. The layers of the organization of government can be referred to as "levels," differentiated by position within a hierarchical system.
It is also evident that the networks of power and influence that operate at the Federal level are distinct from those at the state or local level. The powerful individuals are different, the organizations through which they exercise their influence are different, and the sources of their power are different. The Daley machine in Chicago in the 1960s exercised great power in city politics, middling power in the corridors of Illinois government, and less influence at the Congressional level. So the different "levels" of government correspond to different loci of influence and activism, and the study of Congressional politics may lead to rather different findings from the study of state or municipal politics.
This means that scholars who are primarily interested in the political mechanisms through which various policies get chosen will select carefully the networks of individuals and organizations they study, in order to shed light on the operative level of governance. But it would be misleading to describe these as different "levels" of politics; rather, different people and organizations are at work in similar policy areas with uncoordinated results in Chicago, Cook County, Springfield, and Washington.
So the idea of "levels" of politics doesn't seem to be a particularly valuable conceptual scheme when it comes to analyzing political behavior and organization. It misleads us into thinking that politics has a fundamental structure from low to high. Instead, we are perhaps better served by a view that picks out various arenas of conflict over resources -- politics -- without the orienting language of higher and lower levels.
Wherever we start our examination of the social world, from the situation of particular individuals, to labor unions, firms, and faith organizations, to federal agencies and multinational trading regimes, the logic of the social world seems to be the same: there are groups of actors planning and acting in that locus, there are structures and rules that surround them, and there are organizations and structures that are broader in scope and jurisdiction and there are such at lesser levels of scope and jurisdiction. There is an up, down, and sideways everywhere in social action. And this is equally true in the zone of political action and institution.
Saturday, May 7, 2011
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.)
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!)
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.)
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!)
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.)
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!)
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!)
Monday, July 5, 2010
Feasibility conditions on social reform
Several earlier posts have raised the issues of social change and social progress (post, post). People sometimes want society to be different (change), and they want it to be better (progress). But not all outcomes are possible, and some possible outcomes are not sustainable over time. So how should we think about sweeping prescriptions for social change? What constraints does social reality impose upon the reformer? And what kinds of moral and political constraints should be respected as we advocate for change?
Consider an analogy with the natural sciences and engineering. Physics and the natural sciences set the boundary conditions on what kinds of structures can be built and used. Engineering design involves acquiring a detailed knowledge of the natural properties of materials and structures, and then designing artifacts that satisfy human needs. The human-built world is not determined by the laws of physics, since there are countless different technologies that could have satisfied human needs consistent with physics; but it is constrained by the laws of physics. What is the corresponding relationship between the social sciences and social reform?
Let's begin by giving a schematic definition of a reform program. A program for reform consists of several things: a representation of the existing social world; a critique of some aspects of that world; a prescription for what the reformer believes would be a better social world; and a developed strategy for moving society from here to there. Reformers think that a specified set of changes will make for a better environment for some aspect of human life, for a group or for the population as a whole. The representation of the current social world may include several different kinds of elements: representation of typical social behavior, representation of existing institutions and practices, and representations of things like justice, power, inequality, and repression.
For example, suppose one was an anti-racist reformer in the US in 1850 or 1950. The diagnosis of the present may be that current institutions and majority attitudes, behaviors, and practices systematically repress, demean, and stunt members of the racial minority. The reformer's goal may be the creation of a society in which racial oppression, discrimination, and bias do not exist. And the strategy may be to create powerful coalitions of players in society who will work effectively and quickly to disassemble racist laws and institutions and to educate the public to leave behind their racist attitudes and beliefs.
So what are some of the basic conditions of realism and feasibility that a legitimate program of reform must satisfy? For a proposed reform agenda to be rationally supportable, its goals must be feasible and accessible. The institutions, practices, and behaviors it postulates as an end state need to be consistent with what we know about how a society works. And there needs to be a possible pathway through which society can move from here to there.
In other words, the social reformer needs to demonstrate that --
- The described social arrangement can be implemented, given ordinary people and ordinary social processes and mechanisms; in other words, the social arrangement doesn't require a miracle to be achieved.
- The arrangement will have a significant likelihood of being sustainable and self-reproducing, given ordinary people and ordinary social processes. No miracles are needed to sustain the new society.
- There is a feasible pathway that can take us from here to there, consistent with ordinary people AND some set of moral constraints (democracy, commitment to legal processes, no illegal use of force).
- The described social arrangement will be efficacious: it will have the social effects that it is planned to have.
Second, the program needs to envision institutions that work correctly together: they successfully coordinate behavior, motivate citizens, raise public revenues, and maintain order as a coherent system. For example, we could have little confidence in a theory of the future that postulated a wide range of public services and a fiscal model that depended entirely on voluntary contributions by citizens to society's coffers. And we would likewise be skeptical about a vision of the future that aggregated local functions like trash collection and building inspections to the national level.
Third, we would want to specify that we need to have a theory of democratic feasibility: that there is a strategy of change that can be successfully executed within the constraints of a democratic society. No "dictatorship of the proletariat" on the road to a more just future; no use of violence by a minority party aiming to achieve its goals by force.
The social sciences can assist with each of these challenges. Consider first the "ordinary behavior" condition. Empirical studies of human behavior -- motivations, modes of reasoning, schemes of action -- provide a rich set of tools in terms of which to assess the likely behavior of individuals within a hypothetical social context. Ethnography, social psychology, applied rational choice theory, and the philosophy of action all have much to contribute on this issue.
Turn next to the "institutional workings" condition. One of the central tasks of the "new institutionalism" is to provide theories of the mechanisms and processes through which specific institutions interact with human actors to bring about social outcomes. So institutionalists from sociology, political science, and economics have many of the tools necessary to provide an assessment of the likely workings of a specified set of hypothetical institutions.
The social sciences are also relevant to assessing the democratic feasibility requirement. Policies are implemented by governments, and governments are subject to a variety of political constraints. Within a democratic electoral system governments are unavoidably concerned about the effects of various policies on the electoral blocks upon which they depend. We can reason in some detail, as Adam Przeworski does in Capitalism and Social Democracy
, about the feasibility of maintaining an electoral majority in favor of a given reform program over the period of time that would be required.There is an important implication in all of this. Envisioning a better future for our society is a good thing. But in order to have a defensible plan for creating that future, we need to make the very best use possible of the social sciences in order to assess the feasibility, stability, and efficacy of the ideas for which we advocate. Not all visions for the future can be realized; and some visions turn out to have unintended and unanticipated consequences that have proven disastrous.
Feasibility conditions on social reform
Several earlier posts have raised the issues of social change and social progress (post, post). People sometimes want society to be different (change), and they want it to be better (progress). But not all outcomes are possible, and some possible outcomes are not sustainable over time. So how should we think about sweeping prescriptions for social change? What constraints does social reality impose upon the reformer? And what kinds of moral and political constraints should be respected as we advocate for change?
Consider an analogy with the natural sciences and engineering. Physics and the natural sciences set the boundary conditions on what kinds of structures can be built and used. Engineering design involves acquiring a detailed knowledge of the natural properties of materials and structures, and then designing artifacts that satisfy human needs. The human-built world is not determined by the laws of physics, since there are countless different technologies that could have satisfied human needs consistent with physics; but it is constrained by the laws of physics. What is the corresponding relationship between the social sciences and social reform?
Let's begin by giving a schematic definition of a reform program. A program for reform consists of several things: a representation of the existing social world; a critique of some aspects of that world; a prescription for what the reformer believes would be a better social world; and a developed strategy for moving society from here to there. Reformers think that a specified set of changes will make for a better environment for some aspect of human life, for a group or for the population as a whole. The representation of the current social world may include several different kinds of elements: representation of typical social behavior, representation of existing institutions and practices, and representations of things like justice, power, inequality, and repression.
For example, suppose one was an anti-racist reformer in the US in 1850 or 1950. The diagnosis of the present may be that current institutions and majority attitudes, behaviors, and practices systematically repress, demean, and stunt members of the racial minority. The reformer's goal may be the creation of a society in which racial oppression, discrimination, and bias do not exist. And the strategy may be to create powerful coalitions of players in society who will work effectively and quickly to disassemble racist laws and institutions and to educate the public to leave behind their racist attitudes and beliefs.
So what are some of the basic conditions of realism and feasibility that a legitimate program of reform must satisfy? For a proposed reform agenda to be rationally supportable, its goals must be feasible and accessible. The institutions, practices, and behaviors it postulates as an end state need to be consistent with what we know about how a society works. And there needs to be a possible pathway through which society can move from here to there.
In other words, the social reformer needs to demonstrate that --
- The described social arrangement can be implemented, given ordinary people and ordinary social processes and mechanisms; in other words, the social arrangement doesn't require a miracle to be achieved.
- The arrangement will have a significant likelihood of being sustainable and self-reproducing, given ordinary people and ordinary social processes. No miracles are needed to sustain the new society.
- There is a feasible pathway that can take us from here to there, consistent with ordinary people AND some set of moral constraints (democracy, commitment to legal processes, no illegal use of force).
- The described social arrangement will be efficacious: it will have the social effects that it is planned to have.
Second, the program needs to envision institutions that work correctly together: they successfully coordinate behavior, motivate citizens, raise public revenues, and maintain order as a coherent system. For example, we could have little confidence in a theory of the future that postulated a wide range of public services and a fiscal model that depended entirely on voluntary contributions by citizens to society's coffers. And we would likewise be skeptical about a vision of the future that aggregated local functions like trash collection and building inspections to the national level.
Third, we would want to specify that we need to have a theory of democratic feasibility: that there is a strategy of change that can be successfully executed within the constraints of a democratic society. No "dictatorship of the proletariat" on the road to a more just future; no use of violence by a minority party aiming to achieve its goals by force.
The social sciences can assist with each of these challenges. Consider first the "ordinary behavior" condition. Empirical studies of human behavior -- motivations, modes of reasoning, schemes of action -- provide a rich set of tools in terms of which to assess the likely behavior of individuals within a hypothetical social context. Ethnography, social psychology, applied rational choice theory, and the philosophy of action all have much to contribute on this issue.
Turn next to the "institutional workings" condition. One of the central tasks of the "new institutionalism" is to provide theories of the mechanisms and processes through which specific institutions interact with human actors to bring about social outcomes. So institutionalists from sociology, political science, and economics have many of the tools necessary to provide an assessment of the likely workings of a specified set of hypothetical institutions.
The social sciences are also relevant to assessing the democratic feasibility requirement. Policies are implemented by governments, and governments are subject to a variety of political constraints. Within a democratic electoral system governments are unavoidably concerned about the effects of various policies on the electoral blocks upon which they depend. We can reason in some detail, as Adam Przeworski does in Capitalism and Social Democracy
, about the feasibility of maintaining an electoral majority in favor of a given reform program over the period of time that would be required.There is an important implication in all of this. Envisioning a better future for our society is a good thing. But in order to have a defensible plan for creating that future, we need to make the very best use possible of the social sciences in order to assess the feasibility, stability, and efficacy of the ideas for which we advocate. Not all visions for the future can be realized; and some visions turn out to have unintended and unanticipated consequences that have proven disastrous.
Feasibility conditions on social reform
Several earlier posts have raised the issues of social change and social progress (post, post). People sometimes want society to be different (change), and they want it to be better (progress). But not all outcomes are possible, and some possible outcomes are not sustainable over time. So how should we think about sweeping prescriptions for social change? What constraints does social reality impose upon the reformer? And what kinds of moral and political constraints should be respected as we advocate for change?
Consider an analogy with the natural sciences and engineering. Physics and the natural sciences set the boundary conditions on what kinds of structures can be built and used. Engineering design involves acquiring a detailed knowledge of the natural properties of materials and structures, and then designing artifacts that satisfy human needs. The human-built world is not determined by the laws of physics, since there are countless different technologies that could have satisfied human needs consistent with physics; but it is constrained by the laws of physics. What is the corresponding relationship between the social sciences and social reform?
Let's begin by giving a schematic definition of a reform program. A program for reform consists of several things: a representation of the existing social world; a critique of some aspects of that world; a prescription for what the reformer believes would be a better social world; and a developed strategy for moving society from here to there. Reformers think that a specified set of changes will make for a better environment for some aspect of human life, for a group or for the population as a whole. The representation of the current social world may include several different kinds of elements: representation of typical social behavior, representation of existing institutions and practices, and representations of things like justice, power, inequality, and repression.
For example, suppose one was an anti-racist reformer in the US in 1850 or 1950. The diagnosis of the present may be that current institutions and majority attitudes, behaviors, and practices systematically repress, demean, and stunt members of the racial minority. The reformer's goal may be the creation of a society in which racial oppression, discrimination, and bias do not exist. And the strategy may be to create powerful coalitions of players in society who will work effectively and quickly to disassemble racist laws and institutions and to educate the public to leave behind their racist attitudes and beliefs.
So what are some of the basic conditions of realism and feasibility that a legitimate program of reform must satisfy? For a proposed reform agenda to be rationally supportable, its goals must be feasible and accessible. The institutions, practices, and behaviors it postulates as an end state need to be consistent with what we know about how a society works. And there needs to be a possible pathway through which society can move from here to there.
In other words, the social reformer needs to demonstrate that --
- The described social arrangement can be implemented, given ordinary people and ordinary social processes and mechanisms; in other words, the social arrangement doesn't require a miracle to be achieved.
- The arrangement will have a significant likelihood of being sustainable and self-reproducing, given ordinary people and ordinary social processes. No miracles are needed to sustain the new society.
- There is a feasible pathway that can take us from here to there, consistent with ordinary people AND some set of moral constraints (democracy, commitment to legal processes, no illegal use of force).
- The described social arrangement will be efficacious: it will have the social effects that it is planned to have.
Second, the program needs to envision institutions that work correctly together: they successfully coordinate behavior, motivate citizens, raise public revenues, and maintain order as a coherent system. For example, we could have little confidence in a theory of the future that postulated a wide range of public services and a fiscal model that depended entirely on voluntary contributions by citizens to society's coffers. And we would likewise be skeptical about a vision of the future that aggregated local functions like trash collection and building inspections to the national level.
Third, we would want to specify that we need to have a theory of democratic feasibility: that there is a strategy of change that can be successfully executed within the constraints of a democratic society. No "dictatorship of the proletariat" on the road to a more just future; no use of violence by a minority party aiming to achieve its goals by force.
The social sciences can assist with each of these challenges. Consider first the "ordinary behavior" condition. Empirical studies of human behavior -- motivations, modes of reasoning, schemes of action -- provide a rich set of tools in terms of which to assess the likely behavior of individuals within a hypothetical social context. Ethnography, social psychology, applied rational choice theory, and the philosophy of action all have much to contribute on this issue.
Turn next to the "institutional workings" condition. One of the central tasks of the "new institutionalism" is to provide theories of the mechanisms and processes through which specific institutions interact with human actors to bring about social outcomes. So institutionalists from sociology, political science, and economics have many of the tools necessary to provide an assessment of the likely workings of a specified set of hypothetical institutions.
The social sciences are also relevant to assessing the democratic feasibility requirement. Policies are implemented by governments, and governments are subject to a variety of political constraints. Within a democratic electoral system governments are unavoidably concerned about the effects of various policies on the electoral blocks upon which they depend. We can reason in some detail, as Adam Przeworski does in Capitalism and Social Democracy
, about the feasibility of maintaining an electoral majority in favor of a given reform program over the period of time that would be required.There is an important implication in all of this. Envisioning a better future for our society is a good thing. But in order to have a defensible plan for creating that future, we need to make the very best use possible of the social sciences in order to assess the feasibility, stability, and efficacy of the ideas for which we advocate. Not all visions for the future can be realized; and some visions turn out to have unintended and unanticipated consequences that have proven disastrous.
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