Romeo Area Tea Party

Posts Tagged ‘Governor Snyder’

What a ridiculous question!

Both Governors Snyder and Granholm seek a new Bridge to Canada between Detroit and Windsor.  The “Bridge Issue” has raised intense feelings on both sides of the fight (as well as the border).  By and large, conservatives oppose government funding of a new bridge at this time.  This conservative stand seems to hold steady, regardless of which government pays for the bridge: 1) the State of Michigan, 2) the U.S. Government, or 3) the Canadian government.

For months the RATP has considered the “Bridge Issue” and had wished to present its members with plenty of facts, so individuals could make up their own mind.  There is no shortage of studies “for or against” the Bridge Issue.  Imbedded here we provide but a few of the many research links we have found on the topic.  We caution you, that you must consider the source of each study as a premise for the study’s conclusions.

For Fiscal Conservatives, we present the “Bridge Question” in the following simple analogy.  Try to recognize the components of the Bridge Issue as you read our analogy.

The RATP Bridge Fable

Suppose you belong to a family of six.  You and your spouse have four children who are reasonably close in age to each other.  Most of your children are about thirty years-old in the present day.  Back in 1995 your oldest child had just received their first State of Michigan driver’s license.  At that time, the family was planning to add at least one car to the driveway.  In a very short time you have more cars and build an additional one car bay on your existing garage.

As time passed, all of your children learned to drive, graduated high school, went on to college and eventually left the home.  (No, this isn’t a reality show.  It’s a fable, but let just pretend for the moment.)

Through the years your driveway became cluttered and that extra garage really helped with all your extra stuff.  Today though, you merely pay more taxes for the extra garage and your driveway is only challenged on a few weekends or holidays.  Most of the time, there is plenty or room in the driveway to spare.

This morning your spouse approached you with a request to widen the driveway and add another bay onto the garage.  The thought was to prepare your home for all the cars your grandchildren would drive when they come to visit.  You’ve already paid off the previous addition, but you continue to incur annual property taxes and on going maintenance caused by the previous expansion.

Meanwhile, you’re closing in on retirement and money is in short supply.  The company you work for has cut out all overtime.  You get by every month, but mostly because the kids have moved on and your expenses are reduced.  You continue to make payments on all the other promises you’ve made, which includes helping to pay off some of those student loans.  The bank is willing to loan you more money for the project.  The talk around the holiday dinner table includes the promise of many grandchildren.  What do you do?

STOP !!  This is just crazy!

Now reread the story above making the following substitutions:

1)       The State of Michigan is your Family of Six.

2)       Each bay of the garage is a border crossing.

Note: Michigan added a span to the Blue Water Bridge in 1997

3)       The passage of NAFTA is you child’s Driver’s License.

4)       Your annual Property Taxes is the annual Bridge maintenance costs.

5)       Cars in the drive are cars on the bridge.

6)       The Bank is the Federal Government (pay me now or pay me later).

7)       Those Student Loans are the Federal Debt.

No body’s pregnant!  You’ve got more room now, than every before!

From what we can discern from all the Bridge Studies we’ve reviewed, even the proponent’s own data indicates a 25%-30% reduction in traffic volumes.  The question must be raised, “what exactly is the point of our fiscally strapped government(s) in seeking to build a new Detroit Windsor bridge?

The best research link we could find on the subject is U.S. Government’s own Bureau of Transportation Static’s interactive query site.  Click here to do your own research, by border state, individual border crossing location, date range, vehicle type, etc.  Use this tool to quickly raise your own questions about the issue.  From this research tool, consider the following basic points.

Since the implementation of NAFTA in January 1994, total boarder crossings by trucks in Michigan remain virtually unchanged, peaking in the 2004-2005 era.  Meanwhile, bus traffic is down 30+% peaking in 2003-2004 and personal vehicle crossings have declined steadily by 40% over the same time frame.  Note: That time frame includes the addition of a second Blue Water Bridge span, while all Michigan border crossings declined.

Does that seem like a strange question? After all, in the current Michigan budget debate we hear often that Governor Snyder wants to give corporations a huge tax break on the back of middle class citizens with pensions.  And there is no doubt that with the elimination of the Michigan Business Tax many corporations will pay less in taxes.

But the question is still germane, and very important to understand. The point is that a corporation, regardless of the fact that it writes a check from its account once a year to pay the Michigan Business Tax, does not actually pay taxes. Consider the following from Uwe Reinhardt, a professor of economics at Princeton University:

… corporations cannot possibly pay the corporate income tax, because they are not human beings. Instead, that tax always is fully passed to one or all of three groups of human beings: to customers through higher prices, to shareholders through lower returns on capital, or to employees through lower take-home pay. Under fierce global competition, the potential of shifting corporate taxes to customers often is limited. Similarly, in a global capital market, the corporate tax cannot easily be shifted to capital owners who have the option of taking their capital elsewhere. Economists therefore suspect that the bulk of the corporate income tax is shifted back to the least global mobile target, the employees.

Take the example of Widgets, Inc. This a corporation formed though investments by Mom and Dad, Grandma and Grandpa and a 2nd mortgage on your house. You buy raw materials from vendors, and you and your employee make widgets. You hire a guy to sell and he pounds the pavement until you have some customers. Since your new ‘mouse trap’ take the world by storm, you start to make some profits. Being a wise old business person you realize that at the end of the year you are going to have to make a payment to the government on your profits. What should you do?

You could raise prices on your mouse trap, but the competition is already hard on your heels. You could ask your vendors to lower the price of raw materials, but you scouted the market and have the best deal out there already. Your relatives expect some payback on their investment, and the last thing you want to do is explain to your own family that you have lost the house because the business is too successful. Your sales person keeps bringing in more orders and you need to buy more machines to build more mouse traps, and purchase more raw materials. The only way to do it all and keep your new company growing is to hold down wages. Your employees, by not receiving a share of the company’s success, ultimately pay the corporate income tax. This explains why business owners hand out Christmas hams – they are thanking you for paying the Michigan Business Tax!

But seriously, it should be obvious that a corporation is simply a legal entity through which the business transactions of the company flow. A corporation can no more pay taxes than a widget machine, a desk, an adding machine can pay taxes. Yet these things comprise the tangible assets of the company.

The answer then to our original question is that you cannot give a corporation a tax break because you cannot collect taxes from a corporation.You can however give the employees of a corporation a tax break. And it’s about time that we do.

Governor Rick Snyder released his budget a few weeks ago and after having an opportunity to take a look and think about it, there is one change he proposes that we have no complaint with whatsoever: Ending the film subsidies.

Keep in mind that the subsidies hand over $.42 to a film making corporation for every $1 dollar they spend in the state. WJR’s Frank Beckmann has an excellent article that details some of the misleading information you hear about this subsidy in the mainstream news. We agree with his analysis that while the subsidies do generate economic activity, the taxes they create fall woefully short of replenishing the taxes coffers. In fact, the Ernst and Young report that states that each dollar of subsidy generates $6 of activity also explains that we have spent $130 million on subsidies, from tax dollars, while only recouping $37 million in taxes. That leaves our tax coffers $93 million short.

What this means simply is that there is no way of creating a self perpetuating machine, even, and especially, with government financial backing. Remember, the tax credits come from somewhere; other businesses and consumers who had less to spend, save and invest as a result of these taxes being collected.  You cannot spend your way to prosperity.

Government has a role to play in the economy, of course. But building and maintaining an important road is quite different from deciding you gets to use it and then paying them to use it. Picking winners and losers in the economy is never a good idea for the government funds. Crony capitalism is a waste of capital, and cronies never make good business people.

But there is one other argument against the subsidies that I have not heard from anyone covering the story, from either side: Michigan, or any other state, will never be able to swallow the film industry whole, and it is business naivete to believe that offering subsidies will ever change this reality.

The film industry is today a complex business that requires the contributions of a huge number of people to succeed. Gone are the days of simple stories about average people, or even simple stories about the rich and famous. Hollywood movies today are spectacles more than stories on the screen, and they take huge numbers of people behind the scenes to design the special effects and other graphic work.

In fact, a Michigan native with an Engineering Arts degree from MSU, Sean Phillips of Westland, was recently nominated for an Academy Award for his graphic design work on the movie Alice in Wonderland. This is not the sexy work of big name Hollywood actors filming in downtown Detroit, but there is a huge amount of this type of work going on in computer graphic studios today. It makes sense to us that with our state’s background in engineering and design we look to make inroads into the technical aspects of the film and entertainment industries.

Michigan might have the occasional film shot here, but the real growth area in entertainment happens on a computer, not on Woodward Avenue. It’s time for Michigan to play it smart for change; take a look at our strengths and where the computerized world is heading and try to intersect it. Think of how well we might have positioned our state for the future if we had invested $130 million in our university’s design and engineering programs, instead of writing subsidy checks for catering and other film expenses?

The proponents of the Michigan film credits want desperately to make our state a player in the modern entertainment industry, instead of just fly-over land populated by bumpkins. But their program of trying to land film locations in the state is just the kind of naive business plan that Hollywood film makers expect from us. We can do better, and Sean Phillips proves it.