Governor Romney had also been preoccupied during this, his last term, seeking the Republican nomination for U.S. President. The 12th Street Detroit Riots in 1967 damaged both him and LBJ, both of whom dropped out of the race. Romney was also condemned for opposing the war, and LBJ for waging it, but as that does not make sense it seems likely that their poor handling of the riots played a role. They never recovered, and neither has Detroit.
In 1967, more quietly, Michigan dropped its "BAT" and replaced it with a regular corporate income tax. This tax lacks some of the worst features of the BAT, but they were soon to return in the "Single Business Tax" (SBT), discussed below.
VII. Southfield booms while Detroit busts
While Detroit hollowed out, its suburb Southfield boomed. From 1950-70 it more than tripled from 19,000 to 69,000 people. It had a Georgist Mayor, James Clarkson, who made a point of raising land assessments and lowering building assessments. How can a mayor do that? Clarkson observed there is wide latitude in the assessment process, which most assessors were using to underassess land. Southfield's Assessor had been valuing land at 10% or less of market value. In 1960 Clarkson, like Pingree in 1890, campaigned for Mayor to correct that. Meeting resistance, he hired a Georgist assessor, Ted Gwartney, and had him upvalue land and downvalue buildings. Gwartney had honed this skill earlier working for Dr. Irene Hickman, elected Assessor of Sacramento County, California, who was also an activist Georgist. Clarkson served four terms before the Michigan powers lured him away with a judgeship (Andelson 2000, pp. 162 ff.). Gwartney left to pursue a distinguished career elsewhere. Southfield immediately leveled off at 76,000 people and has not grown since.
Harvard Law Professor Oliver Oldman, a leading tax authority, scoffed at the evidence, at a meeting we both attended. Southfield was merely taking advantage of Detroit's problems, in his view, and exploiting white flight. Southfield was engaging in competitive undertaxation, a "race to the bottom. Such, unfortunately, has been the academic PC mindset, screening out examples like Southfield's.
Southfield's tax base actually rose by 20% per year under Clarkson/Gwartney, and it provided good utilities and public services. Even the landowners whose assessments Gwartney raised made out well because the benefit of the relief of potential buildings from overtaxation was shifted to landowners in higher market values. It was rather Detroit that was "racing to the bottom".
VIII. The "Single Business Tax" (SBT), 1975
In 1975 Michigan adopted its distinctive "Single Business Tax" (SBT), replacing the corporate income tax. This is a variety of VAT, a tax on gross receipts less certain deductions. First, as with any VAT, one deducts purchases from other firms, reasoning they have been taxed already on the value they added. One does NOT deduct labor costs.
Michigan's SBT has two especially bad features. One is that unincorporated businesses, mostly small, are as subject to the tax as corporations, some gigantic. The other is that buying real estate, including land, is deductible as a current expense (Hines, p.16). Logically buying land should not even be depreciable, since land does not wear out, and a fortiori should not be expensible in the year purchased. Imagine owners A and B selling a parcel of land to each other in alternate years, each buyer expensing it each time! It amounts to a great subsidy for holding land. At any rate, by 1980 Detroit had dropped another 20% of its people from 1970. No other state has adopted this kind of tax.
IX. Governor John Engler scuppers the property tax, 1995
In 1995 Governor John Engler decided to heal Michigan by taking its public schools off the property tax. This is when we Georgists met with his staff at the Levy Institute. Playing Cassandra, here is the advice I offered in 1995.
"What happens when a state radically slashes its property tax? Michiganders are saying they must wait and see, but there is no need for that: California can show you 17 years of experience. To read your future, just study our past. Here is what has happened since California passed Proposition 13 in 1978.
The obvious direct results have been to cut public services, raise other taxes, and lose credit rating. Our school support fell from #5, nationally, to #40 in 1985 when last seen, still falling. County road maintenance is down to where my county (Riverside) is repaving its roads at an annual rate of once every 130 years. Once in 20 years is recommended here, and up north you generally need higher frequency. You can't just build infrastructure and then stop paying for it, it's a perpetual commitment. Thanks to urban sprawl, a high fraction of our population now depends on these county roads.
In 1978 we had a surplus in Sacramento. Since then we have raised business taxes, income taxes, sales taxes and gas taxes, but go broke every June. Now our State bond rating is last among the states. One of our richest counties (Orange) has gone bankrupt; Los Angeles is on the brink of it, saving itself by closing emergency rooms and hospitals that serve as a last resort for the uninsured poor.
The private sector is doing badly, too. Raising income taxes, business taxes, and sales taxes is no way to stimulate an economy; they are all a drag on work and enterprise. Our income pc was down from #7 to #12 among the states by 1992, then fell some more. From 1992-94, California was one of three states where median household income fell. Our unemployment rate is 9%, 50% higher than the national mean of 6%. Our poverty rate is 18%, compared to 14.5% nationally. Not surprisingly, therefore, the only government function that grows now is building and operating prisons. One of our few rebounding industries is cinema, the art of escaping from reality: we excel at that. Another thriving activity is that of auctioning off used machinery for export to the east.
In 1993 there was net outmigration (including international migration) from this state that has symbolized American growth since time immemorial. It is unheard of. 426,000 people were lost, nearly 2% of the population. This is a watershed change: imagine of all states California, America's trend-setter, our El Dorado, The Golden State, our Horn of Plenty, the safety-valve for job-seekers and retirees and entrepreneurs from everywhere, the end of the rainbow, losing population! It's almost enough to make a person click off the tube and think.
Next Page 1 | 2 | 3 | 4 | 5 | 6
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
2
1
1
