Don't Be A Sugar Daddy

Let me say that I have nothing personal against Jeff Daniels. He's a fine and I believe underrated actor. But, when you see him doing commercials suggesting that Michigan is a good place to invest, he's simply mistaken. I know that the Michigan government will offer you all kinds of sweetheart deals to get you to invest your capital here and if you're here and you threaten to leave, they might offer those same deals as incentive to stay. But, really think about that. Anyplace where the government thinks it is okay to manage the mix of businesses is a place where your business could become out-of-favor every 2 or 4 years and unless those sweetheart deals last well into the future, your company or your industry will eventually be footing the bill for the current crop of favored sons.

What Michigan needs is to be out of the business of saying which businesses are favored and which aren't. If they give a tax break to you, they may fund it by targeting your suppliers, your customers, your labor force, your funding sources or your insurers. If any of those happen (and that's how they fund those sweetheart deals) any competitive edge you might receive is just an illusion. They are just like the prostitutes who hope to find a sugar daddy or a small set of sugar daddies so they can live comfortably or even richly with less whoring.

Michigan is either just the latest or is in the vanguard of states going down the tubes due to overmanagement of their business climate. The people of Michigan, taken as a class, are so economically naive that they have a knee jerk reaction of taxing the guy behind the tree whenever they want more from government. The guy behind the tree is the owner of the forest or the investor who bought the timber rights. If you hold off for a few years, you will witness an economic death spiral. A combination of direct taxes, stealth taxes, hidden taxes, targeted spending cuts, senseless spending increases and sweetheart deals will keep shrinking the tax revenues by crippling Michigan's economy, which will cause those who are unwilling to quit overmanaging to go into another round of taxing and cutting and distorting the incentives for investment. Eventually, there will either be gut wrenching tax reform or we will reach a new equilibrium with a much smaller economy, a much smaller population, and much smaller rewards for the risks you as an investor will be taking. Buying in right now could be a big mistake.

So how can Michigan get out of this mess? By addressing the fact that the only thing that can truly be taxed is productivity. Capital is not productivity. Productivity can only be directly taxed at the point where the worker is paid for his productivity or at the point where the end consumer buys his productivity. That means taxation of wages and salaries or consumption are the only direct taxes of the productivity, the source of all societal benefits. Assuming the tax reform route is finally taken, drastic cuts in the taxation of businesses will be required. The only way those are likely to be sold to the voters is as part of a package to shift taxation away from all income. The people of Michigan are simply incapable of grasping the difference between taxing production and taxing business income (capital). Capital is an enabler of production just as government is an enabler of production. Taxing capital is as counterproductive as taxing government. Taxing either diminishes their ability to enable production.

So, don't expect any end to the taxation of business income or business property to occur without an end to taxation of personal income. Pretty much all that leaves to tax is consumption and it will be very hard to convince the voters that business consumption is not the same as personal consumption, but in order for a consumption tax as a replacement to income taxes to do any good, business consumption must be exempt from the tax. The most well-known example of this type of taxation is called the FairTax, which has not yet been tried by any state or country. Michigan's economic collapse is imminent and this makes it a prime candidate for accepting the risk of this shift in taxation ideology to consumer/voter consumption.

Consumption taxation is productivity taxation at the consumer end. Productivity consumption used to enable more productivity (business consumption) must be exempt from taxation because taxation of the enablers of productivity is counterproductive. It would be easy to make the case that any kind of taxation discurages production, but one thing that is undeniable is that life demands that people consume. We can discourage investment and discourage income through taxation and thus damage our economy or we can tax consumption and thus encourage investment, saving, income growth and the economy boost that those create.

Taxing consumption discourages excessive consumption. Will that hurt your business more than taxing your profits? your suppliers? your labor's income? That might very well be a question with no clear answer, but making the cost of government painfully clear to the voters as a line on their receipts - instead of hiding the price of government in the cost of your products - will help the voters to be that much more conscientious of the consequences of letting the government grow. Even if all else equalized, that one benefit would help your products be more competitive, because Michigan's society would be the one with the least managed, most market-driven markets.