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    Who are the NERD fund donors Mr Snyder?

    Raise the curtain.

    Continuing to Beat the FairTax Drum - Taxation and Jobs Prevention

    By Kevin Rex Heine, Section News
    Posted on Wed Jul 29, 2009 at 10:23:46 PM EST
    Tags: essay series, Michigan FairTax Proposal, Michigan TEA Party, Michigan Fair Tax Manifesto (all tags)

    (Promoted by Nick...)

    Michigan TEA Party activists, a growing movement across the state, convened near Lansing on Saturday, June 13th, 2009, to hear speakers, learn about grassroots activism, and show a sense of support for possible 2010 ballot initiatives.  The Michigan FairTax Proposal (MFTP) was selected by the majority of voting delegates as the proposal of choice to unify behind and support, from amongst four suggested initiatives.  The MI FairTax focuses on job creation and economic growth by changing the method and structure of the state's tax system from taxing income to taxing retail consumption.

    In my first essay in this series, "The Government's Authority to Tax," I mentioned that all arguments to the contrary aside, the government (federal, state, and by extension local) does have the constitutional authority to levy and collect taxes.  The secret to permanently reforming the government lies in constitutionally restricting its ability to tax at will.  While this will be difficult to accomplish at the federal level, the Michigan FairTax Proposal makes this something readily doable at the state level.  But the government's misuse of its legitimate authority is not the only reason to support and pass the MFTP; and with this in mind, I present the second essay the "Continuing to Beat the Fair Tax Drum" series here (with a hat-tip to John Crawford for the basic idea):

    Taxation and Jobs Prevention

    Every firefighter is familiar with the fire triangle, which is a pictorial representation of the chemical and physical interactions required to ignite and sustain a fire.  In essence, the fire triangle involves three things:

    • Fuel - which is anything that will burn, regardless of whether it's a solid, liquid, or gas

    • Heat - enough to ignite the fuel, regardless of source (it could be electrical, focused solar radiation, sparks generated by welding or grinding, a Zippo lighter, or anything similar)

    • Oxygen - this is the wildcard; the purer the oxygen content, the less of the other two are needed (normal atmospheric concentration is 20.946%, but a fire can burn in a concentration as low as 12.5%; medical oxygen is 95% pure, and it takes almost nothing to start a fire in that environment)

    Any Boy Scout who has earned his Fire Safety and/or Camping merit badges can explain that the trick to getting a fire started is to get enough of all three legs of the triangle in the same place at the same time.  In fact, if the three are present in the same place, at the same time, in sufficient quantity, it isn't possible to not have fire.  Conversely, removing any one of the three legs (it doesn't matter which) will immediately extinguish any fire.  The crew of a fire truck, upon arriving at the scene of a fire, very quickly assesses which of the three legs can be removed easiest (usually heat, but not always) and sets about their business of fire extinguishment.

    By extension, then, the essence of fire prevention (whether at home or at work or traveling) is keeping the three legs of the fire triangle as far apart as possible, or keeping one of the legs out of the environment entirely.  Granted, we don't usually think of it that way, but that is what we're doing.  This is because fire is inherently dangerous, safe only under carefully controlled conditions, normally in which one of the three legs of the fire triangle is carefully regulated.

    This picture of the fire triangle is easily adapted to pictorially represent another complex interaction.  A "jobs triangle" represents the economic dynamic required to create and sustain employment in any given market, and consists of . . .

    • Business Capital - money, as cash or assets, used to generate more money through investment (employers that want to hire workers and pay them what their services and time are worth)

    • Workforce - people with the necessary talents and skills, either already engaged in some enterprise or potentially available for assignment (workers willing to sell their services and time for what employers are willing to pay)

    • Infrastructure - the system of public works of a region, or the resources required for an activity (such as; roads, utilities, buildings, and emergency services)

    As with the fire triangle, if the three legs of the jobs triangle are present in the same place, at the same time, in sufficient quantity, it isn't possible to not have jobs.  That is, if there are sufficient amounts of workforce, infrastructure, and business capital in the same market at the same time, then jobs must exist.  Allow me an example.

    On January 1, 1991, John Engler succeeded Jim Blanchard as Michigan's Governor; inheriting a state workforce of 4,588,849 and an unemployment rate of 8.3% (1 of every 12 members of the Michigan workforce weren't employed full-time).  His administration was characterized by policies designed to ignite Michigan's economy by producing a sustainable jobs environment.  And in this he was successful, because during his third term, Governor Engler's policies had actually grown the state's workforce up to 5,174,837 (January 2001) and driven the unemployment rate down to 3.2% (Feb & Mar 2000).

    I'll point out that both of those growth numbers are the state records since the Bureau of Labor Statistics started keeping state-by-state statistics in 1976.  The key here is that not only had the state's workforce expanded by over a half-million workers (585,988), but also unemployment was so low (~ 1 / 31 not employed full-time) that in effect a job was available to anyone who wanted one.  When Governor Engler left office on January 1, 2003, Michigan's economy might not have been ablaze with jobs, but it was still in pretty good shape!

    When Jennifer Granholm arrived on the scene as Michigan's Governor, the situation was completely out of control.  Jobs were everywhere, and the state's economy was solid, robust, and expanding (or at least two out of the three).  However, the intrepid Canadian jobs fighter quickly assessed the situation and determined which of the three legs of the triangle needed to be removed in order to most rapidly and thoroughly extinguish the jobs in Michigan.  The Governess accurately determined that the most effective method of jobs extinguishment would be to drive business capital from this state as quickly as possible.

    And in this she has been so amazingly successful that Michigan's current workforce numbers only 4,871,589 (though it was as low as 4,841,297 in March of this year), and unemployment is now up to 15.2%.  Fifteen-point-two percent, as a fraction, is about 1 out of every 6.5 members of the workforce that aren't employed full-time.  It isn't the state record of 16.9% (achieved in November of 1982), but at this rate, we just may see that as Governor Granholm's Halloween present to the Michiganders that are still hanging around these here parts . . . if not sooner.  Right now, even Puerto Rico has a better jobs market than Michigan, and that trend may continue for awhile yet.

    So what changed?  What was the extinguishing agent that Governor Granholm applied which so effectively chased business capital from Michigan?  Governor Engler ignited Michigan's economy by adopting policies of state services privatization, tax reduction, educational reform, welfare reform, and conducting a major reorganization of executive branch departments.  Granholm, on the other hand, wasted very little time reversing most of those policies as quickly as possible.  With business capital driven from this state, jobs inevitably have also been driven out.  As a result . . . well, we now have the worst unemployment rate in the nation, and have led the nation in outbound interstate relocation for the past three years.

    Evidently, Governor Granholm believes that jobs are inherently dangerous, and are safe only under carefully controlled conditions.  As proof, I'll refer to an April 22, 2008 news story in which MPI Research Partners announced that they would be starting up a downtown Kalamazoo facility that would create somewhere around 3,300 jobs locally, about that many in the surrounding county, plus provide a bunch of indirect employment opportunities due to their economic impact.  Also in that news story was cited that in order to attract that facility, Governor Granholm had to sign off on an 86 million dollar tax break spanning the next ten years.

    Did I miss something here, or did she admit - on the record - that the most reliable way to attract business capital to Michigan is to relieve it of the burden of business taxation?  Come on, what did I miss?  And while I'm at it, how is the state going to make up for that revenue hole?  Nor should anyone think that this is an isolated incident, as even a cursory review of 6-1/2 years of Governor Granholm's press releases announcing companies and jobs reveals invariably a tax break of some sort mentioned in the text somewhere.

    This, of course, proves a critical point.  Michigan's economy is being taxed into the ground, and that absolutely must stop if we are to ever permanently solve this state's economic issues.  The current state tax system penalizes Michiganders (businesses included) for working more effectively and becoming more successful.  As we each climb the ladder of success, our own state government continually takes a bigger bite out of our earnings, property, and savings.

    So no matter how hard Michiganders work, no matter how innovative and creative we are, no matter how superior the products we produce and services we provide, we are ultimately hamstrung by the built-in competitive disadvantage of our state tax system.  Why?  Honestly, given the hassles associated with the tax filing and reporting process, the endless reams of forms and paperwork, and the cumbersome rules and Byzantine changes, don't you think it's time to stand up and say, "Enough already!"?  I certainly do.

    If we can attract the business capital of one company, and at least 6,000 jobs, by providing a temporary business tax break, then how many companies might we attract, and how many jobs might they bring with them, if we permanently eliminated all Michigan business taxation?  Seriously, why are we still fiddling around choosing economic winners and losers with a tax system that created the very mess that Michigan is in?  According to Albert Einstein, "We can't solve problems by using the same kind of thinking we used when we created them."

    Even though the size of Michigan's workforce is only about 93% of what it was ten years ago, we still have a workforce in this state . . . for the time being.  And even a quick glance around shows that we still have roads, utilities, buildings, and emergency services . . . for now.  But the chief executive in Lansing is practicing an aggressive jobs prevention program, pushing the legs of the jobs triangle as far apart as possible, and the employment market trends indicate that she is doing so very effectively.

    However, in order to bring jobs back to Michigan, we merely need to attract more business capital.  To extend the analogy that I made in the beginning of this essay, business capital is the wild card of the jobs triangle in the same manner that oxygen is the wild card of the fire triangle.  In other words, the more business capital is running loose in a given economic market, the less workforce and infrastructure is necessary to create jobs.  That's because business capital is quite capable of attracting a workforce all on its own, provided it has a "core" to start with.  And business capital can construct its own infrastructure, provided it has a "backbone" to hook into.

    And the State of Ohio gets this.  In 2005, the Ohio Business Development Coalition recommended, and the state government adopted, a full-scale, sweeping tax reform that will reduce business taxation up to 63 percent by 2010, and ultimately eliminate all state business taxation entirely!  The State of Missouri also gets it.  In April of this year, the Missouri State House of Representatives passed HJR-36 - the Missouri FairTax Proposal - by a margin of 90 to 65 (with one voting "present"), and reported the measure to the State Senate.  Though there has been no action since May, the expectation is that HJR-36 will pass out of the Senate with enough votes to place it on the Missouri General Ballot for November 2010.

    So why doesn't Michigan get it?  Nevada, Texas, and Wyoming get it (and to a lesser extent, so do Alaska, Florida, New Hampshire, South Dakota, Tennessee, and Washington) . . . why don't we?  Americans know how to stimulate an economy.  It isn't through government growth; it's by incentivizing the private sector.  We do that by reducing the financial burden, cutting taxes, and removing unnecessary regulations.  So why don't we in Michigan get that?

    Well, we do actually.  And the solution has been before the state's legislature since May of 2007.  The Michigan FairTax Proposal permanently does away with all state business taxation . . . all of it.  Goodbye to the Business Income Tax, Michigan Business Tax (and the surcharge), Business Personal Property Tax, State Education Tax on businesses, Business-to-Business Sales Tax, and every other form of state business taxation.

    Governor Granholm has proven time and again that relieving business of its tax burden is the surest way to attract business capital to Michigan.  Why, then, don't we just go all the way and get rid of all of it . . . for good?

    < John Conyers does it again. | What makes America so great? >

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    Well done! (none / 0) (#2)
    by kenmatesevac on Thu Jul 30, 2009 at 10:32:46 AM EST
    Very well written, very well explained.  Shoot--even the Governess herself should be able to figure this out!  Right??

    • Not! by maidintheus, 07/30/2009 12:03:12 PM EST (none / 0)
    • Not only her . . . by Kevin Rex Heine, 07/30/2009 12:04:38 PM EST (none / 0)
      • Is fair by maidintheus, 07/30/2009 12:11:19 PM EST (none / 0)
    This 'fire triangle' reminds me of Sarah Palin. (none / 0) (#5)
    by maidintheus on Thu Jul 30, 2009 at 12:08:18 PM EST
    'They' hate Sarah Palin. Perhaps this is the same reason they hate the Tea Parties: You know, the ability of Tea Parties to ignite like Palin.

    Pick me, pick me!! I know, I know...pick me! (none / 0) (#7)
    by maidintheus on Thu Jul 30, 2009 at 12:26:04 PM EST
    So why doesn't Michigan get it?

    They don't have the triple threat of Detroit politicians, Grandhack, and Michigan Supreme Court.

    So, maid . . . (none / 0) (#14)
    by Kevin Rex Heine on Fri Jul 31, 2009 at 02:46:00 PM EST
    . . . now that we've probably beaten "The Government's Authority To Tax" to death, do you have any remaining questions on the economic implications of the Michigan FairTax Proposal?

    • Yes, I do. by maidintheus, 07/31/2009 04:10:48 PM EST (none / 0)
    Mr. Heine, I'm gonna go completely platinum here! (none / 0) (#15)
    by maidintheus on Fri Jul 31, 2009 at 03:58:03 PM EST
    Hypothetically, of course:

    If there is some sort of state or Fed ID that provides them with the ability to dictate who can use their purchasing power, wouldn't we all be screwed?

    Lets go extreme (even more) to get my point across. Say 'they' have the ability to make it easy for illegals (or whomever) but difficult for citizens.

    Though I don't agree (none / 0) (#16)
    by maidintheus on Fri Jul 31, 2009 at 04:08:53 PM EST
    with the lock on employer provided health ins., would higher sales taxes cause a problem in this area while it exists?

    How will this impact Tourism? (none / 0) (#18)
    by maidintheus on Fri Jul 31, 2009 at 04:13:35 PM EST
    Has something been implemented to allow for visitors to be encouraged?

    Also, say I have a lot of moolah (none / 0) (#19)
    by maidintheus on Fri Jul 31, 2009 at 04:19:34 PM EST
    and I purchase very large, big ticket items out of state/country?

    How will/won't this be problematic?

    One more (for now)! (none / 0) (#20)
    by maidintheus on Fri Jul 31, 2009 at 04:31:10 PM EST
    I think our seniors should have a break. Unless they're (truly and very) well off, they should not have to pay higher taxes as they leave their income producing years behind, even though (if) they've been wise to have a bit of a nest egg. There is everything right with building a nest egg and even in leaving something to ones children.

    If you can turn that comment into a sort of question, I'd appreciate your input.

    Thank you so much, Mr. H!

    Okay Maid . . . (none / 0) (#38)
    by Kevin Rex Heine on Wed Aug 05, 2009 at 11:22:55 AM EST
    . . . back to some basics.

    The FairTax is keyed to a retail sales tax methodology.  Find the loopholes in that methodology (if you can), and you've found the loopholes in the FairTax.  It's really that simple.

    Likewise, if you can find the workaround in ". . . Prohibit the restoration or enactment of other statewide taxes, or an increase in the sales tax rate, without a vote of the people; . . ." then you've discovered the avenues of attack for those who wish to undermine the FairTax.  Again, it's that simple.

    And once you've done either, then let me know; because I have yet to discover any.  (And I can assure you that I've done my homework on this.)

    If the MFTP were a statutory law, then looking for loopholes would be a discussion that I'd readily enter into at length.  Instead, MFTP proposes an amendment to the state constitution.  As we know, constitutional law is, by design, much more difficult to circumvent than statutory law.  This is why the MI FairTax is being proposed as a constitutional amendment.

    I honestly believe that, as I've responded elsewhere in this thread, you are operating from the paradigm of the current system.  An income-and-revenue-based taxation system, by design, is loaded with loopholes.  It has to be, otherwise how could those in power reward those who've backed their ascension to power?  And that paradigm is wholly useless when discussing a taxation system that is dependent upon the expenditure side of the ledger.

    Likewise, statutory law is dependent upon the Legislature for its security and stability.  Group enough legislators together, and you can enact or override anything.  Constitutional law in Michigan is different.  Amending the constitution requires either a 2/3 supermajority of both chambers of the legislature or a majority vote of the state's voters (sometimes both); and overriding the constitution is simply impossible (though I know of one SCOMI justice who's going to do her darnedest before we bounce her in 2016).

    It isn't that I haven't answered the workaround question, or the tourism one, or the one about fixed incomes.  More correctly, I suspect it's that you are still viewing this problem from an income tax mindset.  I understand why that's so, because Americans have been well-conditioned over the past seven generations to accept as normal a tax system that punishes productivity and is loaded with loopholes so as to reward manipulation and cheating.

    But I refuse to hold as acceptable adherence to an inappropriate mindset in the face of clear evidence that said mindset is wrong.  Seriously, you are making this far more complicated than it truly is.  The FairTax system is radically different than anything that we are currently used to (as in, diametrically different from the current paradigm).  I'm not saying that this thing doesn't have its flaws (there is a 1.6% non-compliance rate with the state sales tax, after all), it's just that I really haven't found any substantive ones.

    I tend to hold my students to pretty high standards.  What this means is that I expect that their questions will reflect that they've done their homework.  This is why I go into a detailed dressing-down of "stevenstmason" every time that troll shoots off his mouth in response to one of my posts; his discourse clearly reflects an abject lack of study.  This is also why I'm usually very patient with you; in the norm, your questions reflect study, but some misunderstanding.

    However, do not believe that you are immune from rebuke when you've got it coming.  It is my expectation that you by now have mastered at least the core points of the FairTax Initiative, and it disappoints me severely when you drop the ball in that regard.  Typically, I'm a very patient man, but even Jesus ripped the Apostles a new one when they needed it (Matthew 16:21-23 provides a perfect example of this).  As patient as I am, I do not have but the smallest fraction of the patience of my Lord and Savior.

    Just in case I've not adequately covered it, the basics of the FairTax Initiative are these three points:

    • No hidden taxation

    • No repeat taxation

    • No government control of the tax system

    Everything that makes the FairTax work (and the reason that all other tax systems ultimately fail) is keyed to those three points.

    Now, to be fair, I was extraordinarily testy last night.  I had been busting my rump for an overwhelming majority of the day in an election-day get-out-the-vote effort for Dave Schaffer.  He's a candidate for Grand Rapids City Commissioner, First Ward.  (I'm happy to say that the effort was successful; Schaffer will be in a runoff against the incumbent, Jim Jendrasiak, in November.)  Add to that the other things that I was doing yesterday (including an hour in the weight room and chairing a board meeting at church), and I really wasn't in the mood to be disappointed when I logged on after getting home.

    I'm not going to back off the points that I made in chewing you out, because those points are valid in any event.  However, I do certainly owe you an apology for going overboard in my delivery . . . and I thank you for providing me that opportunity.  Consider the apology offered, and I ask for your forgiveness regarding my crankiness.

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