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Friday, February 09, 2007

Michigan Service Tax Concerns

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Michigan Service Tax

The idea of a 2% service tax is appealing to Michigan's Governor Granholm because it avoids having to deal with limitations on taxes that the citizens of Michigan voted into their state constitution. Property tax increases are capped to the rate of inflation... a message that government should learn to live within constraints. Sales taxes are capped at 6%... a message that government can share in good times, but not grab a bigger share in bad times.

Apparently, the message is being ignored.

Besides ignoring the will of the voters with regard to taxes, the Governor has proposed a tax that is likely to be a source of a giant accounting and administrative mess. Are the taxes only applicable to retail transactions or also applicable to business-to-business services? Sales taxes can be audited through inventory records. How do you audit the number of lawns cut or heads of hair cut? The "proof of transaction" disappears in a few weeks.

This seems like a natural incentive to move toward a cash-transaction marketplace. Rather than be satisfied with taxes on the incomes of service providers, the Governor thinks that they ought to collect a fee for the service provider's privilege of earning that taxable income. More than likely, some part time service providers will "go out of business" as far as the state is concerned rather than deal with honestly reporting those extra-hours dollars.

Why not increase fees for government services, as well? How about $1,000 to renew a vehicle license plate? Got to fix the roads. How about a $1,000 enrollment fee for schools... the education is still "free", but the schools need repairing. How about a $1,000 annual fee for filing your taxes? Taxes need to be collected and checked. Can't afford the fee for the license plate? Ride a bicycle or take a bus. Can't afford $1,000 each to enroll your kids? Home school them. Can't afford a fee to pay your taxes? Pay it anyway... you have to pay your taxes.

Fees aren't really taxes, so no one would object to a fee for the real necessities. Would you? I'm sure the Governor wouldn't. Just call it "pay for play" or something like that. The state would just be ensuring that you pay your fair share for the benefits received. Oh, and if you should die in Michigan, maybe the state could have a $5,000 fee for a death certificate. After all, it would be their last chance to collect from you.

Or the State could learn to live within the means of the voters... as the voters have declared.

My comments regarding agreement and disagreement with the Governor:
Where I agreed with the Governor:
  • Contain costs through consolidation of purchasing and other services
  • Reduce prison population by alternative sentencing of non-violent criminals (including use of large fines, as feasible)
  • Provide incentives/penalties for colleges and communities to contain costs related to state funding
  • Re-prioritize budgets to insure basic human services are funded (but not necessarily expanded)

Where I disagree with the Governor:
  • Free tuition for workers who have lost their jobs. There is no guarantee that this effort will provide any positive effect for Michigan. Workers are not required to stay and work in Michigan after completion of their studies.
  • Directing state agencies to clear blighted areas in cities. Rather than use state resources, offer up the property at no cost to firms that will clear and redevelop the areas with specific performance parameters (time, land use, and design)... this has been done successfully elsewhere.
  • Increasing or adding new taxes that will place a greater burden on businesses and residents simply to have the state redistribute the money
I sent an email to the Governor via the State's website to this effect and suggested that she contact Dr. Steven Levitt of the University of Chicago who is a brilliant economist and practical problem solver. Perhaps a truly brilliant and insightful mind might see past the fog generated by thousands of less-than-brilliant advisers. Of course, the Governor could thank me for my less-than-brilliant advice, since I set that up so well.
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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates

FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006 Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)