Brainwashed by Arthur Laffer

In the byline of his recent Forbes op-ed, Michigan’s Romney Was Brainwashed – By The Income Tax, writer Brian Domitrovic identifies himself as a “scholar.” Michigan, Domitrovic explains, supposedly did itself in by enacting a state income tax 55 years ago and that its then governor, George Romney, was brainwashed when he agreed to sign it into law. But it seems Domitrovic is the one who was brainwashed. Hopefully, Forbes’ readers haven’t been. 

Domitrovic’s op-ed is a shining example of right-wing supply-side propaganda. The missing facts and lapses in logic practically leap off the page. 

Michigan, Domitrovic notes, has seen its share of the nation’s population decline and, along with it, its share of the nation’s income. Its auto manufacturing jobs largely have moved to zero-income-tax Tennessee, he suggests, where if you “swing a cat,” you’ll “hit an autoworker.” 

He says you would hit an autoworker in Michigan if you swung a cat in the 1950s, but never says what would happen if you swung one today. So, I looked it up. If you would hit one autoworker swinging a cat in Tennessee, then you’d hit two in Michigan, which has just about twice as many auto manufacturing jobs (39,536) as does Tennessee (19,914). Of course, given that each state has several hundred people for every autoworker, the collateral damage from swinging that cat would be horrific in either one. 

I’m not sure why Domitrovic thinks Tennessee’s autoworker population dwarfs Michigan’s, but it just ain’t so. I wonder who brainwashed him? We’ll visit that question later. 

Domitrovic mocks Michigan’s reduced shares of the nation’s population and income, which he wants readers to believe resulted from that dreadful state income tax. Funny thing, though. Michigan’s per capita income ($32,854) is a bit better than Tennessee’s ($30,869). It’s almost as if our “scholar” was brainwashed into not checking that pesky detail. 

You just have to shake your head at Domitrovic’s supposed belief that Michigan’s loss of national population share was driven by its income tax. It’s common knowledge that, beginning decades before that tax was enacted and continuing to this day , the entire northeastern quarter of the country has lost population share to the Sun Belt. Call me crazy, but I’d argue it’s because the weather’s nicer in the Sun Belt. (I’m almost certain that’s why they call it the Sun Belt in the first place.) Still, despite its less friendly climate, Michigan’s population density is higher than Tennessee’s. Oops, another pesky detail not checked. 

Domitrovic’s tax math, though, is where his brain is most waterlogged. He estimates the Michigan state income tax to be seven percent; following this, he suggests this would force employers to increase their payroll expense by ten percent. Better for those employers to save payroll tax in zero-income-tax states like Tennessee. But wait a second: does that mean that the cost of an employee’s income tax is borne by her employer? Sure seems like it. But there’s a bit of a contradiction sloshing around here, because Domitrovic also claims that Michigan’s Black population headed for the exits so they could “live large” (Domitrovic’s racist undertone, not mine) in zero-income-tax Texas. So, who actually benefits from a zero state-income-tax rate, the employer or employee? 

The real trouble with Domitrovic’s tax logic, though, is that he never explains whether employers that would have to cover employee income taxes in Michigan similarly would have to cover other taxes of employees in Tennessee, including Tennessee’s sales tax, which runs considerably higher than Michigan’s. Tennessee and its cities and towns even tax the sale of groceries. 

According to the Institute on Taxation and Economic Policy, the overall tax rates for the bottom 60% of the population in Tennessee and Michigan are similar, averaging about 9.5% and 9.7% of income, respectively. Either way, Domitrovic’s math doesn’t add up. If the employer would have to cover those Tennessee taxes of employees, there’d be no advantage in moving from Michigan. If the employer only must cover employee income taxes and not employee sales taxes, then employees are doing worse in Tennessee after tax than they are in Michigan. And those Black ex-Michiganders who moved to Texas, where the total tax rate for those in the bottom 60% averages 11.5%? They’d be living kind of small by Domitrovic’s logic. 

So, what happened to Domitrovic? How did a “scholar” get things so wrong? Well, he’s a scholar at the Laffer Center for Supply-Side Economics. That’s right, the infamous Arthur Laffer, promoter of the “Laffer Curve.” Looks like they do a fair bit of brainwashing there.

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