Economic Stimulus Moves Into Reverse in Japan and Michigan

Japan and Michigan do not have much in common except that they are among the largest regions which manufacture cars. Recently, they have begun to share one other thing. Each has become an example of potentially regressive tax activity.

Michigan announced that it will cut the number of weeks it will pay unemployment benefits from 26 weeks to 20 weeks. That is the shortest period for any state. Michigan’s new Governor Rick Snyder said he has taken the action so that state residents can get more support from the US government. Some politicians did not agree. The AP writes, “Gov. Snyder’s decision to sign this reckless measure cutting the lifeline for Michigan’s unemployed will reverberate for years in Michigan,” U.S. Rep. Sander Levin of Royal Oak said. The state’s two US Senators also attacked the action.

Japan’s ruling party, concerned about the costs to rebuild the country, may roll back a plan to give corporations a 5% tax break. There are also plans to increase the sales tax many individuals pay. The government is worried that it will not be able to pay the nearly $300 billion many experts think it will cost to replace infrastructure and rebuild cities and towns.

The thread shared by Michigan and Japan is that each is willing to gamble that putting financial pressure on individuals and corporations will not harm consumer spending, capital investment, and the number of workers many corporations can employ even if their tax burdens rise. But, there is a group of economists who believe that high taxes are always regressive. Tax less and increase incentives for growth, they argue. That philosophy is in the process of being rejected in Michigan and Japan, each of which has had its economy hurt for different reasons.

The high-tax-reduces-deficits approach is about to be tested in the two regions. There will be hell to pay if it does not work.

Douglas A. McIntyre