In a previous post, I argued that even with states facing short-term and long-term budget issues, states could choose to invest more in early childhood programs. What is the evidence for this argument?
Even in state budget crises, states are able to make strategic budget choices to free up expanded resources for whatever the state deems to be its highest priorities. For example, here in Michigan, Governor Rick Snyder recently proposed his fiscal year 2012 and 2013 budget. Even though the state already faced a projected $1.4 billion deficit for its general fund for FY 2012, Governor Snyder chose, as he had promised during his campaign, to adopt reforms to the state’s main corporate tax that would cost about $1.8 billion in revenue.
As explained in the Governor’s Executive Budget, the belief is that this new business tax system will be “simple, fair and efficient” and will therefore “enable all businesses and industries, large and small, to grow and create jobs” (p. A-5, Executive Budget, State of Michigan, Fiscal Years 2012 and 2013). Based on this belief, the budget makes some very tough choices to free up the $1.8 billion needed to reform the state’s corporate tax structure. For example, the budget eliminates various individual income tax credits and deductions, which increases revenues by $1.7 billion. This includes eliminating Michigan’s unusual exemption of most pension income from income taxation.
The budget also maintains the state’s current $110 million in spending devoted to state-funded pre-k education. For advocates of early childhood education, this maintenance of current spending levels is clearly welcome, instead of facing budget cuts.
On the other hand, I estimate that it would cost about $300 million annually for the state of Michigan to have universal access to pre-k education for 4-year olds. If Michigan can find $1.8 billion to lower business taxes, it clearly would be fiscally feasible to find $300 million to move to universal pre-k. The issue is simply one of budget priorities.
Similar calculations can be done for other states. Governors and state legislatures frequently propose large changes in tax policy that reduce tax revenues by far more than the cost of even far-reaching expansions of early childhood programs. These proposals for tax reductions are made even during times of budget crisis. States can afford to invest in early childhood programs if they choose to make such investment a priority.
I wonder how closely Michigan’s corporate tax rate is tied to job creation. I see/hear in the news that several corporations are building large cash balances and are experiencing significant profits, all without hiring workers. Would a marginal increase in available cash or profits trigger job growth? This is a basic case statement for the proposed Michigan budget. Is this assumpton backed by research? I can very much see the need to replace the arcane MBT system, but I don’t know that any specific tax rate correlates to the aim for a “simple, fair and efficient” tax.
From the numbers, it looks like pre-K education could be funded by an 11% reduction in the proposed tax expenditure. The Governor’s statements in presenting the new budget argue for the need to focus on children and grandchildren, providing a ready-made opportunity to bring the reality of long-term economic benefits from pre-K education to the current public debate on the budget’s assumptions and rationale.
Thanks for your comment Joe. I have another post in the works that looks at general business tax cuts as an economic development tool. To anticipate my findings, general business tax cuts have some economic development benefits, but are not nearly as effective per dollar invested as more targeted business incentives, or early childhood programs.
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