Pure Michigan Campaign-The Value of Return on Investment to State Taxes

"Business has only two functions-Marketing and Innovation" (Milan Kundera).  Pure Michigan, a state sponsored national marketing campaign launched in 2008, created a buzz highlighting the attributes of the Lady of the Lake state. Law Makers are confounded on precisely how much (or little) the campaign has contributed to her prestige and prosperity. Expert numbers span the spectrum leaving doubts and in turn a line item veto that removed the program from state budgets. This article is an effort to shed light on the merit of state-sponsored marketing in Michigan and what policies will improve the transparency and functioning of the program.

To assess the program's value we must ask ourselves two fundamental questions about Pure Michigan to better ensure the money is wisely spent. 1. Does it have a positive ROI? and 2. Does it have a negative ROI? A positive ROI could mean we should invest in it because it brings additional revenue while a negative ROI means its wasting taxpayer money.

Let me say that I'm not indifferent to the outcome. Working on some of my own economic theories, scientific literature has supported the idea that marketing state attractions can lead to multi fold benefits of lifestyle and tax generation. I'm also a resident of the Upper Peninsula of Michigan where much of the economy relies on tourism dollars. Yet I am also a man of science and believe that people should do their very best to understand such issues themselves through critical review.

Lets take a look and see what we can find....

Pure Michigan = Positive or Negative ROI?

Net Return?  There are those who feel the Pure Michigan initiative is well worth any state monies spent because of its financial returns.  ROI on Pure Michigan was reported as $8.33 in 2016 (MEDC, 2017), $8.88 in 2017, and $9.28 in 2018 (SmareInsights, 2019)   On the surface those are some pretty compelling numbers. Put a dollar in and wallah we generate wealth! (sort of)

There almost always is some alternative numbers and ideas out there. Critical thinking requires us to think through the positive and negative numbers to make an assessment. As a bonus we can provide improvements to the program that could raise its value to stakeholders.

Net Loss? Not everyone is so sure that the campaign earns what the contractor says it earns. They take the alternative perspective and believe it looses money and wastes tax payer dollars. The Michigan Center for Public Policy that advocates for research and education believes the numbers provided are over inflated and not accurate. It is suspected that significant costs, such as the costs of production, were not included in the calculations (Michigan Center for Public Policy, 2018).

A review entitled An Analysis of State-Funded Tourism Promotion found that for every $1 million in state funding there was only $20K return for the hotel industry (Hicks & Lafaive, 2016). They looked at a number of studies and data from 48 contiguous states over a period of 39 years. That is a pretty compelling argument to ignore; even if focused on the benefits of hotels. One of the researchers and auditors provided additional context to his arguments (LaFaive, 2020).

In January 2020 a report came out sponsored by the Michigan Economic Development Corporation to determine advertisement effectiveness. An interesting read.

How Study Design Impacts Results

Bad designs lead to even worse decisions! It is imperative that important research that impacts the people of a state lead to useful results. The ultimate purpose of research is to answer questions so we as a human species can make better choices. How we measure and interpret data influences its value for strategic justification. Collecting and interpretation often rests on multiple research studies that create a body of knowledge on the topic. 

To determine what an economic study indicates, and whether or not the numbers are meaningful, we can review the research questions and design. "The devil is in the details!" Strong designs seek to draw the most direct conclusions based on the simplest and most reasonable methods of data extraction, analyze and reporting. When the design is simple and parsimonious it often leads to better useful results.

This mini review is not the final word on the topic and new information provides better conclusions. Since I'm not trying conduct a full scientific review the goal is to collect a "quick" review of similar studies and make a few basic calculations to come up with a reasonable ROI. There will be plenty of people who disagree due to the important nature of the topic.

It should also be noted that unbiased research is indifferent to the results. That means that a positive finding is as beneficial as a negative finding (at least in theory) because both are added to a body of knowledge. The body of knowledge is what other researchers use when they try and understand a problem and continue to investigate findings. Beware of research that is designed to find a specific result because it will skew all decision making based off of its findings. 

One of the ways to ensure that results have some validity is to put it within the context of other literature that pertains to the same topic. In this case, most of the analysis seem to use the data of state and local taxes generated per dollar spent and the amount of money visitors spent each time they traveled to Michigan. While the approach seems valid adding another metric or two might counter the limited perspective of the data.

Miscalculated Costs According to the Auditor General

The Office of the Auditor General released the results of their report and found that a number of costs were not included that would have reduced return on investment (Ringler, 2017). They also found that state taxes were calculate, but local taxes were not, which would have increased the ROI.

1. Media Placement $3 Million (-)

2. Media Production $4.3 Million (-)

3. Production Monitoring $2.3 Million (-)

4. Pay-per-Click Advertising Costs $500,000 (-)

5. Public Relations $581,000 (-)

6. Partner Contributions $6.2 Million (-)

7. Local Tax Generation not collected (+)

======================================

Total: 16.9 million not included costs + unknown local taxes collected.

At this point we need to start doing some calculations. My disclaimer is that I'm not an accountant and if there is a better, or more accurate way, to complete these calculations let me know. Within the Auditor Generals findings we see that for 2017 Campaign Expenses are $12.9 million, State Tax Boost was $107.3 million, providing an ROI of $8.33 (Calculate as 107.3/12.9=$8.32). If we add the expenses that were originally not reflected in initial calculations we have ($16.9+12.9)= $29.8 million in total expenses.

It would make sense to calculate the new ROI (107.3/29.8)=$3.6. That is a much lower number than what was originally reported. The new number is still beneficial and worthy of serious consideration on its own. The ROI should go up a little more if we include any benefits to local taxes. This is somewhat dependent on whether it is enough money to be worth the calculation to substantially improve ROI. (*It might be worth someones time to research and calculate*.)

Someone Forgot About the Locals!

Right now our calculations are [($107.3+Unknown Local Taxes)/$29.8] =

 something greater than $3.6.

Reviewing studies that separate out the impact of state and local taxes provides us a "rough" benchmark. More direct data for Michigan would further clarify local and state tax impact from tourism dollars. Because we do not have access to the raw data used in the study, we will do the best we can to find a number that "sort of" works.

State Tax Studies
	% State Tax
Study 1	55
Study 2	44
Study 3	36
Study 4	42
Generic Benchmark	44

To obtain a basic benchmark we can add up the 4 studies and get a simple average. More studies mean greater accuracy. (55%+44%+36%+42%)/4=approximately 44%

• Study 1: Colorado conducted a 15 month advertisement campaign in 2007 and came out with 62.4 million state taxes and $76.9 million local taxes (Ahmed, 2010). That calculates out to something like 55%.
• Study 2: We can look at similar states in the region to determine how their tourism taxes are dived up. A report in 2019 discusses the economic impact of federal, state and local taxes in the adjoining state of Wisconsin (Tourism Economics, 2019). State taxes in 2018 were $879 and local taxes were $703. ($879+703)/703=44%.
• Study 3: Here is an old study in 1994 from the U.S. Advisory Commission on Intergovernmental relations that indicated, "State governments collected 64 percent of total state and local travel tax revenues in 1991; local governments collected 36 percent ( U.S. Advisory, 1994)".
• Study 4: In 2006, Virginia report stated that there were $7.2 million and local taxes $5.2 million. That calculates out to approximately 42%. We can also include an impact study of domestic travel to the state in 2018 that showed that between state and local 44% of taxes were collected by local governments (U.S. Travel Association, 2019).

What the Research Says?

Using numbers provided by one company to make determinations over millions of budgeting dollars and impact on people's lives can be risky. One of the ways to help ensure that numbers are not "way off base" is to put them within the context of other impact studies that calculated state & local taxes. Below you will find a table with four studies. The more studies you include, the more data and information you can get on ranges and benchmarks. For the purposes of this literature piece...good enough!

ROI Studies
	$ State & Local Tax
Study 1	4.3
Study 2	10.28
Study 3	8.5
Study 4	7
Generic Benchmark	7.52

• Study 1 A study reviewed the impact of state spending on 11 states, including Michigan, from 2000 to 2010. The studies were conducted by SMARI, Longwoods and in one case Minnesota Department of Trade & Economic Development.The average ROI is 4.3% with a range of $2.4 to $20 (Ahmed, 2010).
• Study 2 In 2017 Wyoming put their Tax ROI from advertising dollars at $10.28 (Insights Strategic Marketing & Research, 2017).
• Study 3 A 2016 to 2017 $8.50 per dollar invested (New Hampshire, 2017).
• Study 4: Oklahoma posted $7 state and local taxes ROI for 2015 and 2016 (Oklahoma, 2017). 

The Upper and Lower Range of Pure Michigan ROI

Lets start with a base number. The average for Pure Michigan 2006 to 2016 based on a review without local tax included (Ringler, 2017) Average Pure Michigan ROI= $5.49. We will then add in the 44% from state taxes to obtain a total. Local Taxes=(5.49X44)/66=$3.7.  Once we add together the average ROI and the Local Taxes we have an upper limit based on an average. Upper Limit Average=$9.19

We already calculated the new ROI of $3.6 so we can use that to add in the local taxes. Calculation based on Self-Calculation derived from State Auditor Adjustments. State/Local ROI A/ Audit=($3.6 Self Calc.X44)/66=$2.4. New ROI $3.6+Local Taxes $2.4=$6

The range for the combined state and local tax impact is $6- $9.2 ROI  for 2016-2017. New numbers may change this but by using the State Auditors report we can sort of come to a closer government supported number.

Standing back and taking a birds eye view of the problem it would seem that overly optimistic projections had an impact on perceptions. It is hard to ignore the State Auditor's recommended adjustments as they have a responsibility to be as objective as possible. The public trust rests in the government function and after calculating their recommendations, and adding in the projected local taxes, we come out with approximately $6 return for each dollar invested (ROI).

Personally, I like $6 as a conservative number when calculating costs, profits, expense, etc... We are dealing with a lot of unknowns and numbers can be significantly skewed based on the design of the study, how data is extracted, which data is extracted, and how it is calculated and reported. Going conservative leaves a greater likelihood that people will work with caution and think through options.

Mostly, I like it because it is based on some calculations brought forward by the State Auditor and implicitly accepted by Longwoods. The auditors report indicates a number of missed expenses but also recognized that local taxes were not included in their calculations. That leaves me with the understanding that Longwoods agrees in part to the findings or otherwise a rebuttal would have been issued.

State Strategic Choices

Six dollars ($6) per ($1) dollar invested is still a pretty good return on investment. As a state we have to decide if we want to include Pure Michigan funding in future budgets. We can conduct a political and strategic analysis to determine the most likely outcomes. However, in this case, I'm only going to conduct a generic strategic analysis in order to solidify my own thoughts.

Decision trees help us formalize our ideas, data and judgments to make choices from a lot of information. The one provided below is limited simply because it would take a lot of market research to collect all the data to make a market projection. Companies have included political analysis, environmental information, percentages, other research, competitor information, etc.... all to better understand the most likely options.

Options (no particular order)

1. Nix Pure Michigan. If we don't believe the numbers, don't feel it provides any benefits to the the people of the state lets get rid of it. In this case, $6 dollars indicates the program does have value. A decision to remove would likely be based on limited resources and trust in its function. We are dealing with comparative advantages of programs (i.e. roads or marketing). 

2. Adjust the Funding. There are options here that include partial funding. For example, the state may want to provide a matching budget to public sponsored funding. For example, if the business community can come up with $30 million the state would match that $30 million. Another option could be to provide tax incentives to businesses that put money into state sponsored funding.

3. Leave "As Is" with Some type of Budget: Utilize the budget for last year, increase, or reduce it. Lawmakers could decide that the value of the program is worth the expense and may choose to provide a budget.

Future Considerations

The value of research is often based in its practical utility. Research rests on creating models and we should use what we learn to continue to improve the model. In this case, we have some value that may have not been realized and we have better alignment of marketing messages with short-and long term needs.

1. Adjust the message to include the key marketing components of tourism (short-medium strategy) and investing (long-term strategy).2. It is possible to determine the long-tail value of marketing such systems. Someone should determine that value.
3. Encourage corporations to include key aspects of the two marketing components into their own marketing campaigns to create wider reach and recall of the total message.
4. Encourage clusters to market and attract businesses, talent, and resources to enhance their clusters.
5. Create better audit functions through either state or subcontracted firms that are willing to review the research and numbers.
6. Calculating the long-tail of marketing (year over year improvements) and Federal tax influence can provide a broader perspective.

**If you have better numbers, or a similar study and want me to link to it as another perspective let me know**

The Context of Research

I'm working on my own research related to transactional clusters that rests in part on Creative Destruction, Theory of the Firm and Social Networking Theory to foster innovative growth in industries. Part of literary section focuses on pack (coordinated) advertising as well as coordinated investments. Effective advertising can lead to the enhancement of Michigan based industries (or any other state) that improve economic prospects. Its not a finished (or completely edited) work but you may read here. 

Ahmed, A. (2010). Measuring return on investment of tourism marketing. University of Minnesota Extension.  https://conservancy.umn.edu/bitstream/handle/11299/167913/MEASURING%20RETURN%20OF%20INVESTMENTS.pdf?sequence=1&isAllowed=y

Hicks & Lafaive, (2016). State of Michigan. Office of Auditor General. Letter. https://audgen.michigan.gov/wp-content/uploads/2017/12/Pure-Michigan-Letter.pdf

 Insights Strategic Marketing & Research 2017 (2017) Advertising Effectiveness & ROI (2017). https://travelwyoming.com/wp-content/uploads/uploads/industry/Wyoming%202017%20Ad%20Effectiveness%20FINAL.pdf

Lafaive, M. (January 9th, 2020). "Lawmakers Should Not Resurrect Pure Michigan Subsidy Program". Mackinac Center for Public Policy. Retrieved https://www.mackinac.org/lawmakers-should-not-resurrect-pure-michigan-subsidy-program

MEDC (2016) Report: Pure Michigan campaign is working.https://whtc.com/news/articles/2017/mar/24/pure-michigan-campaign-is-working/

Michigan Center for Public Policy (2018). New Pure Michigan Return-on-Investment Figure Won’t Include All Costs. Retrieved

https://www.mackinac.org/new-pure-michigan-return-on-investment-figure-wont-include-all-costs

Oklahoma Come See for Yourself (2017). OTIA Board. https://www.otia.info/docs/OTIA_Board_Presentation_2.9.2017.pdf

Tourism Economics (2019) The Economic Impact of Tourism in Wisconsin. http://industry.travelwisconsin.com/pdfs/wi%20economic%20impact%202019%20final.pdf

U.S. Travel Association (2019). The Economic Impact of Domestic Travel On Virginia Counties 2018. A Study Prepared For Virginia Tourism Authority Doing Business as Virginia Tourism Corporation. https://www.vatc.org/wp-content/uploads/2019/09/2018-Economic-Impact-of-Domestic-Travel-on-Virginia-and-Localities.pd

U.S. Advisory Commission on Intergovernmental relations that indicated (1994). Revenue Diversification. https://library.unt.edu/gpo/acir/Reports/information/M-189.pdf

New Hampshire (2017). 2016-17 Advertising Effectiveness & ROI. Insights Strategic Marketing and Research. https://www.visitnh.gov/getmedia/e1245092-c83b-4604-b69b-1c3ea8bb5171/NH-2016-17AdEffectiveness.PDF

San Diego Employment Numbers Trip But Could Regain Footing from High Technology Firms

2014 wasn't a great year for job creation in San Diego as employment numbers left much to be desired. According to the Employment Development Department 30,208 jobs were added to the San Diego economy in 2014 missing economist projections (1). Despite slower than expected growth in construction, professional, health, and scientific jobs the service industry added the most jobs with a 4.86% increase. Employment rates may be on the rise if San Diego focuses closely on high growth industries that already have a solid present in the area.

The numbers are not dismal and could indicate a upward swing for 2015. Service jobs are relatively easy to add and mark a level of rising consumer spending on travel, restaurants, and leisure services that mark optimism. These are some of the first jobs added to the economy before higher paying jobs also make their way onto the market.

Higher paying employment comes after lower skilled service jobs have made their initial appearance. Industries that have higher paying positions add significantly to income and wages in the area but take a little longer to kick in. Companies making larger investments in skill, recruitment, relocation, compensation and salary only add jobs when needed.

There has been a healthy discussion of encouraging technology firms in San Diego. This discussion, in addition to other high growth fields, helps in improving the future labor market by aligning the economy to industries in demand. For example, small business accounts for 2/3 rds of job creation and high growth firms 35% of job gains during the years 2009-2012 (Clayton, et. al. 2013).

Technology industries are in hot demand around the world and gaining high levels of investment. Companies that are in the high technology sectors of pharmaceutical, chemical, communication, navigation, agricultural equipment, science, etc... find themselves growing faster than many other companies. Their abilities to obtain new resources, based on market demand, pushes them forward.

San Diego has a  solid high technology based that can be used to create stronger platforms for growth. Cities that put in place policies that encourage the development and investment in growth industries often magnify growth in these sectors (Jenkins, et. al., 2006). The policies should help funnel international investment into industries that are currently, or will soon be, in high demand globally.

Encouraging those industries that are likely to provide the highest paying jobs and greatest amount of overall economic growth is smart government. It provides an opportunity to employee more people and raise the standard of living for a lot of people. Likewise, investors want a return on capital and high growth industries offer that opportunity. Making sure legislative hurdles are lowered and letting the world know of the local investment offerings in San Diego can make a huge difference in industries that are ready to break out onto the international market.

Clayton, et. al. (2013). High-employment-growth firms: defining and counting them. Monthly Labor Review, 136 (6).

Jenkins, et. al. (2006). Do high technology policies work? High technology industry employment growth in U.S. Metropolitan Areas, 1988-1998. Social Forces, 85 (1). 

The Importance of Export and Taxes in Economic Growth and Government Budgets

Export and taxation are fundamental aspects of the American economic engine. Exports help create wealth that results in increased employment and tax generation. Government relies on taxation to pay its bills and keep the doors open. When exports wain and job creation slows both the economy and government suffer shortfalls that make their way into government spending crisis. Ignoring exports in the debate on taxes is like ignoring the cow when discussing how to produce milk.

The news is aflutter with the upcoming debates on taxes and budgets. How to cut back, how to spend more wisely, and how to reduce waste are just some of the discussions. These are important debates and questions for a nation that desires to ensure that government is not so top heavy as to suck an unreasonable amount of resources from the economy. Yes...government does cost money and more government costs more money.

Finding the right balance between enough government to ensure proper national management while not impeding future growth is difficult. Leaders have debated this for hundreds of years since the very first tax man came to confiscate chickens to feed the chieftains troops. The argument typically revolves around how to get more taxes and use collected taxes to accomplish certain national objectives; a legitimate function of government.

A few times  the conversation may move to something beyond tax rate and expenditures to how taxes are generated. Tax revenue comes from the economic production of a nation's businesses and people that sell their products on the international market to produce additional revenue. As business revenue grows the dollar amount (not tax rate) should grow as more wealth and new jobs are created.

Beyond the specific taxes a company pays on income are the secondary taxes earned through improved labor markets. As employees are put back to work and their opportunities rise there is a exponential growth in the amount of taxes being paid (not tax rate) due to more gainfully employed individuals paying into the system. Business and employment are two sides of the same coin.

Exportation, and the wealth it generates, is a direct result of the competitiveness of American businesses that manufacturing and producing within the country. You can't have jobs unless you have employers and you can't have taxes unless you have economic activity. You can't sustainably increase taxes unless you increase economic activity. Consider a few important associations of tax and exportation:

Tax as a Revenue Source: Taxes and fees are major sources of revenue for government. Increasing the amount of paying tax members also increases the wealth government can accumulate. Higher taxes generally decrease economic activity while lower taxes generally increase economic activity. Developing a parsimonious tax policy that ensure an appropriate tax rate that encourages growth with the ability to ensure everyone is paying their fair share of taxes is beneficial. 

Employment and Wages: As exports increase the revenue gained from increased sales and improved employment wages can make a big difference to state and federal budgets. Opening up additional international sales helps to encourage growth beyond the consumption patterns of Americans making it possible to create higher levels of wealth generation. A net positive export environment is also a net positive growth market. 

Investment Growth: As regions become export oriented and are able to generate new forms of wealth they will naturally draw interest from investors who also desire to earn profit. Entrepreneurs often attract larger investors that seek to create economies of scale. As investment and exports grow so does the amount of revenues government earns.

International Influence: America wouldn't have the influence today it does unless it was able to generate new wealth through innovation and sell those innovative ideas on the market. As people engage for business across the globe they will begin to adopt certain characteristics of successful nations to emulate in their own countries.

Export activity is an important part of the discussion as it relates to tax generation and balancing the budget. One method of increasing tax revenue is to put in place proper pro-business policies that help create new opportunities through the generation of small business and the enhancement of large businesses to create export oriented local economies. Government has a fiduciary responsibility to use policies in a way that lower transactional costs, improve upon national infrastructure, and create new opportunities to employ Americans. Exportation and taxes are part of the discussion on government budgets and cannot be easily separated.

Whistleblowers Challenge Society to Function Better

Ethics is rooted in the greater good of society and the rules and norms that help ensure society doesn’t suffer at the hands of a few selfish individuals. Ethics can be applied to many different situations that range from dumping hazardous waste into rivers to using corporate influence to thwart regulations. Unethical behavior thrives in environments of fear and silence. Whistle blowers are those who are willing to break that cycle for something greater than themselves.

As bad as it sounds, powerful entities and stakeholders sometimes profit off illegal and unethical behavior. Consider the case of Sharon Watkins and  her challenge of unethical behavior at Enron. After contacting CEO Kenneth Lay about accounting irregularities her findings were dismissed. Despite being an auditor, no one believed her until the entire company collapsed.

There were previous signs of “crooked” activities in the company but people either ignored these signs up or covered them up quickly. In the case of Enron, it needed someone who understood “creative accounting” and enough confidence to bring the issue up to the CEO. A “sweep under the carpet” investigation occurred and everything was ignored until the whole company collapsed.

After coming forward Sharon Watkins gained a few public speaking engagements that paid well but ultimately she lost out on the stability of a solid job at Enron. She paid a higher price than those who stayed silent. Her courage was met by a barrage of high powered attorneys that sought to discredit her claims, question her character, dig through her background, and make arguments that the company did no wrong.

Her case is not unique and every year there are hundreds, if not thousands, of people who report wrongdoing who are quickly snubbed, discredited, and fired for their actions. Even though these whistle blowers believe in something greater than themselves, fight for right over wrong, and challenged the status quo they are often quickly crushed by the same system they are trying to protect.  

Problems Facing Whistle blowers:

-Apathy and Cover Up: Whistle blowers are required to try and first bring issues up to the company. Good companies who believe in solving problems will naturally focus on improvement while crooked companies focus more on discrediting the whistle blower.

-Credibility: Whistle blowers credibility is challenged at every turn making them a pincushion to everyone else’s needs. From company officials that try to deflect responsibility to justice officials that must determine whether or not they are going to spend resources on investigating claims the whistle blower is in the line of fire.

-Social Rejection: Turning in wrongdoing is not going to make you many friends. When people question the actions of superiors they will quickly be rejected and punished. Such superiors will create hostile environments to force the challenger to leave and suffer very few consequences for doing so.

A Skewed Legal System: Today’s legal system is focused on catching petty crimes while having a difficult time understanding complex financial fraud. It takes considerable education, experience, and resources to find irregularities across many different accounts. A poor thief gets prison time and the wealthy thief gets a slap on the wrist only because of the large grey areas.

-Improper Value Systems: Far too many companies support environments that promote a win at all costs mentality. There should be a healthy balance between profitability and positive corporate citizenship. Both types of behaviors should be rewarded.

Financial Consequence: Most whistle blowers lose because the are not generally supported, funded, or have access to resources that would help them. Many find their financial lives in ruin for turning in crime thereby setting examples of what not to do. The incentives and protections for taking action are nearly non-existent.

-Theory vs. Reality: We teach ethics in business courses but don’t often follow up in the corporate world creating mixed signals for those facing ethical dilemmas. Values must come from a deeper place that most people never develop. To turn in crime and be crushed for the greater good of society or to keep silent and keep your career are fundamental questions.

Whistle blowing is not something most people can muster the character or strength to do on their own volition. Sadly, those who have the abilities and intelligence to understand the bigger picture must risk much to follow their values. Even though they are the one’s that support higher standards in society they too often find that such values are not shared by everyone.

Despite a somewhat dysfunctional system and general apathy toward unethical behavior we are almost always dumbfounded when things go bad why people didn’t come forward sooner. We are aghast at the idea that so many people knew and stayed silent for so long. It only took one person to make the delusion come down with a crash and open our understanding.

At the end of the day we instinctively know that society can’t function well if there are no consequences for predatory behavior. Societal growth relies on shared values that ensure people trust the system and its ability to ensure fair economic opportunities. Those that protect America’s values and opportunities sometimes become casualties. If you asked whistle blowers if they would do it again I believe many are likely to say, “in a heartbeat” despite having no rational reason for doing so. 

Why Advocate for the Simplification of the American Tax System?

Tax reform is a leading issue that will be hotly discussed in the next few years. America’s resurgence affords opportunities to make important adjustments to government functioning and spending that can improve opportunities for long-term growth. Now is not the time to fall into a trap of complacency only because the economic position of the U.S. is improving. Reforming the tax system helps both businesses and citizens understand their tax situations and create more trust with government. 

Depending on what perspective a person comes from will determine whether or not they are an advocate of tax reform. Many times these differences are created based upon demographics. For example, a person making $40K a year will have a different perception than someone making $500K a year.  Simplification offers an opportunity to put them both on the same playing field. 

Corporations and individuals will also have different perspectives. Corporations will desire to lower their liabilities which are good for business and society while individuals may want to lower their own tax expenditures allowing them to spend the savings and further economic growth. Both positions have merit and would likely be served by tax reform. 

The Average American Perspective

The tax code is complex and dissatisfaction with how government is spending American tax payer money has always been a contentious issue. Tax reform affords an opportunity to be more transparent with the average American who may be wondering what happens to all that money and whether or not the tax burden is unfairly falling on their shoulders. 

People are naturally distrustful of things they don’t understand. Almost no one understands the tax system and this includes accountants as well. Taking individual tax information to three different accountants results in three different answers. A simplified system will allow individuals to save their money and file on their own without the need of expert help.

The Business Perspective

Businesses also get bogged down by complex corporate tax rates. Taxes are a complex and hotly political issue but ultimately create a risk for business. Companies that want to invest in the U.S. will need to hire expensive attorneys and analysts to determine their tax liability on projected projects. This creates a significant risk for businesses that would be able to make better projections with a simpler tax code. 

A complex tax code also encourages political mischief and crony capitalism. Complex systems are partly the result of politics. Interested stakeholders put pressure on politicians to create tax breaks, incentives, and loop holes that help a few powerful entities over the needs of others; the more complex the system, the more opportunity for political hanky panky. Keeping the tax system simple also keeps it transparent.

The tax structure is likely to become a big issue over the next few years as both political parties try and make some sense out of government spending and revenue generation. Tax reform is one of the issues that can lead to some level of agreement even though each party has their own particular take on the subject.  At present the discussion is only just starting and a viable plan should be developed that can move through the legislative process.

Top American Concerns- Jobs, Economy, and Government

According to a recent Gallop Poll 20% of Americans are worried about jobs, 19% on how government functions, and 17% about the nature of the economy. Over the past year all three have switched places as main American concerns and appear to be somewhat tied in a race of sprints and walks with each coming out on top at one time or another.  Some are saying it is the economy and others are indicating it is the employment rate-all three numbers are likely associated.

Certainly there is no denying the connection between the employment rate and the strength of the economy. A strong economy is able to create jobs and keep people employed. Generally, as the economy improves so does opportunities for gainful employment. Employment rate is a major symptom of economic strength and can fluctuate as the economy shifts gears. 

However, the numbers released by Gallop indicate that the economy, employment, and perception of government are important to Americans. Research by Heinz Welsch found that life satisfaction is negatively associated with unemployment and positively associated with growth (2011). As the economic engine speeds up, so does the satisfaction of citizens and this is an obvious benefit to everyone.

Likewise, other research supports the concept that trust in local government is associated with overall satisfaction and often results in residence retention (Van Ryzin, et. al. 2004). The New York study helps highlight how governmental functioning impacts satisfaction and may run off into other areas such as employment numbers and economic strength. 

Over the recession employment growth has been based primarily in small business. Further research by Glaeser & Kerr (2010) helps us understand that many small businesses lead to greater job growth than a few large employers alone. Revitalizing small business can have a direct impact on economic growth and in turn the employment rate. The same can be said for cities and national economics.

What we may find through the Gallop study is that as the economy speeds up and more jobs are created that concerns of government effectiveness are likely to decline while citizen satisfaction rises. Of course there are no perfect solutions and there are many confounding variables that go into the development of a nation. Many of the variables are associated with each other in one way or another but do not have a one-to-one relationship.  Focusing on the economy and the employment numbers seem to improve perception of government effectiveness and therefore a proper place for discussion.

Glaeser, E. & Kerr, W. (2010). The secret to job growth: think small. Harvard Business Review, 88, (7/8). 

Riffkin, R. (May 19, 2014). Jobs, Government, and Economy Remain Top U.S. Problems. Gallup Politics. Retrieved May 20^th, 2014 from http://www.gallup.com/poll/169289/jobs-government-economy-remain-top-problems.aspx

Van Ryzin, G. et. al. (2004). Drivers and consequences of citizen satisfaction: an application of American customer satisfaction index model to New York City. Public Administration Review, 64 (3). 

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