Impact Of Detroit Bankruptcy

12 August 2013 in General

Earning Tax Major Factor In Detroit Bankruptcy

The earning tax in Detroit had a great impact in the city’s financial decline. It pushed high-earning workers to find work elsewhere. Tax incentives in the suburbs provided better options. Detroit, therefore, is a good example of why municipalities need to reconsider their earning tax laws.

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The ill-conceived economic policies and real leadership vacuum, locally and at the state level, set the stage for Detroit’s failure, ultimately bringing this iconic American city to its knees.  If it can happen in Detroit, we now ask, what other U.S. cities may be facing the same fiscal disaster? Chicago? Philadelphia? New York?

Recently Dave Helling of the Kansas City Star looked at the variables at play in Motor City’s economic collapse as a point of comparison for Kansas City, Mo. His conclusion? Detroit’s earnings tax structure may have been a key factor in its loss of high wage earners. According to Helling, the tax incentive for workers to move to the suburbs has led to a “vicious cycle of collapse.” From 2000-2010, the metro areas with the largest declines in population (excluding New Orleans, post Hurricane Katrina) were Detroit (-25%), Cleveland (-17%), Cincinnati (-10%), Pittsburgh (-8%), and St. Louis (-8%). Each of these aforementioned cities have an earnings tax. Continue reading…

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The Future Of Pensions And Benefits Not Good In Detroit

Retired public employees in Michigan have been set up well with strong pensions and secure benefits. But that may not be the case for current employees in the state, considering Detroit’s bankruptcy. The promise of good care after serving as a public employee may be something that belongs to the olden days.

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There’s a made-in-Michigan quality to Art Reyes, a third-generation autoworker with a pension, retiree health benefits and income that enabled him to send three of his four children to college.

He’s a product of the old Michigan, which gave birth to organized labor, worker protections and wages that propelled the middle class. That Michigan is almost gone. Now overseeing the nation’s largest municipal bankruptcy in Detroit, the state is at the forefront again, this time playing host to the unraveling of the homemade fabric that cloaked and comforted working families for generations.

“I’m literally one of the last at my facility to have a defined pension and health care as a retiree,” said Reyes, 45, a General Motors Co. employee and president of UAW Local 651 in Flint. His unit has 800 members, down from 9,000 when he joined in 1991. Continue reading…

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NY Talking Bankruptcy After Detroit

New York is in a lot of financial trouble and has been listening carefully to Detroit’s bankruptcy proceedings. Lawmakers in the state have been debating the topic fiercely. No one wants to take the blame for the current financial issues, but changes need to be made to avoid bigger ones in the future.

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New York’s political class has been wrestling with what to do since Detroit filed for federal bankruptcy protection. Finger-pointing and more debt have been the response. The higher you go in the hierarchy, the easier it is to see the fear and denial.

The problem, it is said, is the result of local mismanagement and overspending. Mayors need to restructure and stop asking for handouts. And the state will step in and lend them money to cover current operating expenses — or “pension smoothing” and “spin-ups” in Albanyspeak).

This is just plain wrong, and will worsen the eventual municipal crisises. But it’s understandable. No one in power wants to take ownership of a problem that will require layoffs, school closures, tax increases, service cuts and angry constituents. No one runs for statewide office hoping to oversee the unraveling of our system of municipal finance. Continue reading…

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12 August 2013 General

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