The 1985 Treasury report relies on data gathered from tax returns from firms whose tax years ended between December 1980 and November 1981. The fact that these data are confined to that particular one year period has three important consequences.
First, the 1980-81 period was one of recession in the United States, and of particular economic contraction in Michigan. Therefore, the revenue and profitability of most industries were significantly below historical trend. Importantly, some industries were affected more than others. Procyclical Michigan industries – industries such as manufacturers of durable goods, including automobile manufacturers – tend to exagerrate the national economic cycle. Typically, they have better good years and worse bad years. Because of the prominence of procyclical industries in Michigan's economy, the entire state tends to swing from boom to bust more severely than the nation as a whole. Thus, Michigan suffered worse under the recession than most states. [17]
In addition, the inflation rate was significantly higher then than it has been in recent years – another important element for manufacturers with heavy capital investment. Under profits taxes (like the federal corporate income tax) with fixed depreciation schedules, the depreciation allowances fall quickly behind the cost of investment during periods of inflation. [18]
Because of the unusual and extreme economic climate of the sample period, the relative tax burdens of Michigan industries at that time would probably differ from those calculated during peak years. Thus, the results should not be generalized to the entire cycle.
A second limiting factor of the Treasury data is the short time period: 1980-81. Because industries respond differently to the economic cycle, a minimum of one complete economic cycle must be analyzed to provide a true picture.
A third problem with the Treasury data is its age. Since 1981 began, all the fiscal and monetary policy changes under the Reagan Administration have taken effect, Michigan's economy and economic policies have changed, and the most dramatic tax code changes in a generation have been passed into law. All these have caused substantial changes in the way Michigan business operates. Therefore, the sheer time difference between the sample period and the current date limit the usefulness of any conclusions drawn from the data.
1985 Treasury Report Data Limitations: Unusual Sample Year
The sample period of the Treasury study was a time of extreme economic contraction, which affected some Michigan industries more than others.Insufficient Sample Period
The sample period of the Treasury study was very Short, and does not indicate the behavior of various industries over the entire economic cycle.Old Data
The number and importance of economic changes occurring in the over-five-year time lapse between the sample period and the current date limit the predictive power of the data.