Beware Michigan Tax “Restructuring”

Lansing policymakers are discussing plans to shift taxes around and are being supported by some faulty observations. Some of them made their way into a column by Susan Demas in The Detroit News. She noted, "Michiganders have gone from paying 9.5 percent of their incomes in taxes in 1999 to 7 percent today."

Actually, Michiganders pay much more in taxes. These are simply figures from the state's Headlee amendment revenue limit calculations, which do not count local or federal figures, nor all of the state's non-federal revenues. Adding local tax burdens increases the figure to 10.7 percent. Overall, Michigan residents face a much broader tax burden. The federal government takes in 21.6 percent of the entire country's personal income and Michigan pays its share, leaving the tax burden for Michigan residents around 30 percent.

Besides, the state tax system is very good at capturing revenues from growing economies. That's largely the reason why state government coffers were closer to the Headlee cap in the high-growth 90s. But Michigan has not grown in a long time.

Still, even in decline, Michigan's tax revenues are doing pretty well, comparatively. The state's revenues are down 9 percent while the national average is 13 percent. And this despite Michigan losing a greater percentage of its jobs than every other state. Why Michigan's tax system is outperforming these other states even with an allegedly antiquated tax system needs to be explained by Demas and other tax reform supporters.

Demas's other factual observations also deserve scrutiny. For instance, she states that Michigan "sliced $1.4 billion from the once $9 billion General Fund." But the difference came more from shifts and stimulus money than from lower government expenses.

The biggest chunk came from stimulus money used to balance the state's budget. There were additional one-time changes that comprised most of the rest. There were a couple of changes to the structure of spending and actual cuts of programs — the state fair and the Michigan Promise Scholarship, but total savings are only a fraction of $1.4 billion.

Michiganders need to be leery of any tax hike plan, especially considering Lansing's bad experience in tax restructuring. Consider the 2007 Single Business Tax elimination drive. Afraid of a referendum that would remove the tax, state legislators voted to get rid of it themselves, only to replace it with an equally-hated and complex business tax which was quickly increased only five months later. The political pressures that brought this about exist and are likely to do the same with any new tax restructuring.

Misleading statistics should not be the basis for a new tax hike. Michigan is again expected to live outside its means and spend more than anticipated revenues next year. Savings ideas should be considered first, especially these.

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