Gilda Jacobs, a former Democratic lawmaker and current president of the Michigan League for Public Policy, implied in testimony last week that a minor reduction in the state income tax rate would threaten basic community services like police and fire departments.

“People are worried whether or not a police car or a fire department is going to show up if they have an emergency at their home,” Jacobs told the House Tax Policy Committee. “Because that’s exactly what’s going to happen when we have tax cuts like this because as we point out, this money has to come from someplace.” (Video of the testimony, which Jacobs gave on Feb. 15, is below).

 

 

State income tax revenue is not where the money for municipal police and fire departments comes from, though. It comes primarily from local property tax collections, not state income taxes.

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Jacobs was testifying on House Bill 4001, which as introduced would have lowered the income tax rate from 4.25 percent to 3.0 percent over four years, and then phase it out altogether over several decades.

Michael LaFaive, director of fiscal policy at the Mackinac Center for Public Policy, called Jacobs’ statement misleading and a red herring.

“That’s a misleading statement. Presumably, the fire department is at the top of a local government’s priority list, not the bottom. And local property taxes are at the top of municipalities’ revenue sources, not the bottom,” he said. “Whether or not the state permits residents a tiny income tax cut has little to do with either of those two things.”

“It is troubling to see how just a tiny little personal income tax cut opportunity could generate such scare tactics,” LaFaive added. “Police and fire cuts wouldn’t be at the top of anyone’s list. This is a red herring.”

LaFaive called the claim a version of what some call the “Washington Monument” gambit, in which critics of federal spending cuts claim the budget is so tight that cutting it will require closing national monuments.

House Bill 4001 failed to pass early Thursday morning, with 55 votes against it and 52 votes in favor. As first written, the bill cut the income tax rate from 4.25 percent to 3.9 percent in 2018, but it was later amended to a cut from 4.25 percent to 4.05 percent in 2019.

Twelve Republicans voted against the tax cut.

In 2007, the state hiked the income tax from 3.9 percent to 4.35 percent — a move that was supposed to be temporary — but lawmakers voted in 2012 to halt a scheduled rollback. The state has collected an extra $6.3 billion since imposing the tax increase in 2007. In 2016, the rate hike was responsible for $770 million of the state income taxes paid by residents.

The original version of bill defeated in the House this week would have saved each resident who earns the median annual income of $49,576 roughly $174 each year.

Jacobs did not respond to a request for comment.


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