In the shadow of the state House of Representatives failed vote earlier this year to roll back income taxes came three items of interest recently. They suggest legislators should pump the brakes before they revisit the issue or, perhaps, do something outrageous: Consider a compromise.
The first was a monthly revenue report from the Senate Fiscal Agency, indicating state revenue collections in March were $166 million below projections. That was due, primarily, to business tax refunds that exceeded business tax collections by $138 million.
Wait. Need a second to ponder that? Sure. That’s correct. The state paid out to businesses $138 million more than it collected in March.
Shoveling money from state coffers to businesses enjoying an extended period of economic recovery since the recession is a recurring nightmare in Michigan. Tax credits were issued to a great many companies to encourage them to stay — and expand — in our state going all the way back to the Engler administration. Billions in tax credits, extending well into the future.
Many of these tax credits were issued to companies that had operated in Michigan for decades and, likely, would continue to operate here for decades to come. Since the recession, these companies have grown with the economy. They’ve added jobs. And they’ve cashed in credits that, in some years, have exceeded total business tax collections, as in March of this year.
So, immediately after the House of Representatives failed to completely eliminate the individual income tax and, later, failed to roll it back from 4.25 percent to 3.9 percent, the independent and nonpartisan Senate Fiscal Agency reported total tax collections in March 2017 were 10.5 percent below March 2016 — and $166 million below projections made just three months earlier in January.
Why did the Legislature want to roll back income taxes? Ostensibly because we’re overtaxed. But the U.S. Census, in a news report leading up to the U.S. income tax filing deadline, said Michigan’s income tax burden is four percentage points below the national average. Overall, Michigan ranks 34th nationally in tax burden per capita.
But many legislators said they wanted to roll back taxes because businesses “got theirs” early in the Snyder administration, so the “little guy” is due. Well, that may be the case. But the few extra dollars the “little guy” would have received per year in income tax reductions are unlikely to cover the cost of tutoring for children whose schools cannot afford to meet their needs.
Real Change for the ‘Little Guy’
Turns out, the Legislature had it partly right. The “little guy” does want a change in Michigan taxes. They don’t want a tax rollback that will make it even harder for the state to invest in roads, infrastructure and schools. They want an income tax that, like in 33 other states, taxes people based on their ability to pay.
The research firm EPIC-MRA at tax time reported 70 percent of Michigan voters would prefer a graduated income tax that asks the rich to pay more, as is the case with federal taxes. The proposal for a graduated income tax isn’t likely to come up for a vote in the Legislature, however, because it was proposed by the minority party. In today’s bizarro political world, legislation of consequence proposed by the minority party — in this case Democrats — is rarely discussed in any way, shape or form except as a news release issued in hopes someone, anyone, will take their proposal seriously.
Nobody likes taxes, but everyone appreciates the highways, schools, clean water, police and fire services provided through tax revenue. Study after study in recent years has shown Michigan is investing less in its schools, its colleges, its roads and its infrastructure than is necessary to maintain them.
A graduated income tax wouldn’t reverse the loss of corporate tax revenues. But it could meet the goals of both parties.The GOP could provide tax cuts for the “little guy.” And the rates could be set to actually increase revenues while also correcting the growing income inequity between the rich and the poor.
It deserves discussion. And it would be discussed if one party was not in control of the House, the Senate and the Governor’s office. But it will not see the light of day, even though 70 percent of respondents to a statewide survey said it sounded like a good idea.
Somehow, representative government doesn’t always resemble the representative democracy we hold so dear.