The jury is still out on whether Michigan Gov. Rick Snyder can pull off a full-scale reinvention.
There certainly has been a lot of knee-jerk reaction to the governor’s proposals, and a good deal of sound and fury from a vocal minority. We think it’s wise to listen and consider all options before drawing conclusions. Citizens should be especially wary of those who seek to pit group against group.
And, if we’re going to do this reinvention right, no reform should be off the table. Taxing pensions? On the table. Reducing teacher pay and benefits? On the table. Corporate tax? On the table.
How about personal income tax? We’d like to see a proposal for that on the table. We’re wondering what impact it could have on the state’s unfortunate fiscal situation.
To change the tax, which was adopted in 1967, would not be precedent-setting, by any means. Elected officials have tweaked the income tax in Michigan before. Originally 2.6 percent of income, the tax went as high as 16.35 percent in 1983. It was lowered to 4.4 percent in 1994 with more cuts phased in through 1999 legislation. By 2005, it was down to 3.9 percent but then increased in 2007 to 4.35 percent, with additional reductions scheduled to bring it back down to 3.9 percent by late 2015.
We’re wondering if that reduction is advisable, given the current situation. We believe the governor may be questioning this reduction, too.
According to the latest available data, the total tax burden in Michigan is lower than the national average and lower than some other Great Lakes states. Michigan collected $1 billion less than it would have in 2006 if its tax burden had equaled the national average. Michigan’s tax burden has consistently ranked in the middle of the pack among all states.
In the past 15 years, most sources of tax revenue in Michigan have declined. Reliance on income, business and consumption taxes has decreased. Reliance on transportation, property and other taxes has increased. In 1995, income taxes amounted to 31 percent of the tax revenue “pie” in Michigan, according to the nonpartisan state Senate Fiscal Agency. By 2009, that slice of the tax pie had shrunk to 26.1 percent of all tax revenues in Michigan.
In 1978, Michigan voters passed the “Headlee Amendment” aimed at restricting future taxation of state residents and businesses. Under this constitutional amendment, total tax revenues collected by the state cannot exceed 9.49 percent of the total amount of personal income earned by Michigan residents. Tax revenues have remained well below the Headlee limit for some time. The implication is that the state could collect $9 billion more per year and not exceed the voter-approved constitutional spending limit. All of this information comes from nonpartisan House and Senate fiscal agencies.
According to Mitch Bean, director of the Michigan House Fiscal Agency, the average growth of Michigan’s personal income was 1.5 percent a year from 2000 to 2010, yet the average growth of Michigan revenue was 0.79 percent per year from 2000 to 2010.
The state collects personal income taxes to help fund local schools and the state’s “general fund budget” for colleges and universities, prisons, some social services, and a variety of general government expenses.
Some of these issues are very tough to put on the table. And there are special interests and agendas elbowing their way to that table, trying to shout down any proposal of substance.
But we need to put emotions aside, look at the facts and weigh all possible options.
We aren’t endorsing a change in the state income tax at this point, but we sure would like to know more about the potential impact of changing that rate. It’s crucial that this information is known before decisions are made to cut funding in critical areas, such as schools.
We challenge our legislators to get that information and put it on the table, along with everything else.
— KALAMAZOO GAZETTE