MICHIGAN PROP 1: Taxing the Poorest, Cutting Taxes for the Richest

Here’s something you won’t hear from the Governor about Proposal 1:


Proposal 1 is about taxing the poorest families in Michigan, while cutting taxes for the richest.

Proposal 1 calls for an increase in the sales and use taxes from 6% to 7%. Vote NO!

Who does the sales tax affect in Michigan?

According to Who Pays?, the bottom 80% of Michigan households spend between 9.0% and 9.4% of their household income on state and local taxes. The top 20% spend between 5.1% and 7.7% of their household income on state and local taxes.

The effective rate of the consumption taxes (sales tax, use tax and excise tax, based on purchases made) is even more unbalanced — in Michigan, the bottom 20% pay 6.3% of their household income on these taxes, while the top 20% pay only 2.3% of their household income — or about one-third of the effective rate. Most significantly, as household income increases, the impact of the consumption taxes decreases until — for the top 1% — only 0.7% of the household income goes to consumption taxes.

Graph from “Who Pays?” by the Institute on Taxation & Economic Policy, January 2015, pg 73-74 (click to enlarge)

This is what is meant by a regressive tax — it is a tax which weighs more heavily on those who are least able to afford it, while weighing less heavily on those who have the most disposable income and therefore are least affected. The sales tax (and the related use tax) is widely known to be a regressive tax, which places a greater burden on the poor than on the wealthy.

Another finding from the same study is this one: between the years 2000 and 2012, in Michigan, revenues from sales and excise taxes increased by 2.2 percentage points as a source of revenue for state and local governments, while income taxes declined by 7.4 percentage points at the same time. In 2000, sales and excises taxes made up 21.5% of revenues; in 2012, they made up 23.7% of revenues. During this same period, income taxes went from 21.9% of revenues in 2000 to only 14.5% of revenues in 2012. What does this mean? It means that sales tax revenues are growing in importance — state and local governments are looking for more sales tax revenue instead of raising (or, in fact, while cutting) income taxes.

These are two important facts to keep in mind while making the choice that Michigan voters are being asked to make. On May 5 2015, Michigan voters will be asked to raise their sales tax once again — this time from 6% to 7%. The promise is that this increase will allow the state to repair the state highways, restore funding to education, fund local government services and provide an Earned Income Tax Credit to the low-income families.

Yes, if we raise the taxes disproportionately on the poor, then we can provide services to the poor.

If we are to make a good choice here, we need to have something of a larger context. We need, especially, to examine the last half-decade of revenue choices that the state has made. Four years ago, in May 2011 — less than 150 days after taking office —

  • Governor Rick Snyder signed a law eliminating the Michigan Business Tax. This law reduced state revenue by $1.65 billion from businesses.
  • In the same set of bills, Governor Snyder levied a new income tax on pensions and other retirement income for any aged 66 and under, to add $343 million in new revenue.
  • In addition, the Homestead Property Tax Credit was reduced, adding more revenue.
  • Importantly, the Michigan Earned Income Tax Credit for low-income workers was cut by 70%.

This package of tax changes took $1.65 billion from the state revenues, to the benefit of businesses large and small, and replaced them with $1.42 billion in new taxes that affect mostly low-income and middle-income taxpayers.

Importantly, those tax cuts for the businesses required no reciprocal action by the businesses — they were not required to create, or even preserve, any jobs, nor were they required to increase, or at least not cut, wages, hours or benefits for their employees. To be honest, the Governor was hopeful that jobs would be created, but there was certainly no obligation on anyone’s part to do that — the tax cuts applied, even if jobs were shipped out of state or wages were cut.

Take the money and run!So, four years ago, we took $1.65 billion dollars out of the state coffers and gave it to businesses, then tried to replenish that money by reaching into the pockets, wallets and pensions of our low-income and middle-income taxpayers. Not surprisingly, the state found itself short — to the tune of $1.2 billion dollars — of the funds needed to provide the obvious services that affect the public everyday — school funding, local government services, and most frustratingly, roads that are literally falling apart.

Poor Michigan! We're Broke!

Now comes the Governor and the Legislature telling us that we need to tax ourselves — predominantly, tax the lowest-income people in the state — even further. They promise to put back some of the Earned Income Tax Credit that they cut four years ago (though not to the same level). And they promise to restore some of the local government funding and education funding (though not to the same level) that was cut over the last four years.

But will they recover the $1.65 billion gift that was given to businesses? Will they simply go to those companies and say “We made a mistake. We can’t afford to give you that gift. So, we’re taking it back. Sorry.” ?

Nope. Not a chance. Not an option.

The May 5 Proposal 1 vote has nothing to do with roads. They want you to think it does, but it doesn’t. It has to do with giving money away to those who don’t need it and taking money from those who do need it. This is fraud, nothing else.

There’s $1.65 billion sitting in the wallets of the business owners in Michigan. It’s money they got back in return for nothing whatsoever. And, in the wake of that gift, Michigan finds itself $1.2 billion short in funds.

Any genuine nerd would recognize the problem — and the solution — in no time at all. You gave away too much money. Get it back.

But don’t — DON’T! — put your poor judgement deeper into the pockets of those least able to pay for your mistakes.

May 5, 2015

Some additional info can be found at BallotPedia.


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