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Kids Count Data Book 2015: Resources for advocates

Joining the Kids Count in Michigan Data Book 2015 release

Release date: Thursday, Feb. 19, 2015

The Kids Count in Michigan Data Book 2015 will be released under an embargo Feb. 11. The embargo lifts at 12:01 a.m. Feb. 19. That means information from the report should not appear on websites or in the news media in any way prior to 12:01 a.m. Feb. 19. A story posted at 11:59 p.m. Feb. 18 breaks the embargo (technically) while 12:01 a.m. Feb. 19 does not.

What can you do as an advocate in your community to join in the release so that we can move policies that improve the lives of Michigan’s kids?

Watch the Jan. 15 webinar on joining the release

Powerpoint from Webinar

Three things you can do now!

Embargoed report page

Kids Count Data Book is an Important Advocacy Tool From Michigan’s Children

Sample statements (coming soon!)

Draft news release (coming soon!)

Suggested social media prerelease (coming soon!)

Suggested social media — day of release and later (coming soon!)

Restoring the Michigan EITC Will Help Working Families

 

The Michigan Earned Income Tax Credit is one of the most effective tools for supporting working families and reducing poverty. Michigan lawmakers approved restoration of the state EITC to 20%, if voters approve the penny sales tax increase on May 5 to pay for needed road repairs and to support schools.

The Michigan EITC was cut by 70% as a result of major tax changes that took place in 2011. The Michigan Legislature and Gov. Snyder reduced Michigan’s EITC from 20% of the federal EITC to 6%. Most EITC recipients claim the credit only temporarily when a job disruption or other significant event reduces their income. A recent study found that, of people who received the EITC over an 18-year period, 61% received the credit for only one or two years at a time. The EITC has also been shown to have a long-lasting, positive effect on children, helping them do better and go farther in school. The EITC also increases work effort and expands Michigan’s economy.

The EITC provides working families with additional options for housing, child care, and transportation so that the family can remain in the labor force and take steps toward self-sufficiency. Restoring the EITC to 20% will lift an estimated 15,000 families above poverty and lessen the impact of poverty on 800,000 families, including more than 1 million children.

 

 

Income Tax Cuts: Financially Irresponsible and No Economic Benefits

Proposals to roll back the personal income tax in Michigan will not create jobs or grow our economy and will disproportionately benefit the wealthiest taxpayers the most. It is also fiscally irresponsible to reduce taxes when the state is facing a budget shortfall due to lower than expected revenues.

In fact, most of the benefits of a cut in the state’s personal income tax from 4.25% to 3.9% would flow to Michigan’s wealthiest taxpayers, according to an analysis by the Institute of Taxation and Economic Policy, a Washington, D.C.-based research group that uses a sophisticated model of the tax system.

At a time when inequality and poverty are already high, the rollback would offer:

  • low-income taxpayers (average income of $10,600) enough to buy a bakery-made cherry pie ($12 on average for the bottom 20% of earners).
  • middle-income taxpayers (average income of $45,700) enough to buy a used dough mixer ($88 on average for the middle 20%).
  • those at the very top of the income scale (average income of $971,600) enough for a round trip for two to Paris, where they could visit all of the sights and have enough left over to enjoy French pastry at a café ($2,618 on average for the top 1%).

In addition, nearly one in four (23%) of Michigan households would receive no tax cut at all—including more than half of the state’s poorest taxpayers (the bottom 20% of earners who make $18,000 a year or less).

By contrast, three of every five dollars in tax cuts (60%) would flow to Michigan’s wealthiest 20% of taxpayers who earn $89,000 a year or more, with the top 1% of earners—those making $362,000 and up—alone taking home a sizeable 17% of the tax cut benefits.

Across-the-board income tax cuts will not boost Michigan’s economy but would contribute to rising income inequality, and further drain resources from public schools, community colleges, universities, health care and public safety—the very services that fuel economic growth.

Rolling back the personal income tax rate will not boost the economy and will only add to rising income inequality. Plus, as the state faces a revenue shortfall in the current fiscal year, and potentially the following fiscal year, reducing state revenue would lead to cuts to schools, communities and other public services that drive economic growth.

 

Enough is Enough: Business Tax Cuts Fail to Grow Economy

Executive Summary

Recent business tax cuts have slowed economic growth and have not led to an economic recovery for everyone, and reducing them any further will only worsen matters. While the state’s perceived business environment has improved, job growth has slowed and the jobs created have been mostly low-paying ones. These tax cuts reduced revenue and have starved the very services that are needed to make Michigan an attractive place for businesses and residents. Even worse, to pay for the business tax cut, lawmakers shifted taxes to individuals, adding to the struggles many families face as Michigan continues to experience high unemployment and poverty and stagnating wages. It is time to invest in the things that people in the state value, such as education, transportation and local communities.

 

 

 

 

Increased Demand Creates Job Creation, Not Increased Profits

To spur job creation, Michigan lawmakers cut business taxes by 83%, or $1.6 billion. Signing the new law, Gov. Rick Snyder stated, “…the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”1 Theoretically, in the majority of policymakers’ perspectives, cutting taxes would attract new businesses to create jobs in the state and put more money in the hands of current Michigan employers to enable them to hire additional workers. However, there are several problems with this line of thought.

First, businesses do not hire or expand unless there is an increased demand for their goods or services. According to the Congressional Budget Office, a nonpartisan policy agency for Congress, increasing after-tax income of businesses in the form of tax cuts does not create an incentive to hire or produce more, because adding more goods and services depends on their ability to sell them.2 A company will not need additional employees if there is not a need for more of its goods. Instead, those extra profits are pocketed.

Accordingly, in the most recent Michigan Future Business Index, a survey of small- to medium-sized business owners in Michigan, the number of respondents expecting increased sales follows along with the number expecting to hire more employees. Over the same time period, the number of business owners expecting profit margins to increase has begun to stagnate. Therefore, we can see that anticipated increases in sales are driving business hiring practices rather than profits, which have been helped by recent business tax cuts.

Slower Economic Recovery in Michigan

With a decade-long downturn that began before all other states, Michigan lost approximately 750,000 jobs, saw personal income decline, and poverty increase. Coming out of the Great Recession, Michigan has experienced job growth as has the rest of the country. However, the state has not recovered to pre-recession levels, and the evidence does not support the argument that business tax cuts have facilitated economic growth. In fact, a leading economist at the University of Michigan maintains that the improvement in the job market can almost entirely be attributed to the effects of a national recovery and the improvement of the auto industry.3 Further, an argument can be made that the economic recovery—in terms of job creation, employment, and personal income growth—would have been faster without cuts to business taxes, which ultimately led to both increased taxes for individuals and steep cuts to public services.

Since the beginning of the recession, Michigan remains one of two Midwest states where the unemployment rate continues to be above the national average and there is an overall net job loss.4 While states such as Indiana and Ohio are perceived to be low-tax states for businesses, neither have made the gains that Minnesota, a high-tax state, has achieved since the onset of the Great Recession. Indiana does have a slightly lower unemployment rate than the national rate; however, it has not experienced much job growth. Likewise, Ohio, which gave major tax breaks to businesses5 just before the onset of the recession, also has a lower unemployment rate, but is still experiencing a net loss of jobs since the beginning of the recession.

Michigan’s job growth returned in 2010 prior to Gov. Snyder’s term. With the improvement of the auto industry due to federal assistance, the state experienced a net job gain of 56,100. Following in 2011, before business tax cuts occurred, 96,700 jobs were added; however, job growth since has slowed. In 2012, the first year that business tax cuts went into effect, only 76,800 jobs were added and even fewer job gains occurred in 2013 (47,900). Over the past year, the state reported adding only 44,300 private sector jobs6 further demonstrating a slowdown in growth since taxes for businesses were reduced.

Michigan ranked 9th highest in the country for job growth between 2009 and 2010, dropping to 20th from 2011 to 2014, according to an analysis ranking states.7 In the earlier period, Michigan led the Midwest in job growth. Over the more recent time period, Minnesota, again a high-tax state, has pulled ahead adding more jobs to their economy at a faster rate.

While it is expected that payroll employment will increase for the third consecutive year, it is projected to be a much smaller gain than prior years with a significant drop in the year that business tax cuts took effect:8

Even with employment increases expected, albeit small gains, the unemployment rate is projected to drop mostly due to a shrinking workforce. It is also expected to remain higher than the national employment rate. Also of concern is long-term unemployment, which was approximately 39 weeks on average in 2013. The evidence does not suggest that implementing cuts for businesses has improved the job market in Michigan.

Another indicator pointing to a slower economic recovery is personal income. In 2013, Michigan’s per capita income level was $39,200, 12% lower than the U.S. average. The gap, however, does appear to be closing dropping 2 percentage points since 2009. Interestingly, Michigan’s per capita personal income ranking compared to other states was 39th in 2010, improved to 36th in 2011, but then slightly worsened to 37th in 2012—after the business tax cuts occurred—and has stagnated since.9 Further the rate of growth for personal income beginning with the period just prior to the enactment of cuts to business taxes through 2013 reflect the smallest growth for Michigan.

Michigan’s New Job Market

Prior to the recession, manufacturing jobs related to the auto industry were undoubtedly the largest share of Michigan’s job market. With the decline of manufacturing, Michigan’s economy has shifted, creating two diverging types of employment: low-wage, low skill and higher wage, higher skill. The three top industries adding jobs in the state are manufacturing, professional and business services, and leisure and hospitality. The latter of these tend to be lower wage jobs that do not require more than a high school diploma. On the other end of the wage scale, growth is occurring in manufacturing and professional services, which are both related to the re-emergence of the auto industry. However, these types of jobs require postsecondary education and training, and are being threatened by the state’s lack of a skilled workforce.10

Low-Wage Jobs Dominate

Post-recession job growth in Michigan has been dominated by low-income jobs and it is expected that this trend will continue.11 Currently, 63% of all Michigan jobs pay less than $20 per hour, which is approximately $40,000 annually for a full-time job.12 It is projected that most new jobs will be in the service industry with wages below $15 an hour and will only require a high school diploma or less.13

Over the past 35 years, wages for low- and middle-income workers have dropped significantly. From 1979 to 2013, real hourly wages for low-income workers fell by 13.4% and 12.7% for mid-wage workers.14 When compared to other Midwest states, Michigan’s wages fell the most (12.7%). Minnesota, considered a high-tax state, experienced an increase of 11% and Indiana, a low-tax state, had an almost 1% decrease in real median wages over the same time period.15

Many families are struggling to make ends meet because of low wages, and the continued upsurge in these types of jobs will not benefit the state economy. The most recent U.S. Census data show that from 2009 to 2013, the share of households making less than $10,000 a year grew the fastest. Very simply, when wages are low, workers are unable to meet basic needs, let alone save, often leaving them one emergency away from slipping into poverty, which harms the economy.

Talent Disconnect Hurts Growth

Another significant portion of job growth occurring in Michigan has been in middle-skilled jobs and in the high-tech industry. It is projected that growth will continue to occur for technical jobs in health and manufacturing. Additionally, in Michigan, jobs in high-tech industries are growing at three times the national rate.16 These are the types of jobs that once supported the middle class; however, they require education and training beyond a high school diploma. According to the Michigan Economic Development Corporation, while there is demand for middle-skill jobs in Metro Detroit, it admits that Michigan needs to develop a workforce with these skills if it is to compete with other states and countries for more of these types of jobs.17

An analysis of projections from the Economic Modeling Specialists, International shows that demand in Michigan for jobs in the health profession is expected, with nurses, medical secretaries, dental hygienists, paramedics, and lab technicians topping the list.18 Additionally, technical jobs in manufacturing, particularly in robotics and advanced manufacturing, are likely to experience increased growth.19 Generally, these jobs pay between $30,000 and $80,000, and, although a bachelor’s degree may not be necessary, additional training and education beyond high school are required.

A now-rebounding industry, manufacturing is creating high-tech jobs that also require more than a high school diploma. In 2013, automotive manufacturing contributed the most jobs in high-tech employment followed by engineering and other consulting services.20 Wages for these jobs average around $80,500 in Michigan,21 and all will require workers to obtain more than a high school diploma.

Michigan’s workforce, however, is lagging behind other states in educational attainment, creating a drain on economic growth both in terms of business expansion leading to new hires and in companies’ abilities to fill current and future openings. Former President and COO of Alro Steel Corp., Mark Alyea, cites the lack of skilled workers as the reason their manufacturing customers are limited in growth and also why the state has been unable to raise per capita income.22

Compared with states considered to have low business taxes, such as Indiana and Ohio, Michigan has about the same percentage of its population 25 years or older with postsecondary education. However, when compared with Minnesota, a high-tax state with low unemployment and high per capita income, there is a significant difference in educational attainment. In 2013, Minnesota spent about $242 per capita in higher education while Michigan spent only $172 per capita.23 Minnesota’s decision to invest in higher education and retain those graduates has clearly helped grow its skilled workforce, and fill and grow jobs in a knowledge-based economy.

There is a talent disconnect in our state resulting from a lack of education attainment: 50% of small- and mid-sized Michigan businesses recently surveyed reported that this is their No. 1 concern.24 In that same survey, one business owner responded that “Michigan has systematically underfunded schools, municipalities and infrastructure to the point that young people and talented people are unlikely to make Michigan their first choice to live and locate their families.”25

Business Tax Cuts Mean Less for People

When the governor and Legislature reduced taxes on businesses, it created a significant hole in the budget. Some of this lost state revenue was replaced by increasing taxes on individuals; however, not all of it was recovered, which led to cuts in other programs and services for people. Cutting business taxes through the repeal of the Michigan Business Tax and phase-out of the Personal Property Taxes left fewer funds available for Michigan lawmakers to invest in its people through education, transportation, and public safety, stunting economic growth and recovery from the Great Recession.

While businesses benefit from state investments in schools, infrastructure, and local services, the share contributed by businesses to support these programs has dropped significantly. Historically, under the Single Business Tax (SBT) business tax revenue as a proportion of General Fund dollars varied from a low of 14% to a high of 26%.26 Likewise, the short lived Michigan Business Tax made up between 15% and 19% of GF/GP funds.27 It is estimated that the new Corporate Income Tax business tax will only contribute around 9% of GF/GP revenues.28 Over the last six years, this represents a drop of over 24% of net business tax revenues going to state General Funds.29 Relieving businesses of taxes may have cushioned profits, but it resulted in disinvestment in the resource that businesses rely most upon: people.

There have been many disputes over whether Michigan has cut funding for education. Looking at the foundation allowance, which is the largest unrestricted operational funding source for school districts and distributed on a perpupil basis, the overall funding has declined over the last four years.30 Not only that, but K-12 School Aid spending declined significantly following cuts to taxes for businesses. Per pupil spending in 2011 was $7,146, dropping to $6,846 in 2012, and has slowly climbed, but still remains lower than 2009 spending levels, the peak.31

Compared with other states, Michigan ranked 13th worst for the amount that spending per student decreased beween fiscal year 2008 and fiscal year 2015.32 Minnesota, the Midwest state that has experienced the most job growth and lowest unemployment rate over the same time period has invested the most in education in the region and is fourth best in the country in terms of dollar increases.

There have been clear consequences from the state’s decision not to invest more in education. Schools have been forced to cut spending on programs that are beneficial to student learning, reducing the number of teachers and support staff, thereby increasing classroom sizes and inhibiting student progress. Nationally, Michigan students are falling behind their peers in math, reading, and science—the core areas needed by employers to fill jobs and grow their businesses in a global economy.33

As much as people do, Michigan businesses also rely on the state’s roads as a way to transport their goods. According to a national report on Michigan’s roads, in 2009, trucking accounted for 67% of the freight tonnage moved while rail (19%), water (14%), and air (<1%) were used much less.34 Michigan is at the bottom of the Midwest states in per capita spending on roads, making road conditions unsafe, causing unnecessary damage, and wasting fuel. Michigan lawmakers have struggled for the last decade to solve the transportation funding shortage. Business tax cuts have only added to the problem. Good, safe roads are critical to helping people get to work, children to school, and products delivered. Increased revenue—rather than cutting revenue—is needed, because one-time funding solutions are not working.

Also suffering from a lack of state revenue and investment are Michigan’s local communities. Over the last decade, revenue sharing has declined from over $900 million annually to approximately $250 million.35 These revenues are used to support local services, such as public safety, water and sewers, and roads. The Legislature’s constant diversion of revenue sharing to fill the state’s budget holes has caused local governments to postpone capital projects, scale back or eliminate recreational and library programs, and significantly reduce police and fire protection.

An educated workforce, good roads, and local services are things that businesses rely upon to not only be successful and grow, but also in deciding where to locate. Michigan lawmakers may believe that providing tax cuts to businesses is the only incentive needed; however, without an investment in its people and communities, the state will continue to experience slower economic growth.

Increased Taxes and Poverty for the Rest

In their effort to promote business growth and job creation, Michigan lawmakers significantly shifted taxes to individuals. In 2011, taxes on individuals were increased by 23%, or $1.4 billion, while taxes for businesses were cut by 83%, or $1.6 billion. Several tax credits that were intended to provide tax relief for Michigan’s lowest earners were either reduced or eliminated. These tax increases on people came at a time of high poverty, high unemployment rates, and a still recovering economy making it more difficult for people to make ends meet.

In general, most people believe that low- and middle-income people should not have to pay more of their income in taxes than others. However, the tax increases in Michigan have disproportionately harmed low- and middle-income people. With the changes fully implemented it is estimated that the lowest income taxpayers (annual incomes under $19,000) experienced the largest tax increases: 1% of their incomes, while top earners (annual incomes $392,000 or more) did not experience any tax change as a percentage of their income.36

With high poverty and unemployment levels, families were already struggling before their taxes were increased to benefit businesses. Census data from 2013 reveal that poverty remains high in Michigan with 1 in 6 living below the poverty level. Deep spending cuts over the last decade, exacerbated by decisions to cut taxes for businesses, have taken a toll on people in this state who need the most help. Since 2011, significant policy changes to public assistance ranging from implementing a hard cap on lifetime limits and adding asset limits to creating bureaucratic barriers to receive aid have reduced caseloads, but not poverty. Research shows that reducing income for already struggling families can have a particularly negative effect on children related to their educational attainment, future earnings, and health, and thereby driving down economic growth.37

Policymakers in the state have shifted taxes onto working families. They have asked individuals to pay more, businesses to pay less, and have not chosen to use state revenues to invest in people. These decisions have led to families having smaller amounts left of their earnings leading them to spend less and struggle more, all of which negatively impact the economy. Raising taxes on low earners slows economic growth; for every dollar lost due to a tax increase, total spending drops by about a dollar.38

Recommendations

While Michigan has had a much larger climb out of the recession than other states, it continues to have one of the highest unemployment rates, lags in personal income gains, and poverty rates have stagnated. Tax cuts for businesses have not proven to be a wise investment, especially in a state budget environment with historically low revenues, and have slowed the state’s economic recovery. To restart Michigan’s economic growth, lawmakers should:

Resist the temptation to cut business taxes even further. There are some suggestions that business taxes be cut even deeper to expand the recent cut to personal property taxes to those who are not currently benefiting. The recent tax cuts for businesses have not resulted in the job growth necessary to turn the state around. Additional tax cuts would mean less revenue available for the state, which either means increasing taxes on families again or decreasing spending inhibiting both the creation of communities that people and businesses want and the development of a workforce that can compete in a global economy.

Explore new avenues for revenue to invest in things that people and businesses value. The state must begin investing in its people, infrastructure and communities. If Michigan is to truly recover it needs to become a place where people want to stay, live and raise families. Businesses use these factors much more when determining where to locate as do recent college graduates when determining whether to leave or relocate to a state. To do so will require raising additional state revenue. Options include:

  • Supporting the passage of the road funding ballot proposal. The proposal to fix the roads is tied to increased funding for schools and communities and is critical for the state to progress.
  • Reviewing and eliminating ineffective tax expenditures. The state already provides a thorough list of tax expenditures, but does not have a process for reviewing these spending measures to ensure that they accomplish set goals.
  • Increasing the Corporate Income Tax rate. Michigan’s Corporate Income Tax rate is below the national average and if increased could help to recover lost revenue that occurred with the change.[39]
  • Adopting a graduated income tax structure. Michigan is one of only seven states that still relies on a flat income tax structure, which leaves low- and middle-income families having to pay a greater share of taxes than the wealthy. Modernizing the income tax structure to a graduated tax could generate additional revenue and ensure more fairness for all earners.

Restore tax credits that help low- and middle-income people, and the economy. In the great tax shift of 2011, lawmakers reduced the Michigan Earned Income Tax Credit (EITC) by 70%, increasing taxes on the workers earning the least in Michigan by $261.6 million. The EITC is one of the most effective ways to support working families and lift them from poverty. Additionally, research shows that the budgetary savings from cutting low-income tax credits has significant economic costs, making it more difficult to develop the highly skilled workforce needed in today’s economy. Passage of the road funding ballot proposal in May would restore the EITC to its original level of 20% of the federal EITC.

Endnotes

  1. Snyder signs tax reform bills to fuel state’s turnaround, Press Release, Office of Governor Rick Snyder, May 25, 2011.
  2. Congressional Budget Office, Options for Responding to Short-Term Economic Weakness, January 2008.
  3. Lester Graham, How much can a governor really affect job creation?, Michigan Radio, October 13, 2014.
  4. Joint Economic Committee of the United States Congress – Vice Chair, State-By-State Snapshots, December 2014.
  5. In 2005, the Ohio legislature eliminated its corporate income tax and began to phase out local taxes on business tangible property. These were replaced with a Commercial Activity Tax (CAT) on gross receipts. The CAT has collected approximately half of the revenue of the taxes it replaced. The evidence does not support any economic benefit for the state or individuals. (Michael Mazerov, Cutting State Corporate Income Taxes is Unlikely to Create Many Jobs, Center on Budget and Policy Priorities, September 14, 2010.)
  6. Joint Economic Committee of the United States Congress, op. cit.
  7. The Facts on Job Growth in Pennsylvania, Keystone Research Center, October 21, 2014.
  8. Senate Fiscal Agency, State Budget Overview, August 2014.
  9. Michigan Department of Technology, Management & Budget, Bureau of Labor Market Information & Strategic Initiatives, Michigan Economic and Workforce Indicators and Insights, Summer 2014.
  10. John Wisely, What will the future of Michigan’s job market look like?, Detroit Free Press, October 1, 2014.
  11. ALICE – Asset Limited, Income Constrained, Employed – Michigan: A Study of Financial Hardship, United Ways of Michigan, September 2014.
  12. Ibid
  13. Ibid
  14. Yannet Lathrop, Labor Day in Michigan Report: Pay Falls for Low-Wage Men yet Women Still Far Behind, Michigan League for Public Policy, August 2014.
  15. Ibid
  16. Michigan Department of Technology, Management & Budget, op. cit.
  17. John Wisely, What will the future of Michigan’s job market look like?, Detroit Free Press, October 1, 2014.
  18. Ibid
  19. Ibid
  20. Michigan Department of Technology, Management & Budget, op. cit.
  21. Cyberstates 2013: The Definitive State-by-State Analysis of the U.S. Tech Industry, Tech America Foundation, 2013.
  22. John Wisely, op. cit.
  23. Rick Haglund, State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Help it Achieve the Best Economy Among Great Lakes States, June 2014.
  24. Michigan Future Business Index, Phoenix Innovate, Michigan Business Network, and Accident Fund Insurance Company of America, June 2014.
  25. Ibid
  26. Senate Fiscal Agency, General Fund/General Purpose Revenue: FY 1978-79 to Estimated FY 2014-2015, May 15, 2014 Consensus Revenue Estimates.
  27. Ibid
  28. Ibid
  29. House Fiscal Agency, Revenue Source and Distribution, June 2010 through June 2014.
  30. House Fiscal Agency, Memo to the Members of the House Appropriations Committee, Changes in K-12 Funding, February 11, 2014.
  31. Pat Sorenson, Preschool Boosted, Per-Pupil Funding Increased in Education Budgets Signed by Governor, Michigan League for Public Policy, July 23, 2014.
  32. Michael Leachman and Chris Mai, Most States Still Funding Schools Less Than Before the Recession, Center on Budget and Policy Priorities, October 16, 2014.
  33. Based on 2013 National Assessment of Education Progress data on fourth and eighth grade reading, math, and science scores as outlined in Stalled to Soaring: Michigan’s Path to Educational Recovery. 2014 State of Michigan Education Report, The Education Trust-Midwest.
  34. TRIP, Michigan Transportation by the Numbers: Meeting the State’s Need for Safe and Efficient Mobility, January 2014.
  35. Anthony Minghine, The Great Revenue Sharing Heist, Michigan Municipal League, February 2014.
  36. Impact of 2011 Personal Income Tax Changes Enacted into Law, if Fully Phased-in for Tax Year 2013, All Michiganders, 2013 income levels, Institute on Taxation and Economic Policy, January 2015.
  37. Pat Sorenson, Losing Ground: A Call for Meaningful Tax Reform in Michigan, Michigan League for Public Policy, January 2013.
  38. Ibid
  39. Andrew Phillips, Caroline Sallee, Katie Ballard, and Daniel Sufrankski, Total State and Local Business Taxes. State-by-State Estimates for Fiscal Year 2013, Council on State Taxation, August 2014.

 

 

 

 

Enough is Enough — Executive Summary

| Report

Recent business tax cuts have slowed economic growth and have not led to an economic recovery for everyone, and reducing them any further will only worsen matters. While the state’s perceived business environment has improved, job growth has slowed and the jobs created have been mostly low-paying ones. These tax cuts reduced revenue and have starved the very services that are needed to make Michigan an attractive place for businesses and residents. Even worse, to pay for the business tax cut, lawmakers shifted taxes to individuals, adding to the struggles many families face as Michigan continues to experience high unemployment and poverty and stagnating wages. It is time to invest in the things that people in the state value, such as education, transportation, and local communities.

Slower Economic Recovery in Michigan

With a decade-long downturn that began before all other states, Michigan lost approximately 750,000 jobs, saw personal income decline, and poverty increase. Coming out of the Great Recession, Michigan has experienced job growth as has the rest of the country. However, the state has not recovered to pre-recession levels, and the evidence does not support the argument that business tax cuts have facilitated economic growth. In fact, a leading economist at the University of Michigan maintains that the improvement in the job market can almost entirely be attributed to the effects of a national recovery and the improvement of the auto industry.1 Further, an argument can be made that the economic recovery—in terms of job creation, employment, and personal income growth—would have been faster without cuts to business taxes, which ultimately led to both increased taxes for individuals and steep cuts to public services.

Michigan’s job growth returned in 2010 prior to Gov. Snyder’s term. With the improvement of the auto industry due to federal assistance, the state experienced a net job gain of 56,100. Following in 2011, before business tax cuts occurred, 96,700 jobs were added; however, job growth since has slowed. In 2012, the first year that business tax cuts went into effect, only 76,800 jobs were added and even fewer job gains occurred in 2013 (47,900). Over the past year, the state reported adding only 44,300 private sector jobs2 further demonstrating a slowdown in growth since taxes for businesses were reduced.

Michigan’s New Job Market

Prior to the recession, manufacturing jobs related to the auto industry were undoubtedly the largest share of Michigan’s job market. With the decline of manufacturing, Michigan’s economy has shifted, creating two diverging types of employment: low-wage, low skill and higher wage, higher skill. The three top industries adding jobs in the state are manufacturing, professional and business services, and leisure and hospitality. The latter of these tend to be lower wage jobs that do not require more than a high school diploma. On the other end of the wage scale, growth is occurring in manufacturing and professional services, which are both related to the re-emergence of the auto industry. However, these types of jobs require postsecondary education and training, and are being threatened by the state’s lack of a skilled workforce.3

Business Tax Cuts Means Less for People

When the governor and Legislature reduced taxes on businesses, it created a significant hole in the budget. Some of this lost state revenue was replaced by increasing taxes on individuals; however, not all of it was recovered which led to cuts in other programs and services for people. Cutting business taxes through the repeal of the Michigan Business Tax and phase-out of the Personal Property Taxes left fewer funds available for Michigan lawmakers to invest in its people through education, transportation, and public safety, stunting economic growth and recovery from the Great Recession.

Increased Taxes and Poverty

In their effort to promote business growth and job creation, Michigan lawmakers significantly shifted taxes to individuals. In 2011, taxes on individuals were increased by 23%, or $1.4 billion, while taxes for businesses were cut by 83%, or $1.6 billion. Several tax credits that were intended to provide tax relief for Michigan’s lowest earners were either reduced or eliminated. These tax increases on people came at a time of high poverty, high unemployment rates, and a still recovering economy making it more difficult for people to make ends meet.

Recommendations

While Michigan has had a much larger climb out of the recession than other states, it continues to have one of the highest unemployment rates, lags in personal income gains, and poverty rates have stagnated. Tax cuts for businesses have not proven to be a wise investment, especially in a state budget environment with historically low revenues, and have slowed the state’s economic recovery. To restart Michigan’s economic growth, lawmakers should:

Resist the temptation to cut business taxes even further. There are some suggestions that business taxes be cut even deeper to expand the recent cut to personal property taxes to those who are not currently benefitting. The recent tax cuts for businesses have not resulted in the job growth necessary to turn the state around. Additional tax cuts would mean less revenue available for the state, which either means increasing taxes on families again or decreasing spending inhibiting both the creation of communities that people and businesses want and the development of a workforce that can compete in a global economy.

Explore new avenues for revenue to invest in things that people and businesses value. The state must begin investing in its people, infrastructure, and communities. If Michigan is to truly recover it needs to become a place where people want to stay, live, and raise families. Businesses use these factors much more when determining where to locate as do recent college graduates when determining whether to leave or relocate to a state. To do so will require raising additional state revenue. Supporting the passage of the road funding ballot proposal, which is tied to increased funding for schools and communities, is critical for the state to progress. Additional revenue could also be found by reviewing and eliminating ineffective tax expenditures, increasing the corporate income tax rate or adopting a graduated income tax structure.

Restore tax credits that help low- and middle-income people, and the economy. In the great tax shift of 2011, lawmakers reduced the Michigan Earned Income Tax Credit (EITC) by 70%, increasing taxes on the workers earning the least in Michigan by $261.6 million. The EITC is one of the most effective ways to support working families and lift them from poverty. Additionally, research shows that the budgetary savings from cutting low-income tax credits has significant economic costs, making it more difficult to develop the highly skilled workforce needed in today’s economy. Passage of the road funding ballot proposal in May would restore the EITC to its original level of 20% of the federal EITC.

Endnotes

  1. Lester Graham, How much can a governor really affect job creation?, Michigan Radio, October 13, 2014.
  2. Joint Economic Committee of the United States Congress, Vice Chair, State-By-State Snapshots, December 2014.
  3. John Wisely, What will the future of Michigan’s job market look like?, Detroit Free Press, October 1, 2014.

 

State’s Failure to Guarantee Child Care Safety Places Children at Risk

 

Child care is a lynchpin of the state’s economy. Families with children cannot work without child care, but because of a lack of state oversight, they struggle to find reliable care that meets even basic health and safety standards.

Two recent federal audits, as well as national studies of state child care licensing requirements and enforcement, concluded that Michigan must provide more frequent onsite monitoring of child care centers and homes to ensure that providers comply with basic health and safety regulations, including criminal record and protective services background checks for employees.

One major reason for Michigan’s failure to provide adequate oversight of child care is that the state’s child care inspectors have caseloads that are more than three times the nationally recommended standard. The result is that many Michigan parents seeking child care cannot feel confident that the care they find is consistently safe and in compliance with licensing requirements. For low- and moderate-income parents—including parents who are required to work 40 hours a week as a condition of receiving public assistance—the choices are even more limited. Unable to afford higher quality care or let one parent stay at home when children are young, they face difficult choices with few assurances.

Findings Show Shortcomings

Findings of the federal audits and reports reveal shortcomings in Michigan’s child care inspections:

  • Child care inspectors in Michigan have average caseloads of 153, more than three times the recommended ratio of 1 worker for every 50 child care programs. In May of 2014, the state employed 68 child care licensing inspectors who were responsible for 10,397 child care facilities.1
  • Unannounced federal site visits to licensed child care centers and homes in Michigan found that the providers they observed failed to comply with one or more state health and safety licensing requirements. The findings of the federal audit were disturbing, including:
    • Half of the family and group child care providers did not do required criminal record and protective services background checks.
    • Of the three child care centers they visited, none had completed required criminal record and protective services check on employees.
    • Other violations in the centers included a blocked fire exit, hazardous substances within the reach of children, a recalled safety crib, unsupervised toddlers, and one caregiver for 11 children in a mixed group that included 3-year-olds.
  • A study of state child care center regulations and oversight across the country gave Michigan an overall “D” grade and a rank of 29th in the country.2
    • Ineffective monitoring undercuts even the strongest of standards.3 Michigan received a total of 92 out of a possible 150 points (61% or a D grade) for its combined licensing requirements and oversight ability. So, while Michigan was one of only 16 states to address in its child care rules all of the 20 basic health and safety requirements recommended by national pediatric experts, it failed to ensure that child care centers and homes were actually following the rules.
    • Based on research that shows that frequent, unannounced inspections make a difference in the quality of care, national organizations recommend that child care centers be inspected prior to being licensed and at least quarterly thereafter, including fire and health/sanitary inspections. In Michigan, centers and group homes (with up to 12 children and two providers) are inspected by licensing staff every two years at renewal. In addition, on the off year, they are supposed to have interim inspections, although due to low staffing, not all interim inspections are completed.
    • In addition to visits by state child care inspectors, Michigan centers are required to have a fire safety inspection every four years and an environmental health inspection every two years—if they prepare and serve food onsite, and/or have a private well or sewer. Taken together, Michigan falls far below the standard of four visits per year.
  • Michigan was one of eight states that received a score of 0 out of a possible 150 points for its program and oversight licensing requirements for family child care homes (with up to six children in the provider’s home).
    • National organizations recommend that family child care homes are also inspected before a license is issued (before children are placed into care) and quarterly thereafter.4 Because Michigan was one of eight states that did not inspect homes before registration, and because state law could allow for licensing inspections of homes once every 10 years, it received a final total score of 0.
    • Currently, family child care homes in Michigan receive a 90-day inspection after their registration is issued. The registration is good for three years and renewal is a paper process. Under state law, 10% of homes in each county that are due for renewal must have an onsite renewal, but the state is currently inspecting closer to 20%. The result is that while the number of inspections may differ by county, the average child care home might have an onsite visit approximately every six years.
  • Not included in the federal audits and studies are unlicensed child care settings, where more than onethird of state-subsidized children are receiving care.
    • In 2009, 65% of low-income children who were in child care with a state subsidy were in unlicensed settings, often with relatives or neighbors. In an attempt to encourage parents to choose licensed care, the state: (1) reduced payments to unlicensed providers; and (2) required unlicensed providers to participate in training before being able to receive a subsidy.
    • By 2012, only 38% of subsidized children were in unlicensed care, but with falling caseloads, there is no evidence that low-income parents were able to find or afford higher-quality care in licensed homes or centers. Instead, they may still be in care with relatives or neighbors without the benefit of a state subsidy or the ability to connect with other supports needed to improve quality and ensure safety.

What Michigan Must Do to Keep Parents Working and Children Safe

In response to the federal audit findings about the lack of adequate child care inspections, state officials said that implementing a 1:50 ratio would require an increase in licensing staff of 140 positions, a move that would benefit children but is “unlikely at this time as it would require additional resources and funding.” The state agreed to focus its current resources on a subset of child care rules that are considered predictive of overall safety and compliance—a “key indicators” project that is part of Michigan’s new federal Race to the Top – Early Learning grant.

While focusing resources on key indicators of safety and quality could prove promising in the long run, Michigan must make the safety and health of children in child care an immediate priority by increasing the number of child care inspectors, as well as the frequency of unannounced visits of child care centers and homes. The state inspects a range of services in order to protect the public including restaurants, roads and bridges, and grocery stores. Certainly the state’s youngest children who are in child care so their parents can work to support them deserve to be at the top of the list.

Endnotes

  1. Some Michigan Child Care Centers Did Not Always Comply With State Health and Safety Licensing Requirements, Office of Inspector General, Department of Health Human Services (August 2014).
  2. We Can Do Better: 2013 Update: Ranking of State Child Care Center Regulations and Oversight, Child Care Aware of America (April 2013).
  3. Ibid.
  4. Leaving Children to Chance: NACCRRA’s Ranking of State Standards and Oversight for Small Family Child Care Homes: 2012 Update, National Association of Child Care Resource & Referral Agencies (March 2012).

 

 

Diverting Sales Tax Would Cost Local Districts

The House road funding plan that was approved Dec. 4 would divert sales tax revenue now dedicated to schools and communities to pay for road repairs. The House Fiscal Agency has calculated the diversion of dollars over the next several years. The Michigan Association of School Board estimates that the diversion, if approved, would cost $475 per student per year on average. Using those dollar amounts, the League has estimated the loss to each district and charter school in Michigan.

School District and Charter School Name in Excel

School District and Charter School Name in PDF

Michigan Families Continue to Struggle Since Recession

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Road Funding Proposals: Let’s Not Make it Harder for People to Get to Work!

 

Improving the state’s roads is critical to economic growth in Michigan. Not only do people depend on the roads and public transportation to get to work, but businesses—and potential businesses—rely on safe roads to transport goods. It is imperative, however, to ensure that people can still afford to get to work if taxes are increased.

Michigan’s roads desperately need repair. Every year Michigan drivers spend an average of $357 on unnecessary repairs to their vehicles due to damage from deteriorated roads.1 Gov. Snyder has indicated that to address the problem, the state needs to dedicate approximately $1.4 billion, and failing to do so will increase the cost to $2.6 billion annually by 2023.

A number of revenue raising proposals have been suggested. Each of these will impact those earning low wages the most. Increasing the wholesale gas tax, however, would be the least harmful. Increasing the sales tax to generate revenue for roads would further increase the negative effect on struggling people in the state. Restoring the Earned Income Tax Credit (EITC), and ensuring that part of the solution is to increase investments in public transportation, would lessen the negative impact on low- and moderate-income working people, making it easier for them to get to work and support their families.

Increasing the Sales Tax Harms People

One proposal would increase the general sales tax and earmark a portion of those revenues for roads. That raises two concerns:

  1. Increasing the sales tax would have a harmful effect on low-income working families.
  2. Dedicating a portion of sales tax revenues to transportation limits the Legislature’s ability to use those funds for other programs and services that might be needed in the future.

The general sales tax is already considered to be the most regressive state tax, consuming nearly 3% of family income for the poorest 20% of families (incomes under $16,000) while only 0.5% for the top 1% on the income scale (income over $331,000). For the average household in the bottom 20%, the annual cost would be about $261.2

The sales tax is a broad-based tax that is used to generate revenue for a wide range of public services. Almost three-quarters of sales tax revenue in fiscal year 2013 went to fund education while a small portion (less than 1%) supported public transportation. With historically low levels of General Fund revenue and following a decade of cuts, dedicating a portion of sales tax revenues for roads would further limit the Legislature’s ability to use those revenues for other critical programs and services, including public schools and public safety.

Replacing the Flat Gas Tax With A Wholesale Tax on Gas

Another proposal to raise funds for roads would replace the current flat gas and diesel taxes with an adjustable rate based on the 12-month average of the wholesale price of gas. Because the flat gas tax rate (19 cents per gallon) has not increased since 1997, it has lost its purchasing power. The wholesale gas tax would rise over time as the price of gas increased, providing a more stable source of revenue for transportation.

While any increase in taxes will have a negative impact on low-income individuals and working families, replacing the gas and diesel flat taxes with a tax based on the wholesale price of gas would likely have the least harmful effect, especially if coupled with other policies to offset the financial burden faced by those working for lower wages. General sales taxes are based on a percentage of the price of a large range of taxable items whereas excise taxes are imposed on a small number of goods and are determined by volume rather than price, like per gallon on gasoline. Recent estimates reveal that while the bottom 20% of earners pay 3% of their income in general sales taxes, they pay less (2.3%) in other sales and excise taxes (i.e., gas, cigarettes, and beer). For the next 20% in income, the difference is even more significant.

Offsetting Recent and Potential Tax Increases

The tax shift of 2011 increased taxes on individuals by 23%, or $1.4 billion, mostly through the elimination of various tax credits and exemptions that were meant to help households earning the least. The reduction in the Earned Income Tax Credit alone increased taxes on low-income workers by approximately $247 million in 2012.3

According to a recent report, over 40% of Michigan households earn too little to provide for basic needs.4 These households include those who are working and still struggle to make ends meet.5 A single parent can spend up to 11% of their income on transportation, whereas a two-parent household with one adult worker can spend up to 18% of their household income.6 Any additional tax increase is likely to increase the number of struggling families in Michigan, which is why it is important to offset any new tax.

Other states with gas taxes that adjust to the cost of transportation have recognized the need to make their gas tax less regressive by combining various tax credits. In Michigan, the EITC is one of the most effective ways to support working families and lift them from poverty. It is already in place and could be expanded, making it the best vehicle for protecting low-income working families from rising taxes. In addition, there are many low-income families that could benefit from improved public transportation systems. Therefore, investing in public transportation as a part of the road funding solution mitigates the impact on low-income working families.

Road funding proposals should make it easier, not harder, for workers to get to their jobs.

 Endnotes

  1. “Michigan Transportation by the Numbers: Meeting the State’s Need for Safe and Efficient Mobility,” TRIP, January 2014.
  2. Calculation is based on an average income of $8,700 for this group as reported by the Institute on Taxation and Economic Policy, “Who Pays? A Distributional analysis of the Tax Systems in all 50 States, 4th Edition.
  3. Jason Escareno, “Cuts to Michigan EITC Raise Taxes on Working Families,” Michigan League for Public Policy, April 2014.
  4. “ALICE, Asset Limited, Income Constrained, Employed, Michigan: A Study of Financial Hardship,” United Ways of Michigan, September 2014.
  5. These households that are working, often more than one job, but still struggle to meet basic needs have been termed ALICE (Asset Limited, Income Constrained, Employed).
  6. “Making Ends Meet in Michigan: A Basic Needs Income Level for Family Well-Being,” Michigan League for Public Policy, March 2014.

Ask Your Candidates

To address our crumbling roads, lawmakers are offering proposals ranging from increasing the sales tax, creating a wholesale tax on gas, raising vehicle registration fees, or diverting current sales tax revenue to road maintenance. Any type of tax increase, especially to the sales tax, will have a disproportionate effect on individuals earning low wages.

Do you support increased or new revenue to address Michigan’s crumbling road and infrastructure? Would you support increasing the Earned Income Tax Credit or other tax credit to help offset the burden on people earning low wages?

Since the 1970s, the federal Earned Income Tax Credit (EITC) has been considered a significant poverty reduction tool that encourages individuals to work. In 2006, Michigan created its own state-level EITC based on 20% of the federal tax credit. The governor and state lawmakers scaled back the EITC to 6% in 2011.

Would you support restoring the state-level EITC to 20% of the federal tax credit?

3 Michigan is one of only seven states that continue to rely on a flat income tax rather than a graduated income tax. States with graduated income tax structures tax at higher rates as income rises making it a more modern and equitable system.

Would you support reforming Michigan’s income tax structure from a flat income tax rate to a graduated one?

Sales taxes are typically considered to be the most regressive type of tax costing individuals earning low wages a larger proportion of their income compared to wealthier individuals. Expanding the sales tax to apply to services can serve to both increase revenue and make the sales tax less regressive. Even still, the sales tax will remain regressive, which is the reason some states offer sales tax credits to provide relief for individuals who earn the least.

Would you support extending the state’s sale tax to services with a sales tax credit for filers with low wages?

The Michigan Homestead Property Tax Credit (HPTC) is a refundable credit available to eligible Michigan residents who pay high property taxes or rent in relation to their income. In 2011, it was eliminated for many middle-class families, veterans, and seniors whose total household resources were over $50,000 or the taxable value on their homes was over $135,000.

Would you support restoring the HPTC to provide relief to moderate-income taxpayers?

6 Out of 16 states offering families additional heating assistance to qualify for additional food benefits, Michigan was one of four that declined to add dollars to keep the program going when the rules changed. That means an average loss of $76 a month in food benefits for 150,000 families. It will take only $3.1 million to pull down $137 million in extra federal food assistance for these Michigan families.

Do you favor spending $3 million in the ‘heat and eat’ option to draw additional food assistance?

Michigan hasn’t adjusted its child care subsidy eligibility since 2003 even though spending has fallen dramatically. As a result, only working families in poverty or living just above poverty qualify.

Should Michigan expand its child care program back to 150 percent (just under $30,000 for a family of three) of poverty?

8 Two recent federal audits found that Michigan child care centers and homes visited without prior notification were not complying with all state licensing requirements related to the health and safety of children, including required criminal record and protective services checks of caregivers. The auditors concluded that the state has too few child care inspectors (known as child care licensing consultants) to ensure adequate oversight of child care homes and centers, with caseload ratios more than three times the recommended ratio of 1:50.

Would you support the appropriation of state funds to increase the number of child care inspectors and improve the state’s ability to oversee compliance with basic health and safety requirements in state law and policy?

9 Children living in families that must rely temporarily on state income assistance live in increasingly deep poverty as a result of the very low payments provided by the state (a maximum of $492 per month for a family of three through the Family Independence Program). Michigan used to provide a one-time payment to all school-age children from families receiving FIP to ensure that children could at least start the school year with a decent set of clothes. Since 2011, the school clothing allowance has been restricted to only those children living with grandparents or other caretakers who do not receive cash assistance.

Would you support the restoration of a school clothing allowance for all school-age children living in families receiving FIP benefits?

10 Over one-third or 35,000 Michigan third- graders did not demonstrate proficiency in reading in 2013. A House bill would require that third-graders who are not proficient in reading as measured by the state test would be required to repeat the grade at least once and no more than twice. Alternate tests and portfolios may be used to document reading skills but the school superintendent would make the final decision. Critics contend research on retention documents a higher likelihood of drop-out for retained students while supporters of retention decry the negative impact of social promotion.

Would you support the retention of Michigan third-graders who are not reading at grade level?

11 Child poverty in Michigan has escalated by almost 40% over the last 25 years. Almost one of every four children in the state lives in a family with income below the poverty level: $19,000 for a family of three and $24,000 for a family of four. Several policy initiatives to alleviate child poverty have been suggested, such as raising the minimum wage to $10.10—closer to its value in the 1960s and indexing it to inflation, reinstating the state Earned Income Tax Credit to 20% of the federal EITC and raising the child care subsidy and eligibility so parents earning low wages can have access to child care.

Would you support any of these initiatives?

12 Dental cavities remain the No.1 chronic disease in children, despite being preventable with proper dental care. In Michigan, 27% of third-graders have untreated disease; in the Detroit area, the percentage increases to 42%. The Healthy Kids Dental program, a partnership between Delta Dental and the state for Medicaid-eligible children, has greatly increased access to dental care for those covered. The program is available in all counties except Kent, Oakland and Wayne.  All Michigan children should have access to this program. The estimated state investment required is about $22 million.

Would you support statewide expansion of Healthy Kids Dental as a priority?

13 Michigan has been a leader in investments in preschool programs for 4-year-olds, but funding for families with infants and toddlers living in poverty or near poverty has declined—despite scientific evidence that the first three years of life are when children’s brains are growing most rapidly, affecting their lifelong development, learning and achievement.

Would you support additional state funds for proven programs for parents of very young children, including home visiting and parenting programs?

14 Michigan currently has nine coal-fired electricity generating units, with health-related costs associated with emissions from these facilities totaling $1.5 billion annually. These health issues range from asthma to cancer, and heart and lung disease, with people of color and those who are economically vulnerable being the most likely to suffer from these health complications.

Would you support transitioning from coal to clean energy sources, such as wind and solar power to reduce pollution and improve the health of Michiganians?

15 Workers who are laid off, or who work in low-paying jobs, can often improve their financial situation by building skills at a community college or university. However, Michigan’s financial aid grants are not available to workers who have been out of high school more than 10 years. There is discussion in the Legislature of reinstating two financial aid grants that were discontinued several years ago that would help older workers go back to school and get a degree (the Adult Part Time Grant and the Educational Opportunity Grant).

Would you support the reinstatement of the Adult Part Time Grant and the Educational Opportunity Grant to help older workers get the skills they need for jobs that will support their families?

 

 

 

 

 

 

 

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