To create the future that Michiganians want for themselves and their children, the state must act now to modernize its outdated revenue structure to ensure that it generates enough stable revenue to fund basic public services and that all taxpayers pay their fair share.
Sadly, over the last decade, Michigan lawmakers have instead addressed the state’s fiscal problems through deep cuts in services, along with shifts in the tax burden from businesses to low- and moderate-income families, a new report from the League concludes. The result has been damage to the infrastructure needed to ensure economic growth, including financially struggling public schools, cuts in income assistance for families with children, crumbling roads and bridges, and significant reductions in police and fire protection.
One major step backward was a 70% cut in the state’s Earned Income Tax Credit, which helps keep working families out of poverty. An estimated 783,000 low-income working families were affected this year, with two-parent families at the poverty line experiencing a tax increase of $678.
The rationale behind recent tax shifts is the belief that economic growth is only achieved when Michigan is a more “competitive” state, narrowly defined as one with low business taxes. This limited view of the engines of growth is not supported by research.
Business tax cuts do not consistently create enough incentives to boost economic outputs and jobs, and can in fact slow long-term growth by leading to cuts in public services, including those relied on by businesses such as good schools and transportation systems, and the community attractions needed to attract and retain qualified employees.
What is clear is that raising taxes on the working poor creates a drag on the state’s economy by increasing poverty, reducing student achievement, and curtailing earnings later in life.
Michiganians care about the quality of life in this state, and hope that they, their children and other loved ones will have the opportunity to succeed. They want to know that the next generation will enjoy a better standard of living than they did, or at the very least, not lose ground.
But families have been losing ground, and not solely because of the state’s economic problems. Their struggles also reflect tax policy decisions made in Lansing. It is past time to adopt reforms to Michigan’s tax system, with the goals of requiring contributions based on the ability to pay and generating sufficient revenues to fund the investments in education and other public services needed in good and bad times.
This new legislature could jump-start that reform by beginning to restore the Earned Income Tax Credit. We hope that you will urge your lawmakers to make it a priority. For more information, see Losing Ground: A Call for Meaningful Tax Reform in Michigan.
— Pat Sorenson