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, $3 of every $5 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, healthcare and public safety—the very services that fuel economic growth.

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.