Losing Ground

Contact: Judy Putnam at (517) 487-5436

Are we asking the right questions when it comes to our revenue system?
‘Losing Ground’ report makes case for modernizing outdated tax structure

[LANSING, Mich.] Michigan must pursue tax reforms that modernize its outdated revenue system, making it more dependable and fair, a report released today concludes.

With the Friday Revenue Estimating Conference as the backdrop, Losing Ground: A Case for Meaningful Tax Reform in Michigan highlights problems with Michigan’s outdated revenue structure. A report released last week by the Senate Fiscal Agency projected a small drop in General Fund revenue, a trend that has continued for a decade.

“When we look at our budget and tax system, are we really asking all the right questions?” asked Gilda Z. Jacobs , president and CEO of the Michigan League for Public Policy. “We should be asking: Does our revenue system keep up with the times? Is it fair? Is it adequate? Does it improve our education levels and at least keep our quality of life from eroding?”

Poverty and income inequality are growing in Michigan and cuts in services and tax shifts to the working poor have worsened those undesirable state attributes.

Modernizing Michigan’s outdated revenue structure will pay off with adequate revenue to pay for a good quality of life — access to quality education, good roads, safe communities and protection of the Great Lakes and other natural resources.

“The dividends are huge. We will have healthier babies, a more educated and ready workforce, a better quality of life and long-term economic stability and growth. Aren’t these the goals we all strive to achieve?’’ Jacobs said.

The report finds:

• General Fund revenue in 2010, adjusted for inflation, is 15.5 percent lower than 1968.
• Newly reduced business income taxes are expected to generate less than 2% of total state revenue.
• The reduction in the state Earned Income Tax Credit means a $262 million tax hike on low-income working families, moving the state’s already regressive tax system in the wrong direction.

The report outlines an agenda to move Michigan forward, including a reduction of the income tax on low-income workers and families by restoring the state Earned Income Tax Credit, which was cut from 20 percent of the federal credit to 6 percent.

Other recommendations:

• Ensure that business tax changes are minimally revenue neutral by increasing the Corporate Income Tax to replace lost revenues with $550 million lost in fiscal year 2012 alone.
• Modernize the sales and use tax by including more services and capturing Internet sales.
• Scrutinize all forms of spending, not just annual appropriations, including tax credits, deductions, deferrals and exclusions that are forms of “silent spending.’’
• Invest in state priorities that are fundamental to job growth and economic development, including education, health, high quality early education and basic income supports.

The report is available on the League’s website: www.mlpp.org.

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The Michigan League for Public Policy, formerly the Michigan League for Human Services, is a nonpartisan, nonprofit research and advocacy organization dedicated to economic opportunity for all.