For Immediate Release
February 6, 2017
Contact:
Karen Holcomb-Merrill
karenhm@mlpp.org
517-487-5436
National report shows negative impact of phased-in tax cuts in other states
LANSING—Two new national reports released today show that “triggered” and phased-in tax cuts over a number of years, like Michigan lawmakers passed as part of the roads plan and have recently proposed on the state income tax, are poor fiscal policy that could harm the state’s future ability to provide critical services for its residents, businesses and communities. Using a phase-in or revenue trigger to pass tax cuts at a time when they clearly aren’t affordable or palatable has already wreaked havoc in other states, according to research from the Center on Budget and Policy Priorities.
Phasing in State Tax Cuts Doesn’t Make Them Fiscally Responsible concludes that this method of enacting tax cuts often leads to serious structural problems in state revenue systems, forcing harmful cuts in public services, increases in other taxes, or both. They also let state lawmakers avoid accountability, allowing them to avoid the public scrutiny that would accompany a public debate about the trade-offs and consequences of these proposals.
While the aforementioned report is a harbinger of Michigan’s future problems if a phased-in income tax cut is passed, the Center’s other report released today, Revenue “Triggers” for State Tax Cuts Provide Illusion of Fiscal Responsibility, specifically notes Michigan as a bad example at present. As part of the 2015 roads plan, Michigan already passed a different revenue-triggered tax cut that will not take effect until 2023. That’s two national reports on two bad tax policies, and the Michigan Legislature is pursuing them both.
“The ink is barely dry on the triggered income tax cut and now lawmakers want a phased-in cut as well. A 50-year fiscal threat is still a threat. Our schools, our roads, our police and fire services, our courts and our healthcare all depend on state revenues, and are all in danger with any cut to the state income tax,” said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy. “Unaffordable tax cuts threaten our state’s future by eroding the foundations of thriving communities, and dragging them out over time just means chipping away at the budget with painful cuts year after year.”
Eleven states have enacted large, phased-in cuts in corporate or personal income taxes since 2011 that will cost a combined $8 billion a year once fully implemented. Kansas’ income tax cut and subsequent budget mess has been getting some attention in Michigan lately, and Arizona and North Carolina have had similar problems. These states have had to make drastic cuts to their budgets, including slashing public education funding, money for colleges and universities, and road funding. Mississippi just enacted a phased-in income tax cut in 2016 and Moody’s has already given the state a negative credit outlook. Michigan is now poised to make the same mistake, with two proposals to cut and repeal the Michigan income tax, including one that will happen over more than 50 years.
Phased-in tax cuts have caused serious financial problems in some states that have adopted them and will likely continue causing problems as they are phased in or adopted in additional states, because:
- Policymakers usually do not have access to up-to-date, multi-year forecasts of how much states expect to spend in the year a phased-in tax cut is fully in effect or an estimate of total revenues available at that time. Such forecasts could be done in most cases, but they are almost never done.
- By making income tax cuts easier to enact, phased-in cuts promote the shifting of tax responsibilities from wealthy residents to less-affluent ones. Income taxes require more of wealthier residents than families with middle to low incomes, while the opposite is true for the other major state taxes, such as sales and excise taxes. As a result, when states cut income taxes and increase other state taxes, they shift the cost of state services away from the rich and toward the middle class and struggling workers.
- Delayed tax cuts offer no meaningful benefit over tax cuts that take effect immediately. There are no proven practical or economic benefits of phasing in tax cuts.
- Delayed tax cuts are politically expedient because they enable policymakers to claim credit for cutting taxes while avoiding accountability for the consequences.
- Delayed tax cuts are hard to reverse once enacted. While it would require only a simple majority of the Legislature to cut taxes and make corresponding deep cuts to colleges and other things paid for with state tax dollars, supporters of reversing these tax cuts in some states would have to persuade supermajorities to enact restorations. This makes it even more important that lawmakers and voters consider these proposals knowing all the facts and potential consequences.
Proposals to phase in deep tax cuts are often based on the incorrect claim that states can cut taxes significantly without undermining their ability to continue funding services as long as they cut taxes gradually over time. This claim ignores the fact that the cost of providing a given level of services rises over time due to inflation, population growth, and other factors. Phasing in tax cuts offers the appearance of prudence even when the tax cuts are fiscally irresponsible. States considering phased-in tax cuts should evaluate carefully the cost and consequences.
“Phasing in policy changes over time can be prudent in some cases, but phasing in deep tax cuts can create major structural problems in state revenue systems, weakening states’ ability to support a strong education system and other essential public services that provide a foundation for future prosperity,” said Eric Figueroa, senior policy analyst and lead author of the Phase-in report.
Phasing in State Tax Cuts Doesn’t Make Them Fiscally Responsible and Revenue “Triggers” for State Tax Cuts Provide Illusion of Fiscal Responsibility are available on the Center on Budget and Policy Priorities website www.cbpp.org.
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The Michigan League for Public Policy, www.mlpp.org, is a nonprofit policy institute focused on economic opportunity for all. It is the only state-level organization that addresses poverty in a comprehensive way.
Emily Jorgensen joined the Michigan League for Public Policy in July 2019. She deeply cares about the well-being of individuals and families and has a great love for Michigan. She is grateful that her position at the League enables her to combine these passions and work to help promote policies that will lead to better opportunities and security for all Michiganders.
Jacob Kaplan 
Mikell Frey is a communications professional with a passion for using the art of storytelling to positively impact lives. She strongly believes that positive social change can be inspired by the sharing of data-driven information coupled with the unique perspectives of people from all walks of life across Michigan, especially those who have faced extraordinary barriers. 
Rachel Richards rejoined the League in December 2020 as the Fiscal Policy Director working on state budget and tax policies. Prior to returning to the League, she served as the Director of Legislative Affairs for the Michigan Department of Treasury, the tax policy analyst and Legislative Director for the Michigan League for Public Policy, and a policy analyst and the Appropriations Coordinator for the Democratic Caucus of the Michigan House of Representatives. She brings with her over a decade of experience in policies focused on economic opportunity, including workforce issues, tax, and state budget.
Donald Stuckey 
Patrick Schaefer
Alexandra Stamm 
Amari Fuller
Renell Weathers, Michigan League for Public Policy (MLPP) Community Engagement Consultant. As community engagement consultant, Renell works with organizations throughout the state in connecting the impact of budget and tax policies to their communities. She is motivated by the belief that all children and adults deserve the opportunity to achieve their dreams regardless of race, ethnicity, religion or economic class.
Megan Farnsworth joined the League’s staff in December 2022 as Executive Assistant. Megan is driven by work that is personally fulfilling, and feels honored to help support the work of an organization that pushes for more robust programming and opportunities for the residents of our state. She’s excited and motivated to gain overarching knowledge of the policies and agendas that the League supports.
Yona Isaacs (she/hers) is an Early Childhood Data Analyst for the Kids Count project. After earning her Bachelor of Science in Biopsychology, Cognition, and Neuroscience at the University of Michigan, she began her career as a research coordinator in pediatric psychiatry using data to understand the impacts of brain activity and genetics on children’s behavior and mental health symptoms. This work prompted an interest in exploring social determinants of health and the role of policy in promoting equitable opportunities for all children, families, and communities. She returned to the University of Michigan to complete her Masters in Social Work focused on Social Policy and Evaluation, during which she interned with the ACLU of Michigan’s policy and legislative team and assisted local nonprofit organizations in creating data and evaluation metrics. She currently serves as a coordinator for the Michigan Center for Youth Justice on a project aiming to increase placement options and enhance cultural competency within the juvenile justice system for LGBTQIA+ youth. Yona is eager to put her data skills to work at the League in support of data-driven policies that advocate for equitable access to healthcare, education, economic security, and opportunity for 0-5 year old children. In her free time, she enjoys tackling DIY house projects and trying new outdoor activities with her dog.
Amber Bellazaire joined the Michigan League for Public Policy as a policy analyst in June of 2019. Her work primarily focuses on state policy and budgets affecting Michigan’s Medicaid programs. Previously, Amber worked at the National Conference of State Legislatures tracking legislation and research related to injury and violence prevention, adolescent health, and maternal and child health. She also brings with her two years of Americorps service. As a full time volunteer, Amber had the opportunity to tutor high school students in Chelsea, Massachusetts and address issues of healthcare access and food insecurity through in-person outreach in Seattle, Washington.
Simon Marshall-Shah joined the Michigan League for Public Policy as a State Policy Fellow in August 2019. His work focuses on state policy as it relates to the budget, immigration, health care and other League policy priorities. Before joining the League, he worked in Washington, D.C. at the Association for Community Affiliated Plans (ACAP), providing federal policy and advocacy support to nonprofit, Medicaid health plans (Safety Net Health Plans) related to the ACA Marketplaces as well as Quality & Operations.
