A message of gratitude: We’re in this together

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Community. As we prepare to give thanks for all we have this month, I would like to take time to show gratitude for you, our League community. On a rainy October afternoon, hundreds of you gathered at our annual policy forum to share ideas, learn from experts and move forward with a common goal. The work we do each day at the League would not be possible without the strong community of support we have in you!

At the forum, keynote speaker Bob Greenstein from the Center on Budget and Policy Priorities warned of the dangers in assuming that tax cuts will fuel growth. We’ve seen time after time after time that this is not the case.

We are exceedingly grateful to the sponsor, panelists, speakers and attendees who helped make this year's policy forum a great success.

We are exceedingly grateful to the sponsors, panelists, speakers and attendees who helped make this year’s policy forum a great success.

 

When we received word of the new U.S. House tax plan last Thursday, we reflected on Bob’s warning, fearing that the passage of such a dangerous plan could come to fruition quite easily during these tumultuous political times. It would be tempting to succumb to these fears and turn them to defeat. But that’s not what we do. What we do is fight. Which brings me back to you. To our community.

After laying out the dangers of conservative tax policies, Bob closed his address with the following statement. And it’s this statement we choose to heed when faced with harmful policies:

“We need citizen engagement to fight these new tax plans, just as we had with fighting for the Affordable Care Act,” he said. And he’s 100 percent accurate.

It’s that high level of engagement that will save us from these disastrous policies, and l know that you, our community, will do all it takes to keep the people of Michigan at the forefront of your minds, just as we do each day in our work. Rather than become mired in negativity, we must unite and fight for what we know is best. Whether you support us by writing a check, talking to your legislator or following us on social media, you are helping to fight for Michiganians.

So this Thanksgiving, we thank you. We thank you for coming together with a common vision to support the work we do at the League. We thank you for keeping your sights on the future, which we know can be bright for all Michiganians. We thank you for being part of this very special community.

— Gilda Z. Jacobs, President and CEO

U.S. House tax plan: Benefit for richest 1 percent in Michigan grows over time

For Immediate Release
November 6, 2017

Contact:
Alex Rossman
arossman@mlpp.org
517.487.5436

LANSING—A new 50-state analysis of the House tax plan released by Congress last week reveals that in Michigan the wealthiest 1 percent of Michiganians will receive the greatest share of the total tax cut in year one and their share would grow through 2027. Further, the value of the tax cut would decline over time for every income group in Michigan except the very richest.

House leadership continues to tout this tax proposal, which will increase the federal deficit by $1.5 trillion over the next decade, as a plan to boost the middle class. But a closer examination of the bill’s provisions reveals that it is laser-focused on tax cuts for the nation’s highest earning households. The wealthiest Michiganians’ share of Michigan’s tax cuts would grow over time due to phase-ins of tax cuts that mostly benefit the rich and the eventual elimination or erosion in value of provisions that benefit low- and middle-income taxpayers. For example, after five years, the bill eliminates a $300 non-child dependent credit that benefits low- and middle-income families while fully repealing the estate tax in year six for the very large estates subject to the tax.

More specifically, the 10-year outlook for the plan reveals that by 2027, the top 1 percent of households in Michigan’s share of the tax cut would increase from 33 percent in 2018 to 47 percent by 2027, for an average cut of $77,380. Middle-income taxpayers’ average tax cut would erode to $590 in 2027 from $730 in 2018, and the poorest 20 percent’s average tax cut would decline from $110 in 2018 to $100 in 2027.

“This bill may cut taxes for some low- and middle-income households, but it also raises taxes on some of these families and many others will see no benefit at all. But let’s be clear: it is still the case that this plan will primarily benefit the rich, across the nation and in Michigan,” said Karen Holcomb-Merrill, Vice President of the Michigan League for Public Policy. “We have sent our elected officials to the nation’s capital to represent us, but what they are saying is just as important as what they are not saying. These tax cuts that mostly benefit top earners will add to the nation’s annual deficits and come at the expense of low- and middle-income families who will likely lose more from cuts to education, healthcare, infrastructure or other public services than they gain from the small cuts they would receive.”

Following are some highlights of how the plan specifically affects Michigan:

  • Richest 1 percent of Michigan taxpayers would receive largest tax cut as a share of income under the House tax proposal in 2018 and 2027.
  • The share of low- and middle-income Michigan taxpayers seeing a tax hike under the House proposal increases between 2018 and 2027.
  • Average tax cuts to top 1 percent of Michigan taxpayers dwarf those going to all other income groups under the House tax proposal in 2018 and 2027.

To read the entire report or get more details about Michigan, go to http://itep.org/housetaxplan.

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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.

Trump, GOP tax cuts aren’t worth it

Ask anyone if they want a tax cut and more money in their pocket at the end of the year, and the answer will likely be yes.

But what if you found out that you, as a middle-class Michiganian, would bring home a few hundred dollars more a year, while the richest 1% in Michigan, those making over $500,000 a year, would take home 174 times what you got?

And what if these tax cuts also came at the expense of services that Michiganians rely on every day— food assistance, healthcare coverage, education, financial aid for college, and many other programs that help Michigan residents make ends meet?

Because that’s exactly what is going on in Congress right now.

Congress and President Donald Trump are talking about giving average Americans a tax cut. Their blueprint for tax reform uses buzz words like “tax relief for middle-class families,” “simplicity,” and “providing greater fairness.” The blueprint makes it sound like a good deal.

However, when you look at the details, the proposal is not much different than the vague framework that was released months ago, which would target the greatest tax relief to wealthy corporations and taxpayers and would be paid for by significant cuts to the things we rely on most.ITEP Graphic- Trump Tax Plan & MI

And when we look at the numbers, the message is clear. In Michigan, 62.5% of the tax savings would go to those in the top 1%, who make more than $500,000, according to recent data from the Institute on Taxation and Economic Policy. While the poorest Michigan residents would see an average tax cut of $70—and the Michigan middle class a $440 tax cut—those at the top would see a tax cut of about $76,560. Michigan’s millionaires, who represent just 0.2% of the state’s population, would get 47.3% of the cuts, at an average of $253,500.

What’s more is that these deficit-increasing tax cuts would come at a cost to programs that millions of Michigan residents use and rely on day after day.

Budget proposals from President Trump, the House and the Senate all seem to follow the same guidelines and plan to slash healthcare coverage including Medicaid and Medicare, leave more Michigan households hungry by cutting vital food assistance and make deep cuts to programs that help Michigan residents make ends meet. They also plan deep cuts to non-defense discretionary spending, which helps support our K-12 schools, environmental protection, low-income housing and infrastructure, among other needs. These are programs that are necessary to continuing to move the state and the nation—and their economies—forward.

All of these cuts just to put more money into the pockets of our wealthiest corporations and Michiganians.

These tax cuts aren’t worth their price.

— Rachel Richards, Legislative Coordinator

Diverse testimony joins chorus of opposition to income tax cut

For Immediate Release
February 15, 2017

Contact:
Alex Rossman
arossman@mlpp.org
517-487-5436

Groups warn against tax cut’s $680M budget hole in FY 2018, damage to economy, schools and local communities

LANSING—The Michigan League for Public Policy issued the following statement today in opposition to House Bill 4001 that will eliminate the state income tax. The statement can be attributed to Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy, who also testified against this bill in this morning’s House Tax Policy Committee.

“Lawmakers who are pushing this proposal are ignoring the real-time failures happening in other states that have cut their state income tax, and they are ignoring the will of the people. Polling data shows widespread opposition across party lines and in every corner of the state. There’s only one group of people who will significantly benefit from cutting the state income tax, and it’s the state’s wealthiest individuals. The people of Michigan who are working hard but still struggling will suffer from the continued degradation of state services, our infrastructure and our quality of life. (more…)

A token tax cut — A bad deal for everyone

When you think of road funding, your first thought is… a tax cut? Likely not, but earlier this month the Senate rolled out a road funding plan that included an income tax cut. This was an attempt to sweeten a gas tax increase. But as it turns out, it’s a bad deal for everyone.

This is a bad deal for you. It wouldn’t take effect until 2018 at the earliest. It’s not guaranteed – only when General Fund revenues grow faster than inflation. It likely amounts to token rate reduction in any given year. For example, if revenues rise 1% faster than inflation, you’re looking at a rate rollback of 0.04 percentage points – a family of four making $50,000 would see a tax cut of less than $15. And wealthier individuals will benefit the most from the across-the-board tax cuts. (more…)

Tax Cuts Won’t Grow the Economy

Full report in PDF

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. Despite claims that income tax cuts create economic growth, there is no evidence that they generate the good jobs our state needs.

State economists are now predicting that Michigan revenues will be higher than originally predicted, creating a “surplus” of approximately $970 million over a three-year period. In response, some leaders in the Michigan Legislature are advocating a rollback of the state’s personal income tax. Their primary sales pitch is that it will improve Michigan’s economy—despite clear evidence from other states and a large body of research that show income tax cuts do not produce the often-promised economic benefits.

The surplus myth

Higher-than-expected revenues (over what was estimated in May of 2013) come after years of budget cuts resulting from changes in the national and Michigan economy, along with tax policies that reduced state revenues available for vital public services. The state has a lot of ground to make up, so calling the revenue situation a “surplus” is misleading.

In fact, adjusted for inflation, between Fiscal Years 2000 and 2012, spending from the state General Fund fell by 25%, with deep cuts in education, public health, and funding for local governments and other public services. The personal income tax is a major source of revenue for state programs, accounting for 66% of the state’s General Fund and 30% of all state funding.1

If the state’s personal income tax had been reduced from 4.25% to 3.9% in Fiscal Year 2013, the result would have been a loss of approximately $680 million in state revenue at a time when public services are already underfunded.2 If phased in by 2015, the annual loss of state revenue could be as high as $1 billion3—approximately what the state currently spends on community colleges, state police and the judiciary combined.

The drawback of across-the-board income tax cuts

Income tax cuts don’t create jobs and economic growth. Decades of research, as well as evidence from other states, show that income tax cuts will not create the good jobs our state needs, and will undermine our future by making it harder to invest in what does build a strong economy.

  • The Congressional Research Service studied 65 years of federal tax and economic data and concluded that top income tax rates have had no discernible impact on economic growth.4
  • Studies of the impact of state personal income tax levels on economic growth are particularly likely to find no economic benefit from lower taxes.

— The nine states with the highest income tax rates have on average seen considerably more economic growth per capita over the last decade than the nine states without a personal income tax.5
— The five states that cut taxes the most during the 1990s had weaker job and personal income growth than other states.6
— Of the nine states that cuts taxes during the 2000s before the national recession, six saw their economies fall behind the rest of the country on three important measures—job creation, production growth, and income growth. The remaining three states were major oil and natural gas producers whose economies benefited from rising oil prices.

Income tax cuts disproportionately benefit the wealthiest taxpayers. Supporters of a personal income tax cut try to justify it as a way to help low- and moderate-income families who were negatively affected by the tax shift of 2011, which cut business taxes by 83% and increased taxes on many low-income workers and retirees, including a 70% cut in the Earned Income Tax Credit for low-wage workers.

In fact, most of the benefits of a cut in the state’s personal income tax from its current level of 4.25% to 3.9% would flow to Michigan’s wealthiest taxpayers, at a time when inequality and poverty are already high.

  • 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).7
  • 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.8

 

Income tax cuts lock in deep and harmful cuts in education and other public services. Over the last decade—even before the Great Recession—Michigan budget and tax policies resulted in deep cuts in the public services and structures that are the foundation of economic opportunity and growth. To gamble on a personal income tax cut—despite the evidence that tax cuts do little to boost the economy—puts basic public services at risk, and undermines Michigan’s fledgling economic recovery.

Reinvesting in public education is at the top of Michigan’s to-do list. Overwhelmingly, high-wage states are states with well-educated workforces, in part because a pool of well-educated workers attracts high-wage employers.9

There are many ways to improve workforce skills in Michigan, including increasing access to postsecondary education, reducing high-school drop-out rates, moving people without high school degrees through GED and associate degree programs, increasing the quality of K-12 education, and offering preschool and family support programs for parents of young children.10

Unfortunately, the reality in Michigan is that:

  • Fifty-five school districts across the state are grappling with deficits. In the decade between 2003 and 2013, the minimum per-pupil foundation allowance for K-12 public schools increased by only 4%, in the face of a 21% increase in inflation.11 State funding for K-12 education fell by over 20% between Fiscal Years 2004 and 2013 when inflation is taken account.

Michigan lags behind other states in education spending. A national report found that the state is spending $572 per student less than it did in 2008, a 9% cut (adjusted for inflation), putting it behind 33 other states that cut less, or invested more, in education.12

  • Postsecondary education has become even more unaffordable. Rising tuition and cuts in needs-based scholarships have made it harder for many to continue their educations after high school.

State support for public universities fell by nearly 37% between Fiscal Years 2004 and 2013 when inflation is factored in. State support for community colleges also fell by 11%.

Further, over the past decade, tuition rates at Michigan’s public universities doubled, yet Michigan policymakers cut need-based scholarships by 20%, while other states increased their scholarships by 84%. Only 14% of Michigan students are offered need-based scholarships, ranking Michigan 40th nationwide.13

  • Communities are struggling to provide the basic services that families and businesses need. To attract the highly educated workforce needed in the 21st century economy, businesses must consider the quality of local services and amenities, including police and fire protection, transportation, public schools, libraries, parks, the arts and recreational opportunities.

While the current year budget includes a 4.8% increase in state revenue sharing payments to local governments, over the last 12 years, those payments have been cut by more than $6 billion, forcing local governments to reduce services.14

 

 

 

 

 

Sources:

1 Cleary, M.A., State of Michigan Revenue: State Source and Distribution, House Fiscal Agency (October 2013).
2 Analysis by the Institute on Taxation and Economic Policy for the Michigan League for Public Policy (September 6, 2013).
3 Projections by Mitch Bean, Great Lakes Economic Consulting, and former Director of the Michigan House Fiscal Agency, as quoted in Michigan Lawmakers Split on Plans for Budget Surplus, Detroit News (January 7, 2014).
4 Hungerford, T.L., Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 (Updated), Congressional Research Service (December 12, 2012).
5 States with “High Rate” Income Taxes are Still Outperforming Non-Tax States, Institute on Taxation and Economic Policy (February 2013).
6 Leachman, M., Mazerov, M., Palacios, V., and Mai, C., State Personal Income Tax Cuts: A Poor Strategy for Economic Growth, Center on Budget and Policy Priorities (March 21, 2013).
7 Analysis by the Institute on Taxation and Economic Policy, op. cit.
8 Ibid.
9  Berger, N. and Fisher, P., A Well-Educated Workforce is Key to State Prosperity, Economic Analysis and Research Network (August 22, 2013).
10 Ibid.
11 K-12 Schools Minimum Foundation Allowance, Senate Fiscal Agency (updated September 18, 2012).
12 Leachman, M., and Mai, C., Most States Funding Schools Less Than Before the Recession, Center on Budget and Policy Priorities (September 12, 2013).
13 Ruark, P. Keeping it Affordable in Michigan: Disinvestment in Financial Aid Grants Hurts Students and Their Families, Michigan League for Public Policy (November 2012).
14 Letter to the Michigan Legislature from David Lossing, President, Michigan Municipal League (May 21, 2013).