Contact: Anne Singer, ITEP, 202-299-1066, ext. 27; Judy Putnam, MLPP, 517-487-5436
Wealthiest Michiganians PayThree-Fifths the Effective Tax Rate That Poorest Pay in State and Local Taxes; Middle-Income Families Also Pay More
Comprehensive New 50-State Study Provides Detailed Profiles and Comparisons of Tax Systems
[Lansing, Mich.] – Like most state tax systems, Michigan takes a much larger share from middle- and low-income families than from wealthy families, according to the fourth edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” released today by the Washington-based Institute on Taxation and Economic Policy (ITEP).
Combining all of the state and local income, property, sales and excise taxes Michigan residents pay, the average overall effective tax rates by income group are 9.7 percent for the bottom 20 percent, 9.5 percent for the middle 20 percent and 5.8 percent for the top 1 percent. Nationally, those figures are 11.1 percent for the bottom 20 percent, 9.4 percent for the middle 20 percent and 5.6 percent for the top 1 percent. The full report is online at www.whopays.org.
“It’s clear we can do better. One immediate and surefire way is to restore our Michigan Earned Income Tax Credit. Not only is it the best anti-poverty tool that we have to offer, it would go a long way toward bringing more fairness to the state tax structure while helping working families and local businesses,’’ said Karen Holcomb-Merrill, policy director at the Michigan League for Public Policy, which partnered with ITEP to release the report.
Michigan’s tax system is growing more regressive as a result of changes made in 2011 that reduced the Michigan EITC from 20 percent of the federal credit to 6 percent and reduced the Homestead Property Tax Credit. The report is based on 2010 data adjusted to reflect current tax laws. Michigan’s flat income tax and overreliance on the sales tax on goods are also underlying reasons for the unfair revenue structure. The recent tax changes shifted taxes from corporation to low- and middle-income families and seniors.
“Many families are struggling just to pay the basics, even though we’re in a slow economic recovery, and this report shows these are the very families paying a higher share in taxes,’’ said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy. “Our child poverty is rising and a third of working families are low-income despite jobs.’’
Across the country, governors are promising to cut or eliminate taxes, raising the question, who’s going to pay for it?
“There’s a good chance it’s the so-called takers who spend so much on necessities that they pay an effective tax rate of 10 or more percent, due largely to sales and property taxes. In too many states, these are the people being asked to make up the revenues lost to income tax cuts that overwhelmingly benefit the wealthiest taxpayers.” said Matthew Gardner, Executive Director of ITEP and an author of the study
State consumption tax structures are particularly regressive, with an average 7 percent rate for the poor, a 4.6 percent rate for middle incomes and a 0.9 percent rate for the wealthiest taxpayers nationwide.
“Cutting the income tax and relying on sales taxes to make up the lost revenues is the surest way to make an already upside down tax system even more so,” Gardner stated.
The data in Who Pays? also demonstrates that states commended as “low tax” are often high tax states for low- and middle- income families.
The fourth edition of Who Pays? measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through Jan.2, 2013) as shares of income for every state and the District of Columbia. The report is available online at www.whopays.org.
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.
The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.