A new report from the Institute on Taxation and Economic Policy shows that Michigan’s tax structure is fundamentally unfair, taking a much greater share of income from low- and middle-income families than from wealthy families.
Michigan’s flat income tax and over reliance on the sales tax on goods are the underlying reasons for this unfair revenue structure. Add to that, recent tax changes that have shifted taxes from corporations to low- and middle- income families.
Our state is one of only seven states that have a flat tax, rather than a progressive income tax. Whether you make $40,000 or $400,000, your income tax rate is the same in Michigan. And unlike other states, we have failed to extend the sales tax to most services. Combined together, these tax policies hurt low- and middle-income families.
Tax changes in 2011, including the reduction of the state Earned Income Tax Credit from 20% of the federal credit to 6%, raised taxes on low- and middle-income families, while lowering taxes for businesses. Many low-income families will have sticker shock when they do their taxes this year and realize that they will be paying more in taxes.
As this new report shows, Michigan’s revenue structure and tax policy decisions negatively affect families struggling to achieve economic security. In the short-term, restoration of the EITC would go a long way toward bringing more fairness to the state’s tax structure, while helping working families and local businesses.
— Karen Holcomb-Merrill