Despite 'Tax Cut Fever,' State Revenue Grows by Billions

According to media reports, taxpayers may be thinking they are in the midst of a tax-cutting spree by the government.

A Jan. 2 Michigan Radio headline read: “Snyder tries to chill tax cut fever”

Earlier in 2014, John Austin, the director of the Michigan Economic Center at Prima Civitas Foundation as well as the president of the Michigan State Board of Education, wrote an article for Bridge magazine titled: “Constant tax cuts killing Pure Michigan” in which he bemoaned Michigan’s “tax cutting mania.”

But in terms of an actual reduction in a tax rate, the state has enjoyed such an occurrence just one time in the past decade. That was when the Michigan Business Tax was converted to the Corporate Income Tax in 2011. The Michigan Business Tax consisted of a gross receipts tax, a corporate income tax and a surcharge. The Corporate Income Tax eliminated the gross receipts tax and the surcharge.

James Hohman, assistant director of fiscal policy for the Mackinac Center for Public Policy, says that Proposal 1 of 2014 deserves special mention in the complex discussion of just what is a tax cut. The Mackinac Center estimated that Proposal 1 will cut personal property taxes by $500 million a year.

“Proposal 1 of 2014 eliminated personal property taxes on small business establishments and will phase out these taxes on industrial businesses. These taxes will still remain for larger commercial entities and utility providers, and even industrial businesses benefiting from these reductions will still pay some taxes on their business equipment,” Hohman said. “When it comes to easing the burden of taxation, there are only two reforms that apply over the decade, both during the Snyder administration.”

The series of changes to the personal income tax wouldn’t qualify as a tax cut. In 2007, legislators increased the personal income tax from 3.95 percent to 4.35 percent as part of a “temporary” rate hike. However, that rate hike was made permanent in 2012 when the personal income tax was reduced from 4.35 percent to 4.25 percent, but not the original 3.95 percent. Also, future rate reductions were cancelled in the process.

It should be noted that the Michigan state budget (including local, state and federal dollars) has increased from $39.91 billion in fiscal year 2004-05 to $52.30 billion in 2014-15.

And the state funded portion of the Michigan budget has increased from $26.3 billion to $30.0 billion during that 10-budget span.