Taxing Matters: Michigan's Middling Rank

The Tax Foundation recently published its latest ranking of state and local tax burdens. The report placed Michigan in 25th place as of 2012.

This is a substantial improvement, but to make this state a growth and opportunity leader the Michigan Legislature needs to go further by rolling back the personal income tax rate, as was promised when it was increased in 2007.

According to the Tax Foundation, Michigan’s state and local governments extracted 9.4 percent from the personal income of residents in 2012, with a per capita tax burden of $3,631. This placed Michigan in the middle of the pack, but that may not hold as new vehicle registration and gas tax hikes enacted last year kick in.

New York residents carried the heaviest 2012 state and local tax load at 12.7 percent, while Alaskans had the lightest, paying just 6.5 percent of their personal income

The rankings are based on 26 categories of taxation — everything from property, sales, income and business taxes; transfer and severance taxes; taxes on licenses for amusements and many more. The full list and an explanation of how the rankings were calculated are detailed in the report, “State-Local Tax Burden Rankings FY 2012.”

Since the Tax Foundation began compiling these annual rankings in 1977, Michigan’s “burden rate” has never been lower than the current 9.4 percent. The rate peaked in 1984 at 10.9 percent; fell to 9.5 percent in 2000, but then crept back up to 10.3 percent in 2009.

Despite our progress since then, other states aren’t standing still and to remain competitive Michigan’s Legislature must build on the gains we’ve made — not erode them. There is an urgency to this given that tax reforms are easier to enact when the national economy is still expanding.

There are three primary reasons Michigan citizens and voters should demand quick action on this front:

• It’s not the government’s money, and the state can spend less with no great sacrifices required. The Mackinac Center has recommended reasonable reforms that could save more than $2 billion annually — dollars that could and should be left in the pockets of those who earned them.
• Tax cuts are good for the state’s economy. They lead to faster growth and more opportunities for residents. Among other things that means fewer grown children who must leave the state to pursue jobs and careers — and fewer Michigan grandparents who must cross the continent to visit their grandkids.
• Lastly, the state’s bipartisan political class should keep its promises. In 2007, Gov. Granholm, with the help of the Republican-controlled Senate, “temporarily” raised the state income tax rate by 11.5 percent, from 3.9 percent to 4.35 percent. Written into that tax hike law was a schedule to roll it back starting in 2011. Under Gov. Rick Snyder, the roll-back was delayed and then halted after a puny 0.1 reduction to 4.25 percent.

Taxes matter. They shape whole nations, and can ruin them too. This state has made gains but state and local tax burdens are not static: during any given period they are either rising or falling. Michigan’s burden was falling as of 2012, but without a proactive Legislature that trend can easily reverse.