State Could Roll Back Big Granholm Tax Hike And Still Have $2.6 Billion More Next Year

And taxpayers would get to keep $1 billion of their earnings

By Michael D. LaFaive | April 17, 2018

In the fall of 2007, faced with a massive shortfall between proposed state spending and expected state revenue, a Democratic House and Republican Senate passed what was called a “temporary” state income tax increase, raising the rate from 3.9% to 4.35%. Gov. Jennifer Granholm signed the tax hike bill on Oct. 1, 2007.

Plausibly or not, tax-hiking politicians frequently claim the increased burdens they impose are “temporary,” but the law authorizing this one actually had the roll-back written right into its provisions. It promised, “Beginning on October 1, 2011 and each October 1 after 2011, the maximum rate under this subsection shall be reduced by 0.1 each year,” reverting to 3.9% “on and after October 1, 2015.”

In 2012, a Republican House, Senate and Governor agreed to let the rate fall to 4.25% on Oct. 1 of that year and “call it good,” canceling the rest of the alleged roll-back.

Had Republicans left Granholm's promised income tax roll-back proceed, Michigan workers and investors would today be paying around $1 billion less each year according to the Senate Fiscal Agency.

Tha would have the effect of reducing state revenue by the same billion-dollar amount, but the “hit” would come to an annual state budget that is already spending $3.6 billion more than the previous year. Much of that is from federal epidemic relief and “stimulus” payments, but the state itself is also collecting and spending substantially more on its own. State of Michigan tax collections are projected to rise from $34.4 billion in the year before the pandemic to $38.0 billion in current 2021-22 fiscal year.

James Hohman, a fiscal analyst at the Midland based Mackinac Center for Public Policy (which publishes Michigan Capitol Confidential) thinks this is the time to revisit that broken promise. Even though state revenue is up, he observes there are still 241,333 fewer residents who have jobs since the pandemic began, a 5.1 percent decline. A pre-pandemic 2018 State Tax Analysis Modeling Program analysis indicated that cutting the income tax income rate would create 15k jobs in its first year.

“Lawmakers can afford to lower the tax burdens on a public that’s struggled through the pandemic,” Hohman said in an email.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

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Special Tax Breaks For Privileged Firms Means Money Comes From Someone Else

Who do you think pays instead?

By Tom Gantert | April 17, 2018

Every year across the state of Michigan, local governments approve property tax breaks that benefit businesses in a politically driven economic development system. These discounts save the owners of those firms hundreds of millions of dollars a year and shift more of local communities’ tax burden onto homeowners and other property owners.

Currently, local officials in Michigan have granted multiyear property tax abatements that last year totaled $352.7 million in foregone local tax revenues.

The special treatment is authorized by a number of laws that are based on different rationales. For example, officials in the city of Warren approved an abatement in 2014 for a company called Jackson Land Holding Company, LLC. The site is home to a car dealership that opened in 2016, and its owners were given what is called a “commercial facilities property tax exemption.”

The handful of companies that get such tax breaks are generally headed by well-connected or politically savvy CEOs.

According to Crain’s Detroit Business, the Jackson Land Holding Company is the real estate division of Jackson Asset Management. Both companies are run by Gregory Jackson, who has owned a total of 18 auto dealerships, six of which are held by a company called Prestige Automotive Group.

Warren is carrying abatements on its books that represented $4.1 million in foregone property tax revenue in 2017. The abatements were authorized under several state laws including ones granting tax breaks for brownfield redevelopment, industrial and commercial facility redevelopment, business tools and equipment (called personal property tax) and more.

Warren Mayor James Fouts and Warren City Council President Cecil St. Pierre didn’t respond to emails seeking comment.

The state and local politicians who authorize and grant these privileges claim that if they don’t offer special treatment, business owners will shop around for communities that will. This same argument is made whether the targeted use is an industrial plant that could be located anywhere in the nation or world, or an amenity like a movie theater or car dealership that can’t go anywhere because it relies entirely on local customers.

Laura Reese is a professor at the Michigan State School of Planning, Design and Construction who has studied and published studies on the issue of local tax abatements. She doesn’t think they do what their boosters and beneficiaries say.

“I've spent a lot of years looking at tax abatements and am not a fan,” Reese said in an email. “Generally the large body of research on abatements indicates that they are not effective over the long term. They may stimulate jobs in the short run but economic gains are short-lived. Research has also shown that any economic growth falls short of the costs to the community in terms of forgone revenue.”

“So, the bottom line is that my research and that of many others suggests that abatements are both ineffective and inefficient,” Reese said.

Reese said that giving tax abatements to a particular firm may increase the amount of taxes that other businesses and residents must pay, to make up for letting the owners of one company pay less.

“So, that is not equitable under most definitions. If taxes were lowered for all businesses and residents in an area would that be fair? It would be better but might place a larger burden on other areas of a city. If the abatement causes forgone revenues that could have been used to provide services to the rest of a city is that fair to current residents and businesses? No.”