Michigan's wrong direction

"Michigan's current tax system is broken and must be reformed. It cannot consistently raise the revenues needed to invest in Michigan's future, create economic growth and maintain needed public services. As the state's economy has struggled and evolved, its tax system has not kept pace."

So begins a scathing report just released by the nonprofit League for Public Policy, a group whose self-described mission is to "foster economic opportunity, independence and security of Michigan's economically vulnerable population by shaping public policy through objective data-driven research, education and advocacy."

In a study filled with much disturbing information, the bottom line is all too clear: In its push to become more business-friendly, the state is making life more difficult for the poor and working-class. But it's not just them who are being hurt.

The ultimate result of the policies Michigan has been pursuing is an inevitable downward spiral that's pulling us all under by making the state a less desirable place to live and do business. 

In a very real sense, the report provides yet another refutation of conservative economic policies. The evidence is abundantly clear: We can't cut our way to prosperity, and we can't continue to pursue regressive tax policies that put a disproportionate share of the burden on the working class and the poor. It is a reality that some other states have grasped.

"To increase their competitive advantage, some forward-thinking states have been working to modernize their tax systems, and it is past time for Michigan to follow suit," the report declared.

The report recognizes that Michigan's economy is not isolated, and that part of our problems are the result of the national economic crisis that began when the Great Recession hit toward the end of 2007. But it would be terribly incorrect to say our woes are entirely due to forces beyond our control.

"The budget gaps that resulted in more than a decade of cuts and stopgap measures in Michigan were not solely caused by the weakened state and national economies. The state's fiscal problems were also created or exacerbated by policy decisions that favored budget cuts over a more balanced approach that included improvements to the state's revenue system to make it more fair, stable and adequate," according to the report.

"Michigan cannot continue to rely primarily on budget cuts during economic downturns without hurting the very infrastructures, institutions and services that help build the workforce of the future and make Michigan an attractive place to do business."

The central point is twofold: "The state's tax system must raise enough funds to sustain the level of public services needed for long-term economic growth and quality of life in the state," and those taxes must be fairly applied. 

However, Michigan is failing in both respects: It's not raising enough revenue, and tax increases that are being implemented are moving "in the wrong direction" by placing a bigger burden on those least able to afford it.

The problem, at least in part, is a matter of drastically misplaced priorities. 

"Tax reforms passed by the Michigan Legislature in 2011 made Michigan's tax system significantly more regressive by cutting business taxes while increasing taxes for individual taxpayers, including low- and moderate-income families," the report, produced by MLPP senior policy analyst Patricia Sorenson, points out.

It is the continuation of a disturbing trend.

"Even before the 2011 tax shift, low-income households in Michigan paid a disproportionate share of their income on state and local taxes. The lowest-income families in the state, with incomes below $15,000 in 2009, paid 9 percent of their household incomes on taxes. By contrast, the highest income families (with incomes above $365,000) paid only 5.6 percent of their income on taxes. With the reduction of the Earned Income Tax Credit and other credits targeted to low- and moderate-income families, Michigan's tax system is destined to become even more regressive," according to the report.

The result of this policy dynamic is a drastic shift in the tax burden. Businesses, are getting a $1.6 billion (or 83 percent) cut while individuals have been hit with a collective $1.4 billion (or 23 percent) increase.

Here, as outlined in the report, is some of the toll taken by a decade of belt tightening under both Republican and Democratic administrations:

"The state's public schools are grappling with large deficits and some are facing bankruptcy." 

"Public assistance programs for families with children have been slashed, resulting in the loss of basic income assistance for thousands of children and families."

"Between 1990 and 2009, the number of state employees fell by nearly a quarter."

"Michigan cities, townships and villages have suffered deep cuts in state revenue sharing, resulting in the postponement of capital projects such as street, sidewalk, sewer and water improvements; curtailment or elimination of recreation and library programs; and significant reductions in police and fire protection."

Programs to prevent child abuse and neglect have been cut as the number of confirmed cases of child maltreatment grew by 41 percent between 2000 and 2010."

State spending on higher education (from state resources) was reduced by over 29 percent between fiscal years 2003 and 2013, resulting in increases in tuition and cuts in student financial aid, and putting higher education, so important in building our next workforce, out of the reach of many."

Investments in Michigan's infrastructure, including its roads, are lagging, and state highway officials have forecast that within eight years, only 44 percent of the state's roads will be in good or fair shape."

News Hits is written by Curt Guyette. Contact the column at 313-202-8004 or [email protected].

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