State Tax Realities

Jeff Guilfoyle, the terrific President of the Citizens Research Council of Michigan, recently did a presentation to our Leadership Council on Michigan’s state and local tax system. I highly recommend taking a look at in detail. The presentation lays out today’s realities and the options for raising revenue. We asked Jeff for the later. CRC does not recommend any specific tax changes.

For most readers it will be new news. Certainly a far different story than you are getting from politicans or the press. The basic story is a decade or more of tax cuts – most of them tax expenditures. State taxes are estimated in 2011 to be more that $7 billion dollars below the Headlee ceiling. In 2000 we were at the ceiling. That is because Michigan has a tax system that does not grow as fast as the Michigan economy. To make matters worse, there are something like a billion dollars in additional tax cuts that are scheduled to take effect between now and 2014.

The conventional wisdom is that tax increases are one of the leading causes of Michigan’s lost decade. Nothing could be further from the truth. The reality is – even with the 2007 tax increase – Michigan’s economic decline has been accompanied by state tax cuts.

At the local level, the story has been different. Chiefly because of rising property values for most of the last decade, tax receipts as a proportion of personnel income have increased. Obviously this differs greatly from community to community. But those days are over as property values and property taxes are  now in decline.

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