Low taxes and low prosperity

More evidence that cutting taxes does not lead to higher prosperity for Michiganders. One can make a strong argument that for at least two decades Michigan’s primarily strategy for raising Michiganders living standards has been to lower taxes. Advocates for that strategy have told us over and over that the place with more and better jobs are low tax states. Think again!

The Citizens Research Council recently released a report entitled “2013 Tax Revenue Comparisons: Michigan and the U.S. Average”. Using US Census data the report shows that Michigan is now a low tax state. In 2013 (latest available data) Michigan ranked 35th in state and local tax revenue per capita. The state ranked 36th in state and local tax revenue as a portion of personal income. The report found that:

From 1993 to 2013, Michigan’s state and local tax revenues per $1,000 of personal income fell by approximately 14 percent. Michigan’s ranking against other states decreased by 21 places.

Michigan per capita tax revenues increased from $3,213 to $3,750 in the past 20 years, whereas the U.S. average amount in the same time has increased by $1,751. This increase in per capita revenues left Michigan state and local government tax revenues at 82 percent of the national average.

Michigan in 1993 ranked 14th in per capita taxes, 2.7 percent above the national average. And 13th in taxes as a portion of personal income, 5.6 percent above the national average. In 2013 we were 18.6 percent below the national average in taxes per capita and 8.5 percent below the national average in taxes as a portion of personal income.

If the tax cuts are the key to better economic outcomes advocates are right you would except Michigan to be far more prosperous today than in 2013. Michigan has succeeded in moving from a high tax to low tax state. But Michigan also went from being a relatively high prosperity state to a relatively low prosperity state. In 1993 the state was 20th in per capita income, just about at the national average. In 2013 we were 36th in per capita income, 12 percent below the national average.

(And no low taxes haven’t magically worked since 2013. The BEA preliminary per capita income data for 2015 ranks Michigan 33rd, 11 percent below the national average. This with a booming Detroit Three.)

So much for lower taxes leading to higher prosperity!

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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

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