“The most important thing I learned (this year) is I’m not ever going to raise taxes again. It’s too hard. It’s too impossible,” Governor Jennifer Granholm told Associated Press in December 2007. “Especially in light of our economy and what we’ve been through. I just don’t think there’s anybody who’s interested in proceeding down that path again.”
Our response at the time, as published in Fresh Thoughts, was: “Well then. That must set the stage for an exciting new era of government reform and reorganization because there is no question the state is headed for huge long-term budget trouble.”
What a difference 14 months makes. We are, indeed, in budget trouble. And the governor is, indeed, using tax increases to help close that deficit. Altogether, the governor proposes some $230 million in increased fees, intensified tax collection and other revenue-enhancing steps. No matter what the talking heads in Lansing call them, those are tax increases.
Other options are available:
1. BALANCE THE BUDGET WITHOUT RAISING TAXES: The Center published a list of $1.5 billion in possible reforms – enough to balance the budget without raising taxes. More importantly, a bipartisan reform commission is preparing a much more comprehensive set of money-saving reform recommendations set for release later this spring. There’s no reason those reform approaches cannot be folded into this year’s budget debate, which is likely to continue for months.
2. TAX LANSING’S SACRED COWS: The governor’s budget drew immediate ire from beer and wine lobbyists because of modest liquor licenses fee increases totaling an estimated $24 million. Michigan’s tiny tax on beer hasn’t been raised since the 1960s. Simply indexing the tax for inflation for the past four decades would result in additional state revenues of more than $200 million. Adding a tax for unhealthy soft drinks – as at least 18 states have done – could bring in another $100 million. These are fair, discretionary taxes. It’s hard to see how business growth in Michigan would be stunted if the price of a bottle of Bud at the local tavern included a quarter for the state budget. But it’s the kind of tax that riles powerful, monied interests in Lansing. Therefore, it has long been conveniently ignored by elected leaders. Same goes for Michigan’s hunting and fishing license fees, which are among the greatest recreational bargains in America at a time when the state has seriously dis-invested in natural resources protection, hunting and fisheries programs, and enforcement.
3. CONDUCT A THOUGHTFUL, THOROUGH OVERHAUL OF THE MICHIGAN TAX SYSTEM: Experts like MSU economist Charley Ballard have a few ideas. Bring to the table business leaders and other interest groups in a disciplined discussion, and a modernized, competitive tax system could emerge.
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Finally the personal income tax portion of the revenue side has made the list. Now we need to get the dialog going on what to do about the revenue side of the state budget.
If one looked at the details of how personal income is taxed in Michigan, one would see that a significant amount of the personal federal adjusted gross income is not taxed because of “Subtractions” for pension, interest income and social security.
While most people would think that group of exempted income applies to those of us over age 62, the pension exemption applies to anyone who retires at any age and receives a pension income (including IRA withdrawals). This exemption is indexed for inflation so every year the exemption amount increases (in 2008 the exemption is $86,800 for a married filing jointly taxpayer).
Every time an employee under age 62 takes an early retirement with a pension, they become a non payer of income taxes in Michigan. This means a loss of revenue to the state of up to $4,079 if they have pension income of $86,800 and other income of $7,000.
If 10,000 workers take an early retirement, the state loses $40.8 million dollars in revenue. We have had 10,000 early retirees many times over in the past 5 to 6 years, none of whom are contributing to the support of the state budget through income taxes and almost all of these early retirees are in their mid 50s age wise.
Isn’t it time we had some equality in the taxing of all citizens? Two easy ways to increase the revenue to the state coffers:
1. Tax all pension incomes until one reaches age 62 to match the social security exemption.
2. Change the exemption amount to a lower amount than $86,800 and eliminate the indexing factor.
That way all all of us would be contributing to support the state budget and we probably could reduce the tax rate of 4.35% for everyone to a lower level. What a novel idea – reduce the tax burden rate to everyone!
Let’s get some dialog going that equals the amount of ink and space that is spent talking about where the revenue will be spent.
Finally, someone is talking about the inequity produced by the absence of a tax on pension income. A lifelong resident of Michigan, I spent my working years teaching at a university here. I was shocked to discover when I retired over twenty years ago that I would pay NO state taxes. My income has for some time been high enough for half my Social Security income to be taxed on the Federal level, and I am still not pulling my weight in Michigan. This is ridiculous!
Mr. St. Onge has a point, but reduce or eliminate the “retirement exemptions” (my term), and many thousands of retirees will take ALL of their income to warmer states that do not tax it, and some of which have lower costs of living. (The state song of Texas is not “The Eyes of Texas,” but rather “Texas, Our Texas,” but I know the music and lyrics of both.)
The federal government is willing to give a tax deduction for sales taxes paid or income taxes paid but not both (on Sch A of 1040). I would like to see Michigan follow suit in this regard and eliminate one or the other tax. Without eliminating one or the other, Michigan is at a competitive disadvantage. The state wastes money each year policing both taxes. We have to think outside the box and get creative. We have to look to the future as well as what we need today. If we eliminate the income tax and property tax and the MBT, we could replace them with an adjusted sales tax and a business revenue tax. The problem that Michigan faces right now is that the taxes are unfairly distributed among business sectors. The sectors of business that we want to encourage are usually taxed the most. I know because I am a CPA. Make the taxes apply to everything sold in Michigan. If someone from outside Michigan wants to buy our goods they will pay our tax through higher prices charged by our businesses. Give businesses a three year delay on paying taxes if their “cash flows from operations” are negative for any given year. This would reduce audit time for state auditors because they would mostly only audit 1 number – SALES. Businesses would be encouraged to invest here with zero property taxes. Employees would buy the goods and services they need and the state would collect the tax. Furthermore, we will need to spend more time looking into individuals (or businesses) that cheat on their taxes. It is unfair to increase taxes on the few who actually pay. Too many get away with too much even today. Unfortunately, I can not go into more specifics, but I leave you with this old saying “Keep It Simple Sally”. For I do not consider anyone truly stupid unless they are unwilling to change for the better.
This is to all of the fools, oops, taxpayers, who believe their taxes are too low and would love to give money to the blood suckers, oops, politicians. Just write a check or fill out a money order to the state treasury for what ever you think the politicians should have. Lets see if you will walk the walk.