By Rachel Richards, Michigan Advance
When it comes to investing in the people of Michigan, the status quo is just not good enough.
Pandemic-era investments showed us what going above and beyond could do for Michiganders. Three federal Economic Impact Payments coupled with expanded unemployment benefits, an enhanced federal Child Tax Credit and additional support effectively drove down poverty rates and assisted families in meeting their basic needs during what was an extremely tumultuous and trying time.
During that same time period, federal pandemic aid also strengthened our state budget, allowing for even stronger investments in Michiganders.
Unfortunately, with many of the federal pandemic-era policies now winding down or having already come to an end, we’ve reached an inevitable fiscal cliff, with Michigan’s state revenues and revenue growth returning to normal. That was the consensus of our state fiscal experts at the Consensus Revenue Estimating Conference held on Jan. 12 in Lansing.
So, what does this mean for our state budget going forward?
With federal support returning to its pre-pandemic levels, we will now be more dependent on our own state resources to ensure Michiganders have what they need to not only survive, but thrive. And while Michigan’s economy is currently stable, with revenues coming in as expected, it’s not enough to prevent us from returning to the decades of disinvestment in Michigan workers, families and children that we saw prior to the pandemic.
Taking what we learned from the investments made during the pandemic, it’s absolutely paramount that we start looking at new, stronger and more equitable ways to build on our state revenues so we can fully invest in our state’s most valuable asset: our people.
Here at the Michigan League for Public Policy we have long advocated for Michigan to adopt a more progressive income tax to strengthen our state’s revenue system and address existing tax inequities. As it stands today, Michigan’s income tax system is upside down in that people with lower incomes pay a greater share of their income to taxes than top earners do.
A recent report by the Institute on Taxation and Economic Policy (ITEP) shows that the top 1% of Michigan earners–those making more than $670,300 a year – pay an overall lower effective state income tax rate at 5.7% than any other income group, including families with the lowest incomes–those making less than $21,300 a year – at 7.1%.
While Michigan’s tax system is not the most regressive, as indicated by ITEP’s Tax Inequality Index, it’s clear that not all Michiganders are paying their fair share.
A graduated income tax would help to address this, as taxpayers making a low or moderate income would benefit from lower taxes, while the wealthiest households would pay a more equal share of their considerable wealth to their communities. It would put a stop to a tax system that favors the rich and wealthy corporations over the working Michiganders who are just trying to get by.
At the very least, a graduated income tax would help flatten out the impact of taxes across incomes. At most, it would likely increase tax revenues in a fair and equitable way. And with more state revenue, we can work to ensure more money is going back into communities for schools, child care, improved access to healthcare, safe housing and more.
Coupling this with other smart tax policies – such as a fully refundable state version of the federal Child Tax Credit that effectively cut child poverty in half nationwide during the pandemic – could result in real, transformative change for the hard-working families and children who call Michigan home.
Long-term revenue sufficiency is key to making a stronger, more resilient Michigan where everyone can thrive. It’s time we start working together to put the tax policies in place that can ensure we have the financial footing we need to fully invest in our people.