By John Bebow - December 12, 2008
State tax reform is teed up to be a heated topic in Lansing in 2009.
As Fresh Thoughts pointed out recently, despite Michigan's economic troubles, state government revenues are up more than 8 percent this year, an infuriating fact for business groups.
But there is another side to the Michigan tax story that is sometimes overlooked…
Michigan tax BREAKS are on the rise, too. In fact, total tax breaks, in the form of credits, deductions, abatements and the like, are expected to reach $35.8 billion in 2009, a one-year increase of 6.7 percent.
Total business taxes are projected at $2.7 billion. Total business tax breaks and exemptions: $1.9 billion.
Total sales and use taxes: $8 billion. Total sales and use tax breaks and exemptions: $14.2 billion.
Total income taxes: $7 billion. Total income tax breaks and exemptions: $6.1 billion.
Click here for a full report on Michigan taxes and tax breaks.
5 Comments
Paying taxes is not the problem!!! The problem is spending!!! The problem is that Gov't can't/won't adjust to the reality that they must spend less. When are economists going to start discussing that side of the problem?
Jess Atwell
It is certainly time to look at our tax system. There are too many winners and losers. Unless you know where all the tax breaks are you miss out. Lets take a serious look at eliminating the Michigan Business tax and replacing it with increases in the income tax and sales tax. We need to show the nation that Michigan is open for business.
Total business taxes are projected at $2.7 billion. Total business tax breaks and exemptions: $1.9 billion. Net= $.8billion
Total sales and use taxes: $8 billion. Total sales and use tax breaks and exemptions: $14.2 billion.Net= -$6.2billion?
Total income taxes: $7 billion. Total income tax breaks and exemptions: $6.1 billion.
Net= $.9billion?
those three amount to a Net of -$4.5billion in revenue…. um thats negative. What kind of retarded tax system do we currently have?
Why not reduce loopholes and exemptions and then reduce tax rates?
wouldnt that save everyone money on just tax administrative costs?
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The idea that just eliminating business taxes will tell anyone Michigan is "Open for business" is ridiculous.
Business that want to sell products in your state will come there if people are able to buy, but wont if people cannot buy.
Reducing a business's tax liability doesnt do Anything to increase their sales which is what causes Hiring and retention.
In the 90s, through 2001, Michigan did just fine for business until the 2001 economic slide occurred and the Auto Industry began to fail, and more companies jumped the border and moved to Canada or Mexico, which has ZERO to do with our state's taxation vs other states.
From what i have heard and read, our state has reduced a lot of red tape for businesses making it far easier to start and operate.
Now, im sure that a national recession has reduced other states to competing heavily against each other currently but our state has done the same to target new business, and Granholm would NOT have been able to convince so many businesses from other locations to come here if it was difficult to do business.
It always comes down to bottom line, and if it was better to expand in Alabama or Indiana vs Michigan, Granholm would have lost and come home empty handed from her business trips.
You cant blame business difficulty in a terrible national and state economy on ability to operate within state rules.
If there are issues on actually completing business ventures, investments, sales, transactions, payments etc, then those should be detailed broadly and debated. Not just generalized for political talking points.
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Reducing taxation for lower and middle income earners is the way to spur economic growth. They outnumber the wealthy by 100-1 and need to spend on items needed and rarely are able to just sock it away for saving.
Increasing salaries for the lower incomes will spur spending and increase jobs. Reducing salaries at the highest levels will save money and increase jobs and corporate stability. Its a fact.
When consumers spend it increases business, which increases sales, increasing business profits, taxes, and bottom line investment.
The wealthy always make their money.
The ridiculous debate is whether to allow them to make loads of it off tax breaks and outrageous salaries while their companies tank, or to reduce their salaries, increase consumer compensation and spending and increase actual Business economic flow for everyone.
common sense says second one. Because that will warrant true capital flow, providing for more lending, more investment, more shareholder return or ownership solidity.
You think the guy who Owns and Runs the corner store wants a tax break on 100k yearly income if business is way down? if instead he could have no tax break but business Way up and 2 or 300k in income?
the fact is, they get the tax breaks anyway and it never helps increase foot traffic or sales. whooopee.
WE COULD FLOURISH !!!
I'm for totally eliminating the Michigan Business Tax and these ridiculous tax breaks given only to brick-and-mortar investments. Giving away dollars needed to support our infrastructure, educational institutions and public services in exchange for a promise of jobs is counter productive. We should look at what other states are doing. They all have higher sales, use and income taxes. If we want to incentive-ize anything, eg: research or technology, then do it with grants-directly to these companies, for those purposes.
Can you imagine marketing Michigan as a state with no business taxes and grants available for research and development ? We might even regain our former reputation as our nations manufacturing power-house. Remember when we used to build the machines that that made the parts ? Those machines are no longer made in Michigan. Now we are rapidly losing another former stronghold, making the parts.
As our roads and bridges crumble, public services eliminated and our educational institutions become unaffordable, the politicians in Lansing (both Democrats and Republicans) will soon be fighting over nothing, as all will be gone.
State Tax Crisis
Should Retiree’s in Michigan Pay No Taxes on up to $80,000 of Retirement Income?
Today in Michigan seniors are exempt from being taxed on income from IRA’s, pensions and 401 k plans. The Federal Government is not so enlightened and taxes seniors at the same rates as all other taxpayers with the sole exception being a slightly larger personal exemption. Can we afford to do this? Believe it of not the estimate is that this deduction cost the state $3,139,133,000 in tax revenue. Source: Calculations by the state from the “Executive Budget Appendix on Tax Credits, Deductions, and Exemptions, for Fiscal Year 2008” prepared by the staff under the direction of Howard Heideman, Director of the Tax Analysis Division, Office of Revenue and Tax Analysis (ORTA).
Background Information
The State of Michigan is facing an ongoing budget crisis. Taxation is all about how many feathers you can pluck out of the chicken without having them squawk. In theory if you take the same number of feathers out of each chicken everything should be ok. They are uniformly unhappy! Today we pluck the same number of feathers out of all chickens; we have a flat tax rate 3.9% rate once individuals reach the taxable income base.
But of course there are some exceptions and I would contend that these are an important part of our tax problem. At one time retirees were a smaller part of the population and it was decided to give them a break on their taxes. Over the next 20 years retirees will become a significant portion of the population, too significant for us to be able to offer them the tax beak they have now.
The first break for retirees focused on income from public or military pensions (teachers, state employees). All retirement income for them was not to be taxed.
When other retiree’s complained of this special treatment for a select group it was decided that it would be expanded to all retiree’s but with a limit on the amount that was tax free. For a retired couple your IRA, 401 k, 403-b income up to $81,840 is free of income taxes.
So the net result is that many retirees pay no income taxes to the State of Michigan or very minimal taxes. A retiree could be in a 25% marginal tax bracket on their federal return and be paying no state taxes in Michigan at all! So the Federal Government is recognizing that retirees get many benefits from government services and so continue to tax their income. Letting retirees pay almost no taxes is in my opinion simply bad public policy. Does it make any sense that a couple making $80,000 of wage income age 55 might pay $3,000 of taxes on the income while a retiree age 65 drawing the same amount of income from their 401 K plan could pay no taxes? Their standard of living is arguably roughly identical, their use of services is similar, one is just footing the bill and one is not.
From a tax planning perspective there is an easy game here. When your 64 and working defer $10,000 to your 401 k. Pay no Michigan tax on this since you deferred it. Then the next year retire and take the $10,000 out of the 401 K. Pay no tax now since you are retired! The federal government will not let you get away with this, why does the state!
The work force in Michigan is under significant wage pressure today. Delphi workers have seen a cut in wages; workers at many other jobs are under wage pressure. We have the choice today of taxing all workers at a higher rate or collecting from workers and retirees at the same rate.
Calculations made by the state treasurer’s office suggest that this simple change of taxing retiree’s income as we do workers could eliminate much if not all of the current deficit. This should be an easy decision. At a time of crisis in state finances it is reasonable to ask all to make sacrifices, should retirees be immune from this? I don’t think so.
Doug Gross
Financial Advisor
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