By John Bebow - October 17, 2008
Last week we offered just a sample taste of what we called the "Bean Counter's Ball." Many of the state's top tax experts gathered in East Lansing earlier this month to toss around ideas on how to make improve Michigan and its tax system.
Michigan legislators are once again buzzing about tax cuts, tax changes and tax reforms, but only three of the 148 capitol denizens bothered to register for the comprehensive tax event led by MSU professors Charley Ballard and Mark Skidmore.
Today we offer the full slide decks made by numerous experts at the conference. Study them over a cup of coffee and you'll know more about the tax system than many of the candidates who seek office in Lansing…
CHARLEY BALLARD FRAMES POSSIBLE REFORMS: He's literally written the book on the state's economy and now economist Ballard lays out six options for tax change: 1) Reform/reduction in business taxes; 2) A graduated income tax' 3) taxing retirees' pensions; 4) Sales taxes on food and services' 5) Assessment caps in property taxes; and 6) Conversion of alcohol excise taxes to a percentage basis instead of the current per unit tax that doesn't increase with the natural rate of inflation.
GRADUATED INCOME TAX: Economist Paul Menchik illustrates how most Michigan taxpayers would get a tax cut and the overall system would be fairer if we did what so many other states do and adopted a graduated income tax.
PROPERTY TAX FAIRNESS: Government expert Mark Skidmore suggests that Michigan's property tax system has benefitted older, higher-income homeowners at the expense of younger, lower-income homeowners.
TAX ABATEMENTS FOR BUSINESS: Wayne State University professor Gary Sands probes Michigan's 34-year-old system of tax abatement breaks for jobs-providing industry and finds reality doesn't measure up to good intention. Sands argues that the more than $41 billion in abatements given across Michigan from 1991-2001 are not contributing to a restructured Michigan economy, do not relate to the state's economic health measures, and cost central cities the most while most jobs and property investment goes to the suburbs.
SCHOOL TAXES: Economist Leslie Papke discusses the challenges of per pupil funding, equitable funding across districts, and teacher pension obligations.
ROAD TAXES: Economist Paul Boyer illustrates the finance behind all those potholes and points out the public transit disparity between Metro Detroit and the rest of America's largest regions.
6 Comments
Here's an innovative idea, let's reduce taxes to the level of effectiveness of the services we receive from State Government. Then when we have a fair value exchange we can have discussions about what additional services we'd want and what is a reasonable price to pay for them!
Overhauling the State tax system is a critical step in establishing a sound foundation for reinvigerating our economy. However, selling the idea that a graduated income tax is fair is wrong. It is a redistribution of wealth plan. Fair is everyone paying an equal proportion, which is only achieved through the current flat rate. Simplifying the entire system makes for abetter system – easily understood – nothing hidden in legal jargon. It will also require a State COnsitutional Convention, to deal with the amendments which authorize the collection of taxes for specific purposes.
Let's hear from some "experts" that can make recommendations for reining in spending.
Based on looking at the details in the Power Point presentations, several things are clear:
1. We do not have a flat tax today when the higher your income the lower your effective tax rate.
2. We should not equate "pension" with someone being over age 65. Many of the Michigan taxpayers getting a pension today are those who are significantly below age 65 (maybe even only 50) and getting a pension supplement that equates to a social security benefits "bridge" from retirement to age 62 when social security benefits start for them. This is a result of the buyout programs that many employers in Michigan have used in the past ten years to reduce their work force.
3. With the pension benefit subtraction on Schedule 1 being indexed, the exclusion is $81,840 in 2007 from Michigan taxes for married taxpayers and growing each year. Only 3 other states exempt as much as what Michigan exempts of a private pension (Source: National Conference of State Legislatures, “State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2007. ” July, 2007.) Many other states exempt little or none of this income.
4. The exclusion of income not taxed in Michigan for all reasons for taxpayers with federal adjusted gross income of more than $50,000 is $21 billion in 2005 (latest information available). If we taxed that at the same rate as other income, this exclusion alone would bring in over $1 Billion in tax revenue on 2005 incomes.
5. Given the huge increase in early retirements in the past three years, the lost revenue from the exclusion has grown immensely.
6. Because the adjusted gross income for the "pensioner" is lower than what their taxable income was when they were working, these same people not paying income tax are also eligible for a property tax rebate in many situations.
We as a state are going broke and don't realize it or elect to ignore it. Either way is not good. And the solution sure is not to increase the tax rate to the rest of us who are paying. I wish we would quit ignoring the elephant in the room and get some serious dialog going on this matter.
Like beauty, the meaning of "tax reform" tends to be in the eye of the beholder (or in this case withholder). In terms of Michigan's business climate, imposing a graduated income tax on entrepreneurs is one of the worst possible changes we could make in the area of tax policy. The notion of a "revenue neutral" shift to graduated income tax is also laughable. People who want to raise the income tax should just say so and explain why.
Trying to identify and solve a problem by starting in the middle is a sure prescription for failure.
I suspect there is more than enough revenue to accomplish the purposes of government; if we first examine the purposes, determine how best to achieve the purposes for the present and future context, and, finally, determine how much it will cost to achieve the purposes.
It is not our purpose to incarcerate as many people as possible for as long as we can; we are trying to promote public safety. One action is reactive, the other is proactive. Choose the one that costs the least – in the long run.
It is not our purpose to scrimp and save on infrastructure maintenance and improvement. We are trying to improve health and welfare for all of our citizens, a noble, and in the long run, a far less expensive achievement.
It is not our purpose to complain bitterly about the poor state of education while continuing to throw money at the bureaucracy in hopes a miracle will happen. It is our hope to create an environment within which our children can learn and grow emotionally and cognitively. It makes more sense to include the children in the preparation for their futures than to focus on command and control, top down, psuedo scientific twelve year test preparation – and less expensive too.
When the cost of achieving the real purpose has been determined then, and only then, unleash the accountants and financial wizards on the creation of simple and understandable methods to raise the funds to pay for the achievement of purpose.
Stop trying to fix a system of revenue generation that is dsyfunctional and defective. When it is all added up individuals earning an income pay a significant tax penalty to support the waste and benign ignorance that populates the tax revenue system in this state.
Be leaders folks, not "sheeple" and create a better way to do it. It may require the most difficult of efforts, letting go of the past and all the things you are comfortable with; and swallowing some of your fear.
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