Courtesy MIRS News Service
The Senate Finance Committee began taking testimony Thursday on what the state might do to dramatically change course and attract more people and businesses.
To get the conversation started, Committee Chair Jack BRANDENBURG (R-Harrison Twp.) introduced legislation (SB 4) in January that would eliminate the state Income Tax over a five-year period.
Brandenburg has made it clear that he is only interested in going forward with the tax elimination if an alternative revenue source could be agreed upon to replace the $9 billion the income tax brings in annually.
In a testimony-only portion of the committee hearing, Rachel RICHARDS, legislative coordinator for the Michigan League for Public Policy, said the two things her group looks for in a tax policy is “adequacy and fairness.” She then said that Michigan’s current tax policy is upside-down.
“Those with the lowest income pay three and a half times more (in terms of percentage) than those at the top,” Richards said.
“Michigan hasn’t kept up with inflation,” Richards said. “When adjusted for inflation, the budget is below the 1968 level. When adjusted for inflation, what we spend on schools is below the 1995 level.”
Sen. Marty Knollenberg (R-Troy) asked Richards to more clearly define “fairness.”
“It sounds like you think a fair tax system would be based on ability to pay?” Knollenberg probed. “What are we talking about here: Income Tax, Property Tax, Sales Tax . . . ?”
“We’d like a graduated Income Tax, but that would take a Constitutional amendment,” Richard said. “But we would support restoring the EITC (Earned Income Tax Credit) at 20 percent.”
Sen. Tom CASPERSON (R-Escanaba) said he believes hard-working people are often identified as being wealthy when they are not.
“When I was in small business, I’d struggle to pay my fair share,” Casperson said. “But I would still be pigeon-holed as ‘a rich guy’ because I owned some equipment. I think we should stay away from the rich and poor argument. I think what happens when we look at things that way is we hit the middle guy.”
Brandenburg, as a former business executive, agreed.
“I think of how many nights I sweated to get out payroll while not even giving myself a check,” Brandenburg said.
However, Richards maintained that the state’s current tax policy is upside-down.
“Those on the bottom pay 9 percent of their incomes while the wealthiest pay 5 percent,” she said.
Casperson asked her if those she’s identifying as on the bottom receive public assistance.
Richards said some might, but others don’t. She also said she could do more research to try to get a clearer answer to Casperson’s question.
James HOHMAN, Assistant Director of Financial Policy for Mackinac Center for Public Policy, told the committee that Michigan could cut its Income Tax from the current 4.25 percent to 3.9 percent without busting the budget.
“Tax revenues are up $3.6 billion since 2010,” Hohman said. “We could do a modest reduction in the state Income Tax rate and the best part is that it would be affordable right now.”
Hohman also suggested places the state could cut the budget, including getting rid of business subsidies and the $34 million it spends annually on tourism advertising (PureMichigan).
However, Sen. Dave ROBERTSON (R-Grand Blanc) pointed out that Brandenburg’s idea was to look for something sweeping that could really be a game-changer for Michigan.
Hohman explained that he had come to the hearing with the idea of proposing something that would be both economically beneficial and also politically realistic.
Nonetheless, Robertson pressed for something more aggressive.
“If you could wave a magic wand, ideally would you want the state to eliminate one of its basic taxes?” Robertson asked.
“No state has ever eliminated one of its basic taxes without replacing it with something else,” Hohman said. “I’d like to see Michigan become the first.”
Returning to Hohman’s initial proposal for a modest Income Tax reduction, Sen. Steve BIEDA (D-Warren) questioned whether such a measure would have much impact.
Hohman pointed out that there is a much larger job turnover rate in a state like Michigan than most people realize — 200,000 created in the last quarter and about 170,000 lost.
“Many business decisions are made on the margin,” Hohman said. “And lowering the tax rate is one of the few things affecting that margin that you (the legislature) could determine.”