Michigan doles out more in tax breaks than it spends on schools

More than $25 billion in tax breaks go to businesses and Michigan is considered the nation’s 12th most business-friendly tax state. And even though tax bills increase, the amount of money flowing into state coffers is restricted. (Shutterstock image)

Like all other governments, Michigan provides services through a host of taxes. According to the state Treasurer Department, the major sources of revenue this year:

  • $10.6 billion from a 4.25 percent tax on personal income taxes 
  • $8.6 billion from a 6 percent sales tax
  • $2.2 billion from a 6-mill property tax to fund schools
  • $1.8 billion from “use taxes,” a 6 percent tax on the sale of vehicles, out-of-state purchases and businesses, rental income and the like
  • $1 billion from the Michigan Lottery
  • $854 million from tobacco tax ($2 on a pack of cigarettes, 50 cents per cigar)
  • $569 million from the 4.95 percent general business tax
  • About $235 million total from alcohol taxes, most of which is a 12 percent tax on liquor but also a $6.30 per barrel tax on beer and wine taxes that vary depending on alcohol content
  • $121 million from a 8.1 percent tax on casino and wagering revenue

Michigan also has several other specific taxes that collect revenue from, among other things, tree harvesting at state forests, parking at the Detroit Metropolitan Airport and simulcast wagering.

Is that a lot?

Michigan ranked 12th in the national Tax Foundation’s 2020 business climate index, which measures state tax burdens. Michigan was 18th lowest for corporate income taxes, 12th for individual income taxes, ninth for sales taxes and 24th for property taxes.

On the one hand

Michigan law limits how much taxes the government can collect through two constitutional amendments approved by voters. 

Proposal A of 1994 slows the increase in taxable property values by mandating they can only grow by the rate of inflation or 5 percent per year, whichever is lower. That means that, even in hot real-estate markets, taxes for homeowners won’t increase significantly each year.

The Headlee Amendment of 1978 limits the amount of tax and fee revenue governments can collect per year to no more than 9.49 percent of total personal income.

What’s that mean? Last year, state residents earned some $460 billion total. Under Headlee, the state could have collected $44 billion in taxes, but various policies limited collections to $33.7 billion, according to consensus state revenue figures. 

On the other hand

Michigan gives out a ton of tax breaks on the belief that they create jobs. In 2017, the state doled out $27.5 billion worth, more than it collected for schools and general government.

And under former Gov. Rick Snyder, Michigan businesses received a collective tax cut of $5.2 billion, while individual taxpayers endured a $4.7 billion tax increase through repeal of previous tax loopholes, reduction in tax credits for low-income families and new taxes on pensions.

That tax shift from business to individuals essentially amounted to a per-person tax increase of $150 per year. At the same time, wages in Michigan have grown solidly since 2010, but remain 10 percent below the nation as a whole.

Editor's note: The headline atop this story was changed Feb. 11 to reflect that Michigan doles out more on overall tax breaks, including those on sales tax and other expenditures, than it does for schools. An earlier headline falsely stated that business tax breaks, which totaled about $1 billion, eclipsed school expenditures.

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Kevin Grand
Mon, 02/10/2020 - 7:34am

It may have been a while since I sat in an Economics 101 Classroom, but I do recall that the taxes that businesses "pay", have always been included in the end cost that customers pay for that good/service.

Like it or not, one way or another, Michigan Taxpayers will eventually be paying that tax.

I would agree on one point though, it is NOT the role of government to choose winners and losers in the marketplace.

Taking money from one class of Michiganians and just giving it to another, be it welfare like the main plank of the democrat party platform, or corporate welfare like the republicans like to do with the MEDC, Gilbert Bill or MEDC, IS NOT a proper role for government.

The clearly enumerated functions of our government is where the focus of this topic should be on, NOT on where to get more money.

Mon, 02/10/2020 - 9:46am

'And under former Gov. Rick Snyder, Michigan businesses received a collective tax cut of $5.2 billion, while individual taxpayers endured a $4.7 billion tax increase through repeal of previous tax loopholes, reduction in tax credits for low-income families and new taxes on pensions.'
This says it all about the 'Repub' party and its priorities - businesses over the citizens. We pay more they pay less, a lot less. The wealthy keep getting a bigger and bigger and we get smaller and smaller. It's called an 'oligarchy' government.

Tue, 02/11/2020 - 8:31am

It's also called corporate socialism.

Barry Visel
Mon, 02/10/2020 - 9:46am

Thanks for finally providing some info about tax expenditures. Now, let’s dig in and provide greater detail on where all these tax expenditures go, and the revenue we could have for our budget needs, like roads. For example, according to the numbers, simply by charging sales tax on services means you could reduce the regressive sales tax rate from 6% to 4%, and raise revenue by $3-4billion for things like roads, education, etc., and that’s just on piece of the tax expenditure budget.

BTW, according to the actual MI Budget Appendix, fy’18 tax expenditures were $39.87billion, so I’m not sure where your much lower number came from.

Tue, 02/11/2020 - 9:34am

Did you forget to post the rest of the article? This is more like an incomplete fact-sheet with a click-bait headline than an actual article worthy of Bridge

Joel Kurth
Tue, 02/11/2020 - 9:58am

Thanks for the feedback, Steve. Just to be clear: This is one of 13 chapters in our Fact Guide, an 8,000 word, nuts and bolts primer on where Michigan stands on numerous issues. In its totality, it is intended to provide a fact-based overview of the state. Each chapter, though, is intended to be a quick read. I can understand that it may seem incomplete if you only see one chapter. If you'd like a copy, feel free to email me at jkurth@bridgemi.com

Kevin radcliffe
Tue, 02/11/2020 - 9:57am

The state must stop picking favorites and end the practice of doling out tax breaks. I doubt it will happen as those tax breaks are effectively payments to specific businesses and ultimately individuals that help put them and keep them in office.

Todd J. Anson
Sat, 02/29/2020 - 4:42pm

Horribly simplistic to the point of being useless analysis. Your embedded presumption that jobs are not tax sensitive reveals your bias and naïveté. They are. Jobs experts and countries across the world have no doubt about it. Look at booming Dallas in a state income tax free Texas. It is exploding right now. If development that otherwise would not occur, but which does advance only when incentives in the form of a lower tax rate on the new enterprise are offered count in your analysis as “dole(d)” out public funds? Michigan needs to tread very lightly as to any new taxes. It’s manufacturing economy is volatile to tax rates and it cannot forget its history as an undesirable place for new businesses to grow. Or did I miss something? There are lots of reasons why Google co-founder and Michigan native Larry Page located his Google elsewhere. Proceed with new taxes at your peril, Michigan. Increase your revenue through economic growth at current rates. Or, better yet, inspire new growth at lower rates. That’s the sound plan. I know you wish it weren’t the case, but it simply is.
Todd J. Anson
Silicon Valley Businessman & Lawyer