Special report: 10 things every voter should know about Michigan taxes

Editor’s note:

 

To help voters sift fact from fiction in this fall’s statewide election, this ongoing special report tells it like it is on Michigan taxing and spending issues. Today kicks off our series with the first two of 10 parts, below.

 

Part 1: Are Michigan’s taxes too high, too low or just right?

Forget porridge and bear beds. In today’s charged political climate, Goldilocks would probably want to know if her taxes were too high, too low or just right. So, what’s the answer in Michigan?

In short, there’s no public consensus. In the largest public opinion measurement in the state, The Center for Michigan recently found no clear agreement on Michigan taxation levels. The public is roughly split into thirds on whether to cut taxes, raise taxes, or keep them the same.

So, how can you draw your own fact-based conclusions about whether your taxes are too high, too low, or just right? Well, for starters, state tax rankings are as common as college football rankings. A few of the most recent quick stats from the Tax Foundation’s “Facts & Figures: How Does Your State Compare” book published in March 2014:

  • Overall, Michigan has the 21st highest total tax burden in the U.S. That means 20 states have higher overall taxes and 29 states have lower overall taxes. Michigan collected $3,505 in state and local taxes for every person in the state in 2011 (the last year for which full nationwide figures are available).
  • In terms of overall state tax climate, Michigan ranks 14th among the states. The Tax Foundation offers insights into its ranking methodology here.
  • In terms of individual rankings on specific types of taxes, Michigan ranks 9th for corporate taxes, 14th for individual income taxes, 7th for sales taxes, 44th for unemployment insurance taxes, and 28th for property taxes.

Did mom and dad pay more taxes?

You'd need years of detailed family tax records to completely answer that question. And everybody's personal taxes are different based on lifestyle, personal tax strategy, and many other factors. But imagine for a moment you're the fictional average taxpayer -- your actual taxes paid match the percentage of total personal income Michigan actually collects in taxes. Now, go back and time and see how Michigan's changing tax burden might have impacted you. Pick an income level most closely matching your current income. The tax time machine will show you how average tax burden has changed in Michigan over the past generation.

Year 1977 1987 1997 2007 2011
Income/Tax rate 10.9% 11.1% 10.7% 10.8% 10.1%
$25,000 $2,740 $2,778 $2,675 $2,695 $2,520
$50,000 $5,480 $5,555 $5,555 $5,390 $5,040
$75,000 $8,220 $8,333 $8,333 $8,085 $7,560
$100,000 $10,960 $11,110 $11,110 $10,780 $10,080
$250,000 $27,400 $27,775 $27,775 $26,950 $25,200

No matter what you think about Michigan’s current tax climate, you may actually pay lower overall state and local taxes than your parents did.

In 1977, Michigan’s total state and local taxes amounted to 10.96 percent of all the personal income earned by state residents. In 2007, those total Michigan taxes amounted to 10.78 percent of personal income. By 2011, those total Michigan taxes amounted to 10.08 percent of personal income. In other words, that’s an effective average overall tax rate decrease of 8 percent over the past generation and 6.5 percent in the four years between 2007 and 2011. (Data source: “Michigan’s Tax Policies: Wrong Turns on the Path to Prosperity.)

State and national experts also measure state taxation levels by comparing taxes collected per capita. Since 1977, Michigan has the lowest growth in tax revenue per capita in the country, according to calculations by retired Michigan state fiscal analyst Doug Drake who wrote the “Wrong Turn” report referenced above on behalf of several education trade groups.

Taxes higher elsewhere

In 1977, Michigan collected $877 in state and local taxes for every resident of the state. In 2011, Michigan collected $3,655 in state and local taxes for every person in the state. At first glance, that may seem like a big increase – an increase of 320 percent. But every other state saw tax revenue per capita growth at a faster clip than that. North Dakota led the way with 900 percent growth, followed by thirteen states that saw more than 500 percent growth. In reality, that 320 percent increase isn’t a 320 percent increase at all. To truly measure it, you must adjust for inflation. That $877 in 1977 is equal to $3,229 in 2011 dollars. That’s an inflation-adjusted increase of 13 percent, not 320 percent.

A citizen’s assessment of whether his or her taxes are too high, too low, or just right might also take into consideration what you’re getting in return. A few examples:

  • As Bridge Magazine has repeatedly documented, education results in Michigan are seriously lagging.
  • A thrifty taxpayer might conclude that it’s good that Michigan hasn’t raised gasoline taxes since 1997. But, as many motorists can attest, Michigan roads are increasingly falling apart. According to state data, 15 percent of non-trunkline roads were in poor condition in 2005, with 63 percent fair and 22 percent in good condition. By 2012-2013, the percentage in poor condition had nearly tripled, to 43 percent, with 41 percent in fair condition and 16 percent in good condition. One study estimated that bad roads in Michigan costs $2.3 billion a year in accelerated vehicle depreciation, added repair bills, increased fuel consumption and other wear and tear.
  • The Michigan Municipal League says the state has cut $6.2 billion in revenue sharing to cities in the past 12 years. That means less public investment in libraries, parks, street and sidewalk repair, sewer and water system upkeep, and, according to the Michigan Commission on Law Enforcement Standards, about 2,300 fewer cops and 1,800 fewer firefighters.

So, the answer is in the eye of the beholder. Beyond all the political campaign balderdash and talk radio huffing and puffing on both the left and the right, are your taxes too high, too low or just right?

Read Part 2: Who wants what in the long war over Michigan taxes.

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Comments

Jeff Guilfoyle
Thu, 09/11/2014 - 9:44am
For perspective, in 2007, Michigan taxes were 10.8% of personal income, while in 2011, they were 10.1%. This reduction in the percent of income taxed is equal to $2.6 billion per year in state and local taxes, or roughly $260 in taxes per capita.
blufox
Thu, 09/11/2014 - 10:02am
Interesting that the amount you show, 2.6 B, is roughly the annual amount the Governor has asked for to fix our ROADS. To bad the folks in Lansing can't fix the roads as fast as they can fix an "unintended" tax loop hole yesterday. Less than 24 hours! Impressive!
J Adams
Thu, 09/11/2014 - 9:45am
How many residents don't pay taxes at all?
Bruce
Thu, 09/11/2014 - 10:32am
Considering that there are sales taxes, and property taxes that are likely even passed on to renters in their monthly rate, and that there is very little exemption before the personal income tax rate sets in, I suspect there are not many residents that avoid paying tax to the state of Michigan. Avoiding federal taxes is another issue.
Thu, 09/11/2014 - 10:44am
Everyone in Michigan pays taxes. Ever hear of the sales tax? Gas tax? Liquor tax? Property taxes (which is paid on rental properties as well as owner-occupied homes)? Tobacco tax? Local income tax?
Todd
Thu, 09/11/2014 - 11:31am
As with many absolutes, this statement is incorrect. Not everyone in Michigan pays taxes. In fact there are many people who don't. Here is a short list: People who are incarcerated People who are wards of the state People who don't have disposable income or receive all of their support through direct government payments or subsidies. The concept that taxes are imbedded in rent, products and services and thus everyone pays taxes is the exact rationale for doing away with all business taxes. All business taxes. Really, only individuals pay taxes and thus should see exactly what the direct tax burden is for each person.
Charles Richards
Thu, 09/11/2014 - 2:11pm
Todd is exactly right about business taxes. If we took his suggestion about eliminating business taxes, people would have a much better idea of what they are paying for what they are getting. If they knew the true cost of their government services, it is likely they would demand fewer of them.
John Q. Public
Thu, 09/11/2014 - 11:38pm
Todd is correct if all demand is inelastic. Business owners cannot just pass along every expense increase. Sometimes a 2% increase in prices results in a 5% decrease in revenue. I, and many business owners, have experienced this first-hand, regardless of whether the reason for the increased expense is raw materials, labor, or taxes. A marginal increase in expenses, depending on other market conditions, sometimes means you have smaller profits. "Businesses don't pay taxes" is an attempt at tautology that fails. If it were valid, business owners would not care what the tax rate is. I know not what others think, but I care.
chris
Tue, 09/23/2014 - 4:37pm
Government does not full cost anything. How do you put a value on something when you don't know what you are paying? We don't practice this in our personal lives or more often than not we would be bankrupt. But it seems to be acceptable in government. It needs to stop.
DER
Thu, 09/11/2014 - 10:39am
And not one mention of grossly overweight trucks that destroy roads and don't come close to paying their fair share....so much for the "academic" look at taxes. Thank you for the thinly veiled repub propaganda...
Pete
Thu, 09/11/2014 - 12:16pm
Way to go DER! Can't believe how few citizens, and virtually no politicians, recognize that Michigan has the highest (or among the highest) axle weight limits of any state. I'm sure there's a highway study that indicates road deterioration vs axle weight. Why can't regulators figure out that either reducing axle weights or taxing in proportion to their potential destructive capacity makes sense!
Charles Richards
Thu, 09/11/2014 - 2:32pm
In early March of 2013, Detroit News commuter columnist Tom Greenwood wrote, "Now for the big question: How many of those 164,000 pound monsters are out there on Michigan roads: 291 or .36 percent of all the trucks registered with the SOS.    So are .36 percent of the trucks on our roads causing all our problems?" He goes on to say, " Research conducted by the American Association of State Highway and Transportation Officials, MDOT and other groups has concluded that pavement damage is directly related to axle loadings and not gross vehicle weight.    A truck with a gross vehicle weight of 80,000 over five axles is carrying 17,000 pounds per axle.    Trucks carrying 164,000 pounds over 11 axles produce a maximum weight of 13,000 pounds per axle.    According to researchers,   five-axle trucks actually cause about 60 percent more pavement damage than heavier trucks because of their higher axle loadings."
Duane
Thu, 09/11/2014 - 6:35pm
DER, Are you sure that the idea of overweight trucks isn't something that fits you expectations rather then actual problem. Do you believe all trucks are from in state loading or outside state loaders. If it is the latter then first they have to comply with originating state loading requirements prior to their entering Michigan which would suggest what the actual axle loading is less than the state allows. Have you looked at the roads to notice what parts of the roads are failing, in my community it seems to be more apparent that it is the places were the road surfaces join rather then where the paths the vehicles travel most. I believe that there is over time wear on the roads and I wonder if there are design and construction issues to consider (it would seem the airport runways get the most loading and yet the seem to survive better than our roads). I would like to hear from the transportation experts what they have found about the causes of road repairs, are there ways to address the issues, do they think we should change our expectations for roads or should we change how we construct them.
Matt
Thu, 09/11/2014 - 11:57am
The problem with all discussions of taxes, particularly around the "average" tax paid is that the people in relatively comparable circumstances very often end up paying markedly different amounts leaving the "average" tax paid less meaningful. This was the big problem with the Michigan Business tax or single business tax as well as the exclusion of pension income, Michigan's current sales tax and property tax systems where one purchase is hit exceptionally hard and another not at all. Reforming taxes to make them more broadly applicable and elimination of big discrepancies is a better way to go rather than worrying about lowering them.
Rick
Thu, 09/18/2014 - 11:02am
Matt - good points. And: the more we 'distribute' taxes the more we spread out variation. When states 'overload' taxes on a certain area (hotels, casinos, property, etc.) then when that area sees a decrease in activity (like when the real estate market crashes) then it's a big hit on total revenue and all the scrambling to make up for it starts.
Big D
Thu, 09/11/2014 - 12:32pm
1/3--1/3--1/3 That's a fine poll on Michigan tax rates. However, suppose the question was "Do you think YOUR PERSONAL taxes are too high, just right, or too low?" I would then expect 3/4--1/8--1/8. Its fine to tax the other guy. The anomaly would be the folks who pay no tax, and thus don't care at all.
Bob
Thu, 09/11/2014 - 1:00pm
I would be interested in seeing what percentage of their income is paid by those with $25000 a year income, those with $75000 a year income, those with $150000 a year income and those with incomes in excess of $300,000 a year. I expect that graph would look something like a bell curve.
Thu, 09/11/2014 - 2:58pm
This is the start of a decent analysis, but I would hope for more in the coming 8 pieces. Many tax statistics will show Michigan a middle of the road tax burden state. The analysis needs the dimension of allocation of total tax revenue (by program) as well as tax expenditures as a percentage of personal income. Income is a HUGE factor in tax questions. Since Michigan lost so much revenue in the Lost Decade, tax revenue increases need to be factored against that. Two quick example of tax expenditure issues: Michigan's tax revenue allocation to K-12 schools is comparatively high relative to national averages and even higher as a percentage of $1,000 of personal income - in fact 36% higher than the national average and 3rd in the country. ALso, gas tax has been an issue. Michigan raised the sales tax in Prop A and most of that went to K-12, not to roads. Most other states allocate more to roads than MI does.
Duane
Thu, 09/11/2014 - 6:55pm
Should the question be how do we compare to other states or is it about the value we recieve? Should we be concerned about how Michigan ranks based on some set of numbers or should we be asking about what we expect to get for our money? Should we be using a comparison with other states to show us what our tax dollars are providing or should we/our legislators be asking our government agencies what they are providing, what are they changing with the money they are spending, what results are they deliverying? I would encourage Bridge to interview a state agency head and ask what they feel would be the best measures for assessing agency performance and why. Once we had that information then we, the public/legislators, would be better able to decide if we are getting good value.
brenda Redding
Fri, 09/12/2014 - 11:30am
The state needs enough money to run the state: education, research, infrastructure, payment of state employees, contributions to other governments,,(FEDS), especially our local governments, and other items. People like to see a well run economical state of affairs. We should not pay our state employee's health benefits after they have left their posts, we should pay fairly and tax fairly, such as making sure the user's of the gas and roads pay their fair share. We should evaluate the outcome of our tax statedgy constantly and make that info open to the public.
Boop
Sat, 09/13/2014 - 10:43am
What was to cost of living from each of these years posted in your income/tax rate table? I know that it was much lower during my parents' earning levels than it is today. So to suggest that our taxes are lower so our buying power is higher is a fallacy. Wages have been flat since the latet 1970's while the cost of everything has risen dramatically. So while people are complaining about the tax disparity in this state, the dramatic impact on purchasing power also has been affected. And, when people are barely meeting living expenses, there certainly is not enough money for extra purchases. Thus, our economy is in the mess that it is in! The Governor keeps talking about recovery and a "surplus," but the majority of the people in this state are not seeing nor feeling that recovery!
Vince
Sun, 09/14/2014 - 12:27pm
We need less government and less taxes for everyone! The state needs to have better oversight by the tax payer on how they spend the money they receive from us, and income from state lands! One thing is the Kammer Land Trust Fund which receives all the revenue from oil and gas production where the minerals are owned by the state. This includes lands that the state owns outright and the minerals they own on lands that have been sold for back taxes. This money is used to buy more land for the state and nothing else. This amounts to a lot of money that can be used for schools, ifrastructure (Roads, bridges, and the reduction of taxes). Instead it is used to buy property for the state which reduces the tax income on that land to a pittance of what was originally paid! This fund is managed by a APPOINTED committee who can purchase whatever land pressured to do by environmentalists! This fund cannot be used for improvement or protection of this purchased land! As far as the statement "Did mom and dad pay more taxes?" The money you have left of the $25,000.00 after taxes, would be worth at least 25% more for groceries etc. in 2011 than it is now! Nuf said!
Rick
Thu, 09/18/2014 - 11:15am
'We need less government and less taxes for everyone!' OK, tell us what you want to cut. Be specific. Prisons, cops, education, roads, etc. Focus on the big ticket items; nickel and dime stuff really won't alter the big picture. For example, please tell us how much the 'Kammer Land Trust Fund' has and if we made the change you suggest the impact on our taxes. One of the best things the NYTimes did once was to give everyone the opportunity to use a slider that allowed people to test their tax change / budget assumptions on taxes with little sliding things. It was a real eye opener about what it takes to make the big changes folks like you want. Be specific and use the amounts you find.
Duane
Thu, 09/18/2014 - 11:43pm
Rick, It isn't so much how much is spent as it is what we get for what is being spent. Do you have confidence that those spending the money are deciding on how to spend the money on the quality of results we are getting or do think they are simply spending it this way because it has always been spent this way? Do you see those in government changing results, be creative or innovative in what they deliver or is it simply incrumental changes that are driven by innovation in the private sector? It is more about trust in the results than it is about the amount of money being spent.
Sun, 09/21/2014 - 10:55am
Great another Liberal Socialist pay more taxes or the world is going to end study. The draks report that the article mentions is a Socialist study with a biased agenda stating "Noting that Michigan has already tried the tax cutting strategy–multiple times–and it hasn't worked yet." What?!!! Where are those tax cuts? Gasoline Tax: 57.7 cents/gallon!!! Diesel Fuel Tax: 63.4 cents/gallon!!! Cigarette Tax: $2.00/pack of 20!!! Property in Michigan is generally assessed at 50% of its true cash value!!! What tax cuts is he talking about!!! Just look to Texas or Tennessee or Florida that is the way of the future for Michigan.
DanF
Thu, 10/02/2014 - 10:03am
This discussion always begins with governement expenditures being static and assumed necessary. They bring out the usual "victims" being roads and schools, yet it is these categories that purposely are denied revenue so that our clown politicians can justify taking more of our property. Why hasn't the state done a cost benefit analysis of every program and eliminated the ones with the lowest utility? Notice that the states that are growing are the lowest taxed states, not the highest. Education results are a function of IQ, not funding. They are also a function of union teachers vs non-union. Compare the results of private v public schools. Our teachers are the best paid in the country and if you adjust that the cost of living is lower here V other cities that are more expensive to live in (mostly because so many have moved out because the unions have destroyed the economic base) . If we turn back the clock to the Granholm era with democrats and unions in charge, watch the businesses flee.
CES
Mon, 11/03/2014 - 10:38am
Duane has a point on the road joints. That is where the most and quickest deterioration occurs. Research on this problem has shown that treating the surfaces of the joints with a coupling agent does a good job of substantially slowing that problem but State highway officials have always rejected that solution.