The Mackinac Center for Public Policy believes that Michigan should reduce its state income taxes. | Pixabay
The Mackinac Center for Public Policy believes that Michigan should reduce its state income taxes. | Pixabay
Michigan lawmakers passed a "temporary" income tax hike in 2007 that is still in effect, and many feel like the growing economy warrants a decrease in income tax rates, according to James Hohman of the Mackinac Center for Public Policy.
Amid the COVID-19 pandemic, and despite the governor’s demand to raise taxes, Michigan’s economy is looking better than expected, meaning that legislators can lower the income tax if they chose to.
By lowering tax rates, lawmakers could make Michigan more hospitable for business. Also, by lowering taxes, residents would be allowed to keep more of what they earn each month. Letting taxpayers manage more of what they earn is favored by the Mackinac Center, if the state can operate on less money.
In 2007, when the tax rate was initially increased, legislators were trying to pinpoint projected overspending and decided to raise taxes rather than dealing with budget cuts.
That tax hike was supposed to boost revenue by $700 million annually and was supposed to be phased out afterwards. It is worth highlighting that Gov. Gretchen Whitmer voted for the 2007 tax hike when she was in the Legislature.
Unfortunately, the tax increase didn't help Michigan recover. Shortly after the tax rates were raised, the national economy crashed and took many Michigan jobs with it.
Records indicate that state revenue dropped by over $3 billion, which is an 11% loss from the fiscal year 2007-08 to the fiscal year 2010-11.
The state's monetary intake has increased since 2011. The state's revenue has increased from $25.2 billion in 2011 to $35.4 billion in the fiscal year 2020-21. That is a 17% increase, after inflation is considered.
Hohman says, "Part of this increase is because lawmakers stopped phasing out the income tax hike and made the 'temporary' tax increase permanent. The growth of the state budget means that the temporary problems from 2007 are long gone, and the state can afford to lower taxes."
The Center confirms that dropping taxes back down to the rates they were in 2006 would reduce state tax income by close to $870 million.
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