Michigan legislature considers personal income tax reduction

Thursday, January 12, 2017 - 8:54pm

It’s possible Michiganders could soon see the reduction or even elimination of the state’s 4.25 percent income tax, as discussions on different proposals in both the state House and Senate are underway.

House Bill 4001, which would reduce the 4.25 percent tax to 3.9 percent in 2018 and then reduce the tax by another 0.1 percent each year over a span of 40 years until the income tax is eliminated, was introduced by state Rep. Lee Chatfield (R–Levering) on Thursday.

Additionally, state Sen. Jack Brandenburg (R–Harrison Township) is also expected to soon introduce his own income tax elimination plan in the Michigan Senate that would eliminate the income tax over five years, the Detroit News reported. Brandenburg declined an interview with The Michigan Daily.

Edward Cho, University of Michigan economics professor, presented some of the general advantages and disadvantages that the elimination of the 4.25 percent income tax could have, saying the chief argument for scrapping the tax would be that people would have more disposable income and thus spend more money.

“The one benefit that you can see here is that by scrapping the tax, you put more money in people’s pockets, and they might spend more,” Cho said.

Conversely, Cho said the main issue with eliminating the tax is the loss in revenues.

“If you scrap the 4.25 percent, the question then becomes, ‘what do you do instead,’ ” Cho said.

Offering two predictions, Cho said the government would then be forced to decide between either doing nothing and cutting infrastructure spending or raising revenues another way, such as increasing the sales tax. According to Cho, the government would have to be careful with raising the sales tax, because taxes on basic goods disproportionately affect lower-income individuals.

“If you don’t do anything, you have to give up infrastructure spending,” Cho said. “If you decide to raise the sales tax, that would get back revenue, but the downside is a sales tax is relatively regressive … the tax burden now starts to fall disproportionately on the low income.”

The nonpartisan Michigan Senate Fiscal Agency reported that $9.6 billion — 19 percent — of all state revenue was collected from the personal income tax in 2014 and 2015.

Gov. Rick Snyder is willing to discuss tax reform with the legislature, but he expressed concern over the loss of state revenues from Brandenburg’s proposal, the Detroit Free Press reported.

"The governor is always open to new ideas and welcomes the discussion on tax reform," Anna Heaton, spokeswoman for Gov. Snyder, told the Free Press. "For this particular proposal, there would need to be concrete data to demonstrate that there is adequate revenue from sources besides the income tax to ensure that services for residents and investing in our statewide infrastructure would not be adversely affected."

LSA junior Enrique Zalamea, president of the University’s chapter of College Republicans, said from a conservative perspective, he is supportive of the tax cut because he believes it would benefit business and families.

“If you look at all those states that have eliminated their income taxes, such as Florida, Texas and Tennessee, those are all states that are characterized by a lot of growth, especially in small businesses,” Zalamea said.

Zalamea also said he is supportive of the plan in part because people in economically weaker cities such as Detroit and Flint could benefit from a tax cut.

“When you look at Detroit and you see where it’s come from, you see the income tax as a way to spur growth there,” Zalamea said. “When people have more money to spend, then they’re going to be spending more of it.”

Zalamea said he believes it’s evident that Lansing wants the tax cut, but they still have to explore how to replace the loss in revenues.

“The main thing for me personally is I think there shouldn’t be an income tax,” Zalamea said. “I approve of this plan that they have, but realistically speaking, I don’t think it’s going to happen for another few years.”

Check back with the Daily in the following weeks for continuing coverage on the new Michigan legislative session.