Study: State Taxes The Poorest, Gives Breaks To Rich

Most of Michigan’s income and local taxes come from the state’s poorest residents, resulting in a regressive tax that “no one” would intentionally design, according to a report released Wednesday by the Institute on Taxation & Economic Policy.

While non-elderly residents who make less than $15,000 per year typically pay about 9 percent of their income toward taxes and those who make between $32,000 and $54,000 pay nearly 10 percent, the very rich pay about a third less, said the study, titled: Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.

The rich, defined as those with average annual incomes of $1.1 million, typically pay about 6.4 percent toward taxes, the study said.

“No one would ever design an income tax with lower tax rates for the best-off taxpayers,” said Matthew Gardner, executive director of the institute and the study’s lead author. “But that is exactly what Michigan’s tax system overall does: it allows the very wealthiest individuals to contribute less of their income, on average, than middle and lower-income families must pay. In other words, Michigan has an unfair, regressive tax system.”

The League for Human Services, which has been focusing heavily on getting lawmakers to increase revenue rather than make cuts to the state’s poorest residents, said this news should be a wake-up call to make the changes now that will right-size taxation, while bringing in much-needed revenue.

The group recommends extending the sales tax to more services that they say people with more disposable income use. The league also wants to move from a flat tax to a graduated income tax, as well as ending what it calls “preferences” for wealthier seniors, such as exempting most pensions from income taxes.

“It’s time we look to reforming our revenue structure to make it adequate, stable and fair,” said League President Sharon Parks. “This report makes it crystal clear that our system disproportionately depends on those struggling households that are least able to contribute.”

The report found that Michigan’s reliance on sales and property tax made it more regressive. Despite Michigan’s flat income tax, which is usually considered regressive, Michigan’s income tax is slightly progressive, due to the state earned income tax credit, a homestead property tax credit and personal tax exemptions indexed to inflation.