The millionaire’s tax: A fair step toward tax justice

A “millionaire’s tax” can be a fair and stable first step in modernizing Michigan’s tax revenue structure. Under this policy, the state would tax incomes of over $1 million at a higher rate than the rest of the population.

The rising economy has not lifted all people. In Michigan, decades of tax cuts have only exacerbated the problem of income inequality among families. One significant reason income inequality continues to grow is Michigan’s regressive income tax structure.

Michigan is one of only eight states that still relies on a flat income tax structure, meaning all taxpayers are taxed the same rate regardless of vast differences in annual earnings. Under Michigan’s constitutionally mandated flat income tax, in combination with our highly regressive sales and property taxes, families with low and middle incomes inevitably end up paying a larger proportion of their incomes in taxes every year.

Though public support for a graduated income tax structure has grown, state legislators have not been willing to adopt one and are actually making the problem worse by passing tax cuts, credits, deductions and exemptions that benefit the wealthiest residents and make our tax system less fair.

These have also led to a reduction in state revenue needed to fund important services like healthcare, public education, public safety and other vital human services. For example, Michigan lost out on $39.87 billion in potential revenue in budget year 2018 due to state and local tax credits, deductions and exemptions—and legislative support for these options continues to grow.

Absent meaningful tax reform, future lawmakers will have fewer tools to meet the needs of a growing state and may continue to underfund schools, roads, public health programs and parks. As Michigan enters its tenth year of recovery from the Great Recession, one thing is clear: our state needs reliable, steady sources of revenue in order to succeed. A ballot proposal that amends the Constitution to tax the highest earners at a higher rate is one way to make Michigan’s tax structure more progressive and fair.

A “millionaire’s tax” would:

• Help balance the regressive nature of Michigan’s tax code.
• Provide a stable and fair source of revenue for investment in education, healthcare and infrastructure, among other vital public services.

A Stable and Fair Source of Revenue to Support Needed Services

A common argument against raising taxes on the wealthiest residents is that doing so will cause them to move out of the state, taking their tax contributions with them. But research shows this is not true. Individuals are more likely to make living decisions based on factors like family, job opportunities, cost of housing and weather.¹ A higher tax on incomes over $1 million or on the top 5% of earners in Michigan would provide a much-needed boost to funding for roads, schools and healthcare, all of which in turn will help generate economic activity in the state.

1. Michael Mazerov, State “Income Migration” Claims Are Deeply Flawed, Center on Budget and Policy Priorities, October 2014.