Income tax cut deserves a veto, because Michiganders deserve better

A version of this column originally appeared in Michigan Advance.

The Michigan League for Public Policy understands the impact that policy change can have on the lives of Michigan residents. It was the catalyst in forming our organization 110 years ago, and it continues to drive us today as we work to improve opportunity for all Michiganders, regardless of race, place or income.

Past policy and budget decisions have created and exacerbated systemic barriers to opportunity, education, health care and more, especially for our residents of color, and the ongoing public health crisis has only deepened these disparities.

As I noted last month, the state has a historic opportunity to work toward dismantling these systemic barriers and invest in the future, and significant, inequitable and unsustainable broad-based tax cuts have no role in that plan.

On behalf of all Michigan residents, we urge Gov. Gretchen Whitmer to swiftly veto Senate Bill 768, which targets tax cuts to the wealthiest Michigan residents while making it harder to invest in our people, communities and businesses.

Broad tax cuts, such as the Legislature’s move to reduce the personal income tax rate from 4.25% to 3.9%, are inequitable and funnel most of the benefits to the wealthiest Michigan residents.

Based on data from the national Institute on Taxation and Economic Policy, reducing Michigan’s income tax rate to 3.9% would mean an average tax cut of $4,901 for the top 1% (making $539,000 or more) of Michigan earners. Meanwhile, the proposal would only result in an average tax cut of $12 for the lowest 20% (less than $23,000) of earners and $92 for the middle 20% ($41,000-$70,000) of Michigan workers.

The analysis also found that 69% of the tax cuts from the rate reduction will go to the wealthiest 20%, and only 31% of the benefits flow to the bottom 80% of Michigan workers. What’s more is that many Michiganders with low incomes would see no benefit from a tax rate cut, including over half of Michigan residents earning less than $23,000.

Instead of these broad tax cuts, Michigan policymakers should increase the state Earned Income Tax Credit (EITC), which targets relief to Michigan workers and families most in need and boosts local economies. The EITC pulls Michigan families above the poverty line and reduces inequality. In tax year 2019, about 738,380 families statewide received an average credit of $150, putting more than $110 million back into the Michigan economy. And proposals to increase Michigan’s EITC could mean as much as $750 per household, and an added economic impact of up to $442 million statewide.

Additionally, the tax cut bill would eliminate billions of dollars from the state budget immediately and have a permanent negative impact on our ability to invest in Michigan’s future. In the immediate sense, these costs will require the state to either cut public services we all rely on or risk losing vital federal aid provided under the American Rescue Plan Act, dollars intended to help struggling workers, families and businesses recover from the economic impacts of the pandemic.

Longterm, it would result in drastic budget cuts, meaning larger classroom sizes, increased barriers to healthcare access, and more potholes leading to higher car repair bills. Basing deep, permanent tax cuts on one-time surpluses and federal aid is unsustainable.

Policymakers should instead use the one-time surplus to make smart, equitable investments in our schools, affordable housing, infrastructure for clean drinking water and safe roads and supports for kids, workers and families.

SB 768 is not a real plan and should be treated — and vetoed — as such to allow the Legislature and Whitmer administration to work together on a budget that works for everyone.