In Blog: Factually Speaking, Tax Policy

A version of this column originally appeared in The Alpena News.

If your experience is anything like mine, you can’t go outside these days without being approached by an enthusiastic individual with a clipboard asking if you’ve signed this or that petition drive. These include positive proposals to make voting more accessible, cap payday loan fees and rates, and raise the minimum wage. Coming from Texas, which has no such citizen initiative process, Michigan’s practice of signature collection struck me as delightfully democratic.

But there’s a catch to the process. With only 340,047 signatures (representing less than 5% of Michigan voters) and a simple majority vote in the Legislature, policymakers can enact and amend legislation based on a citizen initiative without voters ever seeing it on a ballot and without the governor’s signature. 

And right now, this process is being used to jam through an unpopular and constitutionally dubious school voucher program that allows state funds to be used for private school tuition. The Let MI Kids Learn initiative would both harm Michigan’s public schools and the state budget while giving substantial tax breaks to wealthy individuals and businesses.

And the tax benefits really are substantial. Wealthy taxpayers who make a donation to a “scholarship-granting organization” can claim a tax credit worth 100% of the donation. Unlike the charitable donations deduction most regular folks are familiar with, which limited us to $300 in donations on our 2021 federal taxes, this credit has no limit for an individual or business so long as the total amount of state credits does not exceed $500 million annually. 

For the wealthiest donors, the tax benefits could actually exceed the donations they make. For taxpayers subject to the Alternative Minimum Tax, who generally earn over $200,000 annually, the combination of state and federal credits will result in a risk-free return of up to 28% for every dollar wealthy taxpayers “donate”—a $100 donation will lead to $100 decrease in the taxes they owe Michigan as well as a $28 decrease in what they owe the IRS. 

As a result, wealthy individuals and businesses are the most likely to take advantage of this tax break. In Louisiana, where a similar voucher scheme exists, nearly 400 individuals reduced their taxes by roughly $30,800 on average, costing the state more than $12 million in revenue. It’s probably obvious to most Michiganders, but the average worker does not have a $30,000 tax bill. Let MI Kids Learn is undeniably a tax cut for the wealthiest individuals and businesses masked as a fight for “school choice.” 

On the recipient side, the benefits are substantially greater for students attending a private school.  While the proposal allows scholarships for families with low incomes of up to $500 for students at public schools (or up to $1,000 for those with special needs), students attending private schools can receive up to 90% of the minimum foundation allowance, currently set at $8,700, diverting up to $7,830 per student away from public schools each year for private school tuition.

Meanwhile, private schools are not available to everyone. In Michigan, most private schools are in the more urban counties in the southern part of the state. Smaller student populations in rural districts make school competition unsustainable and many rural counties in Michigan, including in the Alpena area, have little to no private school options. Public schools in low-income and rural areas have a lot to lose in funding but little to gain.

Source: National Center for Education Statistics, 2020

For the 90% of students enrolled in public schools across the state, these millionaire tax breaks are not a solution. Instead, our policymakers should work on fixing the School Aid formula to better serve students in households with low incomes, English language learners and children with special needs. 

Having missed the June 1 signature filing deadline to go to the ballot in November, the petition’s supporters have all but confirmed they will try to push it through the legislature rather than send it to the ballot, a loophole over 90% of Michiganders oppose. So, if the petition signatures are validated and sent to the Legislature, I hope our lawmakers will be able to ignore the $3.4 million in pressure being exerted by special interests and wealthy donors and make Let MI Kids Learn go through the normal democratic process instead. It should be up to voters to decide whether these tax breaks represent our state’s values.