Taxes: The star of the show

We’re pleased to feature this blog co-written by our Fiscal Policy team: Fiscal Policy Analyst Nicholas Hess and Fiscal Policy and Government Relations Director Rachel Richards.

Nicholas Hess

Rachel Richards

Here at the League, tax policy is really at the core of what we do. If we’re talking about healthcare, we’re talking about taxes. If we’re talking about educational outcomes, we’re talking about taxes. If we’re talking about putting food on the table, a roof over our heads and families being able to pay their bills, we’re talking about taxes. 

So it should be no surprise that Tax Day — April 15 — is a cause for celebrating all of the good that tax policy does nationally as well as in Michigan, but it’s also a day to highlight how we can do better.

Here are the things that are top of mind for our Fiscal Policy team!

1. Taxes are a huge part of civic engagement — we pay taxes every day through our wages, at the gas pump, at retail shops and at restaurants. Together, we contribute about $41.5 billion to support quality schools, safe roads and vibrant communities in Michigan.
2. Tax day is about the income tax. Michiganders rely on the income tax as our single biggest revenue raiser; it generates tens of billions of dollars at the state level and trillions at the federal level. It helps pay for all the great things we deserve! Due to targeted, refundable tax credits, the income tax is also one of the tax code’s most equitable features (meaning that despite the state income tax being flat, the more someone earns, the higher tax rate they generally pay).
   
   We can improve this! Michigan can make our system more progressive by getting rid of the flat income tax and instituting a graduated income tax, similar to the one at the federal level. It’s long overdue for the rich to pay their fair share.
3. The tax code helps Michiganders by implementing tax credits, like the Earned Income Tax Credit (EITC), one of the most effective anti-poverty tools. In 2023, Michigan enhanced the state EITC and as a result in 2024, over 650,000 Michiganders collected an average combined state and federal credit of $3,856! Tax credits like the EITC boost incomes, help the local economy and reduce inequality. Michigan can go further and include the groups currently excluded from the EITC, such as taxpayers who don’t have a Social Security Number and workers under age 25 or over age 64 without qualifying children.
4. Just like the EITC, there is another federal tax credit that helps Michigan families get by: the Child Tax Credit (CTC). An enhanced CTC was passed under the American Rescue Plan in 2021, cutting nationwide childhood poverty by nearly half. Unfortunately, Michigan does not have a state CTC. It is well understood that early childhood investments like the CTC and EITC result in improved school involvement and better  health outcomes. It’s time for Michigan to pass one of its own and join the 17 other states that have a CTC.
5. Did you know that undocumented immigrants contribute billions of dollars to state and federal taxes that fix our roads, support our schools, and fund programs like Social Security and Medicare? Despite this, undocumented immigrants cannot take advantage of tax credits or other social programs. Since immigration supports economic development and growth, public policies that support our immigrant neighbors will also strengthen Michigan’s revenues. Tax codes should not only be equitable, but inclusive.
6. Corporations pay taxes too, but the tax code also gives out lucrative tax breaks, depriving the public coffers of billions of dollars in needed revenue. Last year, 88 corporations paid nothing in federal taxes, despite raking in billions of dollars in profits. Expensive business tax breaks were passed last year under the federal H.R.1, also called ‘the One Big Beautiful Bill Act’ (OBBBA), but Michigan was able to decouple from many of them, preserving billions of dollars in tax revenue. Profits are climbing while incomes are not following suit, so it is especially important that we consider significant reforms to how we tax businesses.
7. One of the best things about Michigan’s tax system is its diversity. Michigan taxes a variety of sources, from income to property to corporate profits. Other states like Washington and Texas only have a few sources to tap into. This makes Michigan’s tax revenue more consistent and more resilient to economic disruptions.
8. Taxes can either improve or deepen inequities. OBBBA ultimately provided significant tax breaks for wealthy Americans and profitable corporations at the expense of important services we all rely on. Michiganders making between $26,900 and $153,600 actually saw an average tax increase of $700, and OBBBA actually exacerbated income inequality. So much for a tax break for working families!
9. Taxes can improve health! Michigan is one of only 16 states — and the only Great Lakes state — that does NOT tax vape products. Implementing a new vape tax, while also increasing cigarette and tobacco taxes, will boost revenue for important health-related programs while helping to reduce consumption of these addictive products and keep them out of the hands of kids.
10. If you would like to learn more about the ins and outs of Michigan’s tax system, as well as what we can do to improve it, check out our Tax Policy Basics!

We know that taxes are all about collective impact — when we all pay what we owe, we support the basic services we use every day. And while we know we can do better, having stronger and more equitable tax structures, today we recognize all of the good our tax system does.