State Funding in a Post COVID-19 World

One of the original components of my campaign's platform was Michigan’s tax structure. My belief is that it is too regressive, with the burden on those who can least afford it. While I still believe we need to work on restructuring our tax system, as with so many things in this pandemic world, concerns have changed.

My concern now is that the State is going to be woefully underfunded in the coming years, causing a cascade of budget cuts, not just at the State level, but for local governments and schools who rely so heavily on State aid. Nearly 70% of Michigan’s revenues come from individual income tax (30%), sales and use tax (28%) and transportation revenue (8.2%- includes gas tax and car registrations). All of these sources are taking a huge hit now, a hit that will not show up immediately in the state and local budgets but which will play out over the next several budget cycles. As a side note, net business taxes only account for 2% of the State budget, less than tobacco tax (2.7%) and the lottery (2.8%). All numbers are available from the State House Fiscal Agency:

How do we respond to this coming crisis? If history is any guide, the Republican playbook will be to severely cut the budget, especially to local revenue sharing and schools. This would prolong the recession that we almost certainly are about to find ourselves in by causing increased lay-offs and reduced benefits. Because the State is required to have a balanced budget, it would seem budget cuts are the only solution. Tax increases are never popular, but we have an opportunity to restructure the system so the most vulnerable are not so heavily impacted.

One way to shore up revenues would be to eliminate many of the tax loopholes which businesses can use to sometimes virtually eliminate their tax burden. In my twenty years as a local government elected official one of the continual surprises to me is how little for-profit companies pay in property tax. I will just give one recent example. The Indeck Power Equipment Company, who bought land in Niles 20 years ago to build a power plant that never materialized, restarted their plan to build a $1.3 billion (billion as with a B - or $1,300 million if you prefer) dollar natural gas-fired power plant. A big part of their plan involved negotiating a tax package with the City and State utilizing all of the benefits and loopholes available to them. In the end the plan they came up with was that this for-profit, hugely polluting power plant,which is 80% owned by Korean investors, will end up paying about $100,000 dollars a year in property taxes to the City of Niles. To put this in perspective if a homeowner with a $130,000 house paid the same rate, they would pay about $10 a year in property tax.

Another issue is that the State has a flat income tax, meaning everyone pays the same 4.25% regardless of their income. A switch to a graduated income tax, like we have at the federal level, would increase revenue while keeping - or possibly even lowering - the rate for the average taxpayer. This solution was seen as a non-starter just a few months ago because it would require a change to the State constitution, I believe these extraordinary times make it a realistic option.

Another reason for Michigan’s already tight budget is that the Republican-controlled State legislature eliminated personal property taxes for businesses. This tax was levied on major equipment used in manufacturing and other commercial activity and was a significant source of revenue for local governments. I believe it is time to reinstate this tax and the valuable revenue it can provide.

I understand we are competing with other States in trying to attract business to Michigan, but when huge for-profit companies pay essentially nothing in taxes while the average Michigander is struggling and the State cannot maintain roads and school funding, it is time to rethink our priorities.

These extraordinary times call for extraordinary measures. We will need creative solutions and the ability to think outside the box. In short, we need change. I am ready to be part of that change.

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