HOUSE CALLS: Ann Arbor’s State Representative Discusses Lowering The Income Tax Rate Versus Entitlements
Representative Jeff Irwin, a Democrat, served for a decade as a Washtenaw County Commissioner. In January 2013, he began his second term in the Michigan House of Representatives. In his column, “House Calls,” The Ann Arbor Independent poses a single question to Representative Irwin and he answers it. The questions focus on his work in Lansing and, of course, his efforts to bring the “progressive agenda” to state government that he told voters in Ann Arbor he intended to work on during his time in office.
The Indy asks: Why do you think it would be better to repeal the tax on pensions and restore the EIC to previous levels rather than lower the state’s income tax as is being proposed?
by Representative Jeff Irwin
GOVERNOR SNYDER ADDRESSED the Legislature and the public with his annual State of the State. In that speech, the Governor took credit for Michigan’s recovering economy and, specifically, for an expected surplus of revenue over expenditure for the coming three years. Because of increased taxes and the recent success of the auto sector, Michigan is expected to receive $970 million dollars more over the next three years than was previously estimated. It seems that everybody in Lansing has a proposal for the $970 million: fix the roads, fix the schools, roll back the tax increases from 2011; there’s no shortage of ideas about how these resources should be spent. The Governor is holding off until his budget presentation to make a specific proposal, but legislative Republicans are calling for a 0.35 percent rollback of the state income tax (bringing the tax from 4.25 percent to 3.9 percent over three or four years).
Personally, I think it’s useful to put these numbers in perspective before we try to spend money that doesn’t yet exist. First of all, this is anticipated revenue over three years. These taxes haven’t been levied or collected. Rather, a group of very good economists got together and made an estimate of what we are likely to experience over the next three years. Generally, I trust their projections. They have a history of making good guesses about future revenues. But it’s still important to remember that the business cycle can shift, and that we’re not talking about $1 billion today. We’re talking about estimates that stretch over three years.
So, here we are in 2014. We have about $300 million dollars more than we expected this year. Most Republican state legislators are calling for an income tax cut. Understandably, these Republicans believe that lowering taxes in an election year will cause citizens to forget that Republicans voted to increase these same taxes back in 2011. That’s right, in 2011 Michigan Republicans raised taxes on pensioners, low-income workers and middle class families. They slashed the Earned Income Tax Credit, created a new tax on pensions and eliminated or reduced many deductions that are significant to middle class families (e.g. reducing homestead exemptions, and eliminating the $600 per-child deduction and charitable giving credits). Also, they voted to prevent the income tax from going down to 3.9 percent (from 4.25 percent). They voted for these tax increases for working people just two years ago because they needed to pay for a massive tax cut for corporations.
Now that the auto rescue is pulling Michigan’s tax receipts back into the black, you’d think that my Republican colleagues would want to wash away the bad taste of those tax increases by rolling back the same taxes they increased, tax increases that fall disproportionately on low-income workers and fixed income seniors. You’d be wrong. Instead, the Michigan GOP wants to focus on rolling back the state’s flat income tax by phasing in a reduction of 0.35 percent over a few years. This trickle-down approach is bad economics. Lowering a flat state income tax will do very little for middle-class and low-income taxpayers who would put their tax cut right back into the economy. Instead, the benefits under this approach are concentrated in the hands of very wealthy people who are unlikely to spend a tax cut on back-to-school clothes or replacing their GEO Metro.
Michigan should have learned this lesson in 1998. Former Governor Engler, flush with anticipated future revenues and a much stronger economic outlook, phased in an income tax reduction similar to that proposed by Republican legislative leaders today. The result was a disaster for schools, roads, and local governments. Michigan faced successive years of deep cuts to the basic public safety and education investments that our community depends on. Also, a tiny across the board reduction in a flat income tax rate does not provide meaningful tax relief to most citizens. For example, a family of four making roughly the median annual income of $50,000 would save about $120 per year after the full 0.35% reduction is phased in. A genuinely low-income worker or family would likely receive little to no benefit, while those earning $1,000,000 per year will get back around $3,400 annually.
If I were in sole control of the state budget, I’d put those resources back into K-12 education. Schools are the foundation of communities, and the states and nations with the best schools place themselves in the best position to compete for a prosperous future. Furthermore, schools are our state’s most important investment. Not only do great schools drive economic development, education is crucial for a capable and happy populace. Investing in ourselves is a good bet, and our schools have been hit so hard in recent state budgets that they need additional resources to keep class sizes down and educational achievement up.
