Gov. Snyder’s Budget and Tax Proposal

In February Michigan Governor Snyder, in his budget, proposed to raise much needed revenue through increases (called “adjustments”) in personal income taxes amounting to $1.7 billion dollars. This “adjustment” to personal income taxes (tax increase) is necessary, says the Governor, because Michigan is in a financial crisis and faces a significant budget deficit, and we must make “shared sacrifices,” which iclude raising taxes on individuals to improve the budgetary situation. This will create a $1.7 credit, or addition to the state’s revenue stream.

The only problem with this, I think, is that his budget proposal ALSO includes $1.8 billion in tax cuts for Michigan businesses, through the abolition of the MI Business Tax and its replacement with a flat 6% tax on businesses. This will create a $1.8 billion debit, or deduction, from the state’s revenue stream.

This means that the proposed tax increase (the “shared sacrifice”) that would be imposed on individuals would be balanced almost perfectly by a corresponding tax cut on businesses. In fact, the proposed tax cut (which reduces revenue to the state), is slightly larger than the proposed tax increase — meaning that despite the fact that the budget deficit is supposed to be the reason for the tax increase on individuals, to the tune of $1.7 billion, the tax cut to businesses more than erases the gain that the proposed tax increase would provide. This means that there isn’t any net improvement in the state’s budgetary situation if both of these moves are implemented in the tax-budget equation.

With whom are the individuals who will pay $1.7 billion in higher personal income taxes sharing this sacrifice? Perhaps the sacrifices are “shared” because all individuals will share the higher tax burden with each other, while businesses enjoy $1.8 billion in reduced taxes.

See paragraphs 2 and 10 in the story from the Ann Arbor.com (formerly the Ann Arbor News): http://www.annarbor.com/business-review/rick-snyders-budget-proposal-includes-massive-cuts-to-business-taxes-credits-for-film-high-tech-batt/ for the explanation of the tax cut to business, in paragraph 2, and the increase (adjustments) in individual taxes, explained much later in the story, in paragraph 10. Oddly, the writer did not connect the almost perfectly matching business tax cut and personal tax increase, but the facts are clearly delineated.

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