McNeilly: Income taxes punish Michiganians for working

Greg McNeilly

With lawmakers debating competing road funding plans, tax policy is a hot topic again in Lansing. Even after the resounding defeat of Proposal 1, tax hike fever is once again sweeping the state Capitol. Refreshingly, a portion of one road funding plan unveiled last month takes a different approach — generating more revenue by letting Michiganians keep more of what they earn.

The plan unveiled at the end of June by Senate Republicans would increase the gas tax, cut hundreds of millions in spending, and cut the state’s income tax every year that revenue growth outpaces inflation.

According to an analysis from the nonpartisan Senate Fiscal Agency, that move would have meant a $470 million tax cut for working families over just the last four years, with more savings coming each year our state economy grows.

That’s a drop in the bucket each year, considering the state raked in $8.7 billion via the income tax in 2014, but when it’s all said and done the plan could still represent one of the largest tax breaks in Michigan history.

The best part is, it’s 100 percent pro-worker.

Unlike a sales, use, or property tax, which taxes residents based on what they decide to do with their money, the income tax hits workers just for punching the time clock.

There’s an age-old and oft-proven axiom that if government wants less of something, all they have to do is tax it. We want people to work, to provide for their families, and to make a great living, so why on Earth do we tax income in the first place?

Going to work this morning? Your state government is going to punish you for it. Putting in a few extra hours this week to catch up on bills or to put a little extra money away for your kid’s college fund? Lansing is going to tax you for it.

Seven other states already recognize the damage an income tax can do, and have no income tax at all, while two more have virtually no income tax.

One recent study from economists Arthur Laffer and Stephen Moore analyzed 10 years of data for the 9 states with essentially no income tax and compared it to data from the 9 states in the nation with the highest tax rates. They found states that don’t penalize residents for working outperformed their rivals in population growth, Gross State Product, employment, and in state and local tax revenue.

When governments don’t punish residents for working, families do better, economies grow, and the state Treasury sees a corresponding boost. So if lawmakers’ goal is long-term road funding, cutting the income tax is a great first step.

Greg McNeilly is chairman of the Michigan Freedom Fund.