Editorial: Detroit needs state’s help collecting income taxes
Detroit isn’t receiving all the tax revenue it needs, and that it’s owed. Though Detroiters who work outside the city in Metro Detroit are supposed to pay taxes on that income, many individuals don’t, and the city doesn’t have a means of enforcing the law.
Mayor Mike Duggan is backing legislation that would require suburban employers of a certain size to withhold taxes on employees who live in Detroit and remit them to the city through the state. The bill was introduced in the House last year, and should be considered and passed by the Legislature.
The legislation would require Metro Detroit businesses with more than 10 employees and $500,000 in payroll to withhold the 2.4 percent income tax from paychecks of employees who live in Detroit. That would give the city an additional $10 million annually — the exact amount Duggan is committing to close a pension funding gap.
As part of the plan of adjustment that allowed the city to exit bankruptcy, Detroit’s income tax revenue is projected to grow at an annual rate of 2 percent. It’s currently growing by just 1 percent. Actually collecting the funds on which the plan was based would help close that gap.
And it would make the process of paying Detroit income taxes easier for those who do already pay them of their own volition.
The bill isn’t without challenges. Suburban businesses might resist because of the added paperwork, and Detroit workers, who pay the highest municipal tax rate in the state, may balk at the sudden drop in their take-home pay.
But the city has to find a way to collect the taxes it is owed to keep its budget from sinking back into the red. Adjustments in property tax assessments are already working to increase the percentage of people who pay their property taxes, and the amount of revenue raised.
Duggan has pushed the income tax bill as a way to allow the other 21 cities throughout the state that impose a municipal income tax, including Grand Rapids, to collect their revenue from outside employers as well. But the bill as written applies only to cities with more than 600,000 people, meaning just Detroit. The Legislature should amend that to treat all communities equally.
The mayor tried to get the bill tied to last year’s road funding package, arguing the collected revenue could be used to improve Detroit’s roads. But the roads package passed without the Detroit provision.
Maximizing revenue is critical. The $490 million shortfall in funding the city’s pension system will strain service delivery if the tax base is not expanded, and collections aren’t improved.
The Legislature is understandably preoccupied with other problems, including Flint and Detroit’s public schools. But this legislation is vital to keeping Detroit financially stable for the long-term.