Drolet: Family budgets should matter, too

Leon Drolet

Legislation cutting Michigan’s state income tax is moving through the House in Lansing. During a House Tax Policy committee hearing last week, critics of the legislation cited a “hole” in the state budget that would be created as a reason to oppose the tax cut.

Lawmakers have frequently been asked how they propose to fill that budget hole and what spending they’ll cut. These questions expose the double standard accepted by too many Lansing politicians and interest groups: government budgets are treated as more important than the budgets of citizens.

In 2007, when the state income tax was raised by 15 percent, few asked how those holes would be filled in family budgets or what those families should cut. Politicians simply expected Michigan families to find ways to deal with it. That income tax hike contributes to the most persistent and painful budget holes in Michigan: the deficits in family budgets.

Since 2006, median household income in Michigan has declined by 7.9 percent. The average family income is actually worse off when recent gas tax and vehicle registration fees are factored in. Add the pension tax increases of 2011, the $83 million in higher and new state fees imposed in 2013, higher property taxes to fund the Detroit Zoo and Detroit Institute of Arts, and numerous rate hikes buried in water bills to fund debt for infrastructure projects.

Other tax hikes include Macomb County raising their property tax rate by 9 percent in 2009 to hold the county’s budget harmless during the recession. Many families are also now forced to pay a steep federal penalty (declared a tax by the U.S. Supreme Court) for the crime of being unable to afford health insurance under the Affordable Care Act.

The impact on citizens is that their income has declined more than the 7.9 percent official figure after all new taxes are factored in. The few tax cuts enacted since the recession have mostly gone to businesses and are dwarfed by tax increases.

The state budget is doing fine, compared to family budgets. Revenue from the state income tax is up from $6.3 billion in 2007 to $8 billion today — far exceeding inflation. Education spending is at a record high — Michigan is 20th in cost-of-living adjusted per-pupil spending among states — despite achieving below average results.

Opponents of the tax cut argue the state can ill afford to cut spending, yet the last three administrations have found enough money to give away over a billion dollars in corporate welfare to select wealthy companies through tax credits for stadiums and pet projects, according to the Mackinac Center for Public Policy.

Recently, a state Senate committee unanimously approved up to $1.8 billion dollars in tax subsidies for corporate welfare projects. These bills would allow select companies to keep all the state income tax their employees would otherwise pay to the state. These companies would also keep sales and use taxes.

Former Govs. John Engler and Jennifer Granholm and now Gov. Rick Snyder have all seemed to agree that there is plenty of excess revenue to hand out to select, wealthy, politically-connected corporations.

State revenues have largely recovered since the Great Recession. Corporate welfare has boomed. The biggest remaining losers are everyday taxpayers and small businesses — people that pay the state income tax. That tax was “temporarily” raised in 2007 by 15 percent along with a promise that this “temporary” hike would be rescinded by 2105. That promise was broken. Family incomes are still broken.

State government should reinstate that promise. Long-suffering Michigan citizens deserve to keep more of their earned income to start catching up to the standard of living they enjoyed prior to the recession. Lawmakers supporting the income tax cut should be applauded for finally addressing the biggest budget hole in the state — the one in each family’s income.

Leon Drolet is chair of the Michigan Taxpayers Alliance.