Editorial: Detroit should collect its own taxes
Detroit has historically had challenges collecting its taxes, with inefficient enforcement mechanisms and lackluster compliance by citizens. It costs the city revenue it desperately needs. But that doesn’t justify shifting the collection burden onto others.
Legislation that has cleared a Senate committee in the lame-duck session would do just that.
It will create a paperwork hassle for suburban employers who hire Detroiters, and may serve as a disincentive to hiring city workers. There has to be a better solution.
This legislation not only demands non-Detroit businesses establish a payroll system for deducting Detroit income taxes from Detroit employees and those of 20 other Michigan cities with an income tax, but also makes them liable for filing errors and oversights.
That liability applies even to out-of-state employers, and even if it is the employee who is responsible for the income reporting error.
Detroit residents are required to pay the 2.4 percent residential income tax, even if their employer doesn’t deduct it from their paychecks. But many of them don’t.
Some non-Detroit employers withhold taxes voluntarily, but they aren’t required by law to do so. The legislation would change that.
“The city of Detroit believes that everyone should pay their share of taxes,” said Detroit’s chief financial officer John Hill in a statement last week. “Thousands of Detroiters that live in the city pay today through withholding.
“Those Detroiters that work outside the city should pay in the same method. The state and federal government both collect through withholding because it’s the most efficient way to collect income taxes.”
There are better solutions than requiring businesses to bear the costs.
Michigan could deduct the city income tax for residents who work outside Detroit as part of the state tax obligation, and then reimburse the communities that levy an income tax.
Or the state could report the incomes of Detroit residents, and the unpaid income taxes could be billed to the employee, or attached to his or her property taxes.
As more Detroiters leave the city for work, compliance with the municipal income tax payment has decreased. It was 67 percent in 2015, down 10 percent from 2014, according to Ken Cole, a lobbyist for Detroit.
That’s obviously got to improve if Detroit is to have the revenue it needs to provide services to city residents.
But that’s not a responsibility that should be borne by suburban employers. They shouldn’t face a surcharge for hiring Detroiters.