Political gamesmanship is on full display in the tax policy debates happening in Michigan. Last Wednesday, the state House passed a tiny, temporary income tax cut that would kick in a month before voters head to the polls in November. This after paying for a $1.6 billion business tax cut last year with a $1.4 billion individual tax hike which falls most heavily (PDF) on Michigan’s poorest taxpayers.
Do Lansing politicians really think that temporarily cutting the state’s flat tax rate a fraction, from 4.35 to 4.32 percent, is going to make voters forget their recklessness? Here’s how the Associated Press is reporting on the plan:
A few dollars in savings doesn’t make a big difference for Mark Lankin, a machine operator who lives in the Detroit suburb of Ferndale. He said he’d rather see more money go to fixing roads. “I don’t think a lot of normal people would miss $10 … if that money could go to something more useful,’’ said Lankin, 53, who described himself as politically independent. “If you didn’t have it in your hands, it really wouldn’t matter.’’
The token tax cut was also panned in a Detroit Free Press editorial:
“Some people have more money under their couch cushions than the amount the Legislature intends to give back to Michigan taxpayers this year…. The point is that a $103-million tax cut, which might allow an individual taxpayer to buy an extra can of name-brand soup every other week, is a decent chunk of change when it's aggregated and put to work for everyone in Michigan.
They’re right. An analysis by the Institute on Taxation and Economic Policy (ITEP) showed that a family of four earning $25,000, for example, would see just three percent of last year’s tax hike offset by this election year stunt. But if used in a more thoughtful way, that money could do a lot of good, as the Detroit Free Press’ impressive list of alternatives showed.
All this criticism apparently got to House lawmakers, but rather than drop the tax cutting charade, they decided to up the ante. On Thursday, they proposed a much more expensive proposal that would drop the state’s flat income tax rate to 3.9 percent. Unlike their previous plan, it certainly can’t be accused of being “token” relief, but that doesn’t make it good policy. And lest anyone think they were serious policy makers, these legislators even designed the cut to phase in slowly, so they wouldn’t face any tough decisions about what public services to eviscerate in order to pay for it.
ITEP will soon complete a full analysis of this newest plan, but two things are already clear. First, Michigan can’t afford to pile a personal income tax cut on top of the massive business tax cuts enacted last year unless the corporate income tax is increased. And second, if lawmakers do insist on providing individual tax relief, there are much fairer and more affordable options for doing so, like boosting the Earned Income Tax Credit (EITC), as recommended by the Michigan League for Human Services.