By LAINA STEBBINS
Capital News Service
LANSING — It’s still unclear how bills to eliminate the state income tax might affect Michigan’s economy, and experts disagree on whether the proposals will help or hurt businesses and communities.
“If it were eliminated with no replacement, that would be catastrophic, I believe,” says Charles Ballard, an economics professor at Michigan State University and an expert on the state’s economy and tax system.
According to Ballard, the state income tax keeps Michigan’s revenue system from being more regressive. If the income tax were eliminated and replaced with an increased sales tax, lower-income people would spend a higher proportion of their incomes on taxes. The system would “shift the tax burden” away from the wealthy.
“We would have a Michigan that would be more unequal than it is now,” Ballard says.
Rachel Richards of the Michigan League for Public Policy said she also believes abandoning the state’s income tax would ultimately harm communities statewide.
“If you cut or if you eliminate the income tax, you’re blasting a huge hole in the state budget,” Richards says. “It would require devastating cuts to the things people rely on every day,” like drivable roads and good public schools.
Consequently, Richards argues, eliminating the income tax would hurt businesses by making it more difficult for communities to attract workers.
“To be able to attract workers to a community, you need to have things like good public schools, you need to have things like parks and recreation, and walkable and drivable and safe streets,” she says. “And you’re not going to be able to do that if we don’t have the ability to actually fund those things.”
Ballard adds that raising tuition for higher education to compensate for the decreased funding would discourage students from getting a college education and ultimately hurt Michigan’s workforce.
“That leaves us in a place where we’re a state with a less well-educated, less skilled workforce than we would otherwise have,” Ballard said.
The Michigan State Chamber of Commerce has not taken an official position on the proposal. Tricia Kinley, senior director of tax and regulatory reform, said she likes it in principle.
“When you have a resident who can keep more of their own hard-earned dollars, and either spend it or save it as they see fit, that’s always a positive thing,” says Kinley.
She notes that an income tax elimination could force the state and local governments to spend tax dollars more efficiently, although the likelihood of a resulting increase in the state’s sales tax gives her pause.
“If you were to fully eliminate the income tax, you’d probably have to double Michigan’s sales tax rate,” Kinley says. “That’s a pretty tough pill to swallow.”
By LAINA STEBBINS