As noted by ITEP, most government budgets are filled with cash because of billion-dollar federal aid and economic recovery, forcing government politicians to make transformative investments in programs such as health care, education and infrastructure to help communities move away from the ongoing pandemic. Unfortunately, most state legislatures instead opt for premature, short-sighted tax cuts that will inevitably widen racial inequality and erode public services that are still suffering from cuts due to the Great Recession.
Current government surpluses are deceptive and fleeting. Many states lowered their revenue estimates at the start of the pandemic, making the surplus appear larger. The states have postponed tax filing deadlines amid chaos, which, while beneficial for some families, means that some families ’tax returns for 2020 and 2021 will be calculated in the same year. State Department budgets are supported by higher rates for Medicaid dollars. Incentive payments and increased unemployment insurance have helped increase costs and thus government sales tax levies.
The Republican-led Michigan Legislature was passed last week Senate Bill 768, their own proposal for tax cuts is designed to help all residents. But a significant reduction in the personal income tax rate does give priority to lower taxes for the rich, but has little effect on everyone else.
Based on ITEP data requested by the Michigan State Policy League, lowering Michigan’s income tax rate to 3.9 percent will mean an average tax cut of:
- $ 12 for the lowest 20 percent (less than $ 23,000) salaries;
- $ 92 for an average of 20 percent ($ 41,000-70,000) of Michigan workers; and
- A staggering $ 4,901 for a 1 percent ($ 539,000 or more) Michigan salary.
Based on these estimates, people with the lowest wages in Michigan are unlikely to get enough money to buy one pizza, while the richest people in the state will receive tax breaks large enough to pay for a round trip flight to Italy, where pizza was invented . The ITEP analysis also found that 69 percent of the tax cuts would go to the 20 percent of the wealthiest, while only 31 percent of the benefits accounted for 80 percent of Michigan workers.
This ill-considered bill will also bring immediate revenue of about $ 3.1 billion and fixed annual costs of about $ 2.4 billion. Without Governor Gretchen Whitmer’s veto, the bill would lead to drastic budget cuts, which means increased class sizes, increased barriers to access to health care and increased potholes, leading to increased car repair bills. The proposal will also jeopardize vital federal aid provided under the U.S. Rescue Plan Act, dollars aimed at helping workers, families and businesses recover from the economic consequences of the pandemic.
State budgets are capable of reducing disparities, promoting racial and economic justice, and overcoming political differences, especially through our current one-time surplus and federal aid. Governor Whitmer’s budget includes a number of proposals to improve justice in the state, including increasing the Michigan Income Tax Credit (EITC), investing in supporting students and schools with the greatest needs, and improving access to housing, health care, and assistance programs. other support for families in need. Extensive tax cuts aimed at drastically reducing state revenues will negatively affect our state’s ability to provide for its residents over the years.
Allegations that tax cuts will make the state’s economy more competitive and will stimulate economic growth are short-sighted and unfounded. States that cut taxes after the Great Recession often saw slower economic growth than the nation as a whole, while exacerbating racial inequality. Meanwhile, the loss of government revenue could jeopardize the state’s ability to fund vital public services that all Michigan residents need to thrive, such as K-12 schools, plumbing infrastructure, health services, broadband and more.
Tax cuts may not be the solution for everyone, especially at a time when the richest Americans are accumulating more wealth than ever. The state’s revenue growth is temporary, especially now due to the pandemic and the corresponding influx of federal support. Premature pressure to reduce the state income tax for the rich will not lead to the growth of the state economy. This will only jeopardize the state’s ability to create thriving communities now and in the future.