Report shows poor pay higher tax rate
LANSING – Like most state tax systems, Michigan takes a much larger share from middle- and low-income families than from wealthy families, according to the fourth edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” released recently by the Washingtonbased Institute on Taxation and Economic Policy.
Combining all of the state and local income, property, sales and excise taxes Michigan residents pay, the average overall effective tax rates by income group are 9.7 percent for the bottom 20 percent, 9.5 percent for the middle 20 percent and 5.8 percent for the top one percent. Nationally, those figures are 11.1 percent for the bottom 20 percent, 9.4 percent for the middle 20 percent and 5.6 percent for the top one percent. The full report is online at www.whopays.org.
“It’s clear we can do better. One immediate and surefire way is to restore our Michigan Earned Income Tax Credit. Not only is it the best anti-poverty tool that we have to offer, it would go a long way toward bringing more fairness to the state tax structure while helping working families and local businesses,’’ said Karen Holcomb-Merrill, policy director at the Michigan League for Public Policy, which partnered with ITEP to release the report.
Michigan’s tax system is growing more regressive as a result of changes made in 2011 that reduced the Michigan EITC from 20 percent of the federal credit to 6 percent and reduced the Homestead Property Tax Credit. The report is based on 2010 data adjusted to reflect current tax laws. Michigan’s flat income tax and overreliance on the sales tax on goods are also underlying reasons for the unfair revenue structure. The recent tax changes shifted taxes from corporation to low- and middle-income families and seniors.
“Many families are struggling just to pay the basics, even though we’re in a slow economic recovery, and this report shows these are the very families paying a higher share in taxes,’’ said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy. “Our child poverty is rising and a third of working families are low-income despite jobs.’’
State consumption tax structures are particularly regressive, with an average 7 percent rate for the poor, a 4.6 percent rate for middle incomes and a 0.9 percent rate for the wealthiest taxpayers nationwide.
The data in Who Pays? also demonstrates that states commended as “low tax” are often high tax states for low- and middle- income families.