Report says Michigan's tax changes will hit low income families hardest

Feb 2, 2012

A new report by the Michigan League for Human Services takes a look at Michigan's shifting tax policy and it's impact on low-income families.

The report shows what we already know, that businesses in Michigan will receive a tax cut in the state while individuals will pay more.

Low income families, the report's author Joanne Bump concludes, will be hit the hardest.

Bump cites an analysis of Michigan's tax structure from the Institute for Taxation and Economic Policy.

That analysis looked at Michigan's tax policies prior to the changes made by the Snyder Administration and the state legislature. It found the state's system was harder are lower income residents:

The lowest 20 percent income group paid 9.1 percent of income in state and local taxes, while the top 1 percent income group paid only 5.6 percent. Low-income families pay a higher percentage of their income in state and local taxes than do higher income families. Like all Michigan residents, they pay sales and property taxes in addition to personal income taxes. Unfortunately, however, sales taxes disproportionately affect the state’s most vulnerable taxpayers, as low-income residents pay substantially more in sales tax, as a share of their income, than do higher income taxpayers.

By changing the tax structure, Bump writes, officials had a chance to improve the situation for its lower income citizens, instead, she says, the state's new state tax policies made the problem worse.

The report blames the elimination or reduction of tax credits, such as the reduction of the state Earned Income Tax Credit for families with children, changes to the Homestead Property Tax Credit, and exemptions previously enjoyed by seniors, as major reasons for the larger burden on lower income families.

To improve the fairness of the tax structure in Michigan, Bump makes the following recommendations:

  • Restore the 20 percent Earned Income Tax Credit
  • Adopt a graduated income tax
  • Extend a sales tax to services
  • Create a low-income sales tax credit