News Story

Top 1 Percent Paid 15 Percent of State Income Tax While Bottom 33 Percent Received Millions

Tax filers making up to $16,000 received $245 million more than they paid

Michigan paid out $245 million more than it collected in 2012 to nearly one-third of state income tax filers, which were the people who reported incomes of less than $16,000. At the other end, the state collected $1 billion from the fewer than 1 percent of households who reported earnings of $500,000 and above.

The information is included in the tax return data recently published by the Michigan Department of Treasury. It sheds light on an ongoing debate about who pays the approximately $7 billion in annual state income tax collections.

Of the 4.6 million people who filed state tax returns in 2012, 1.5 million earned between $0 and $16,000. As a group, these households got back $245 million more than they paid in state taxes.

Michigan Treasury spokesman Terry Stanton said the Homestead Property Tax Credit (HPTC) and the Earned Income Tax Credit (EITC) accounted for the $245 million in refunds.

Just 0.7 percent of state income tax filers — 32,325 households — reported income greater than $500,000, yet this group paid about 15 percent of the $7 billion income tax revenue collected by the state.

“It's not true that the wealthy are paying less than most people,” said Leon Drolet, chair of the Michigan Taxpayers Alliance. “Claims to the contrary show a wide gap between reality and the public’s perception how much higher-income households are really paying.”

State Rep. Jim Townsend, D-Royal Oak, the Democratic vice chairman of the House Tax Policy Committee, has said “it’s time for a real discussion about tax equality,” and that the top 1 percent should pay more in state taxes. Townsend is the lead sponsor of legislation to collect even more from those with higher incomes, including a measure to repeal the state constitution's ban on a graduated income tax.

Townsend said people should consider more than just the state income tax when looking at tax equality.

"As you know, the income tax is one of many taxes that individuals in this state pay," Townsend said in an email. "We have property taxes, the sales tax, excise taxes like the fuel tax, sin taxes, and the income tax. When you add it all up, the bottom 80 percent of households, those making $88,000 or less, contribute nearly twice as much of their income in state and local taxes as those in the top 1 percent."

Click here to see Townsend's full email response.

Roger Buchholtz, board chairman of the Michigan FairTax Association, said even though the state has a flat income tax, “by the time all the carve outs and exemptions, it is not a flat income tax.”

“It is a problem for the people carrying the weight,” Buchholtz said. “It ends up being quite a disincentive for people to work hard and stay in Michigan. We have to compete not only with other states, but we have to compete with the rest of the world. This redistribution of income may be intended to help low-income families but it most harms these very families when companies locate elsewhere where their employees can keep more of what they earn.”

Editor's note: The headline for this article was altered.


See also:

Michigan Should Lower the Personal Income Tax Rate in 2015