High Taxes Lack a Guarantee of Quality Services: See Detroit

It's about how resources are managed

It is a common trope in Michigan and elsewhere that the path to state prosperity is to have high taxes and quality services, with Minnesota pointed to as the paragon. Yet high taxes do not guarantee quality services, as Detroit can attest.

Detroit has the highest effective property taxes in the country, according to the Minnesota Center for Fiscal Excellence’s 2014 property tax study. For commercial property at all different values, Detroit is No. 1 in the nation. For homesteaded property, only Bridgeport, Connecticut surpasses Detroit. Detroit also has the highest property taxes for most values of industrial property. Only New York City has higher property taxes on apartments than Detroit. All of these rates are higher than those in Minneapolis. The one saving grace for property taxpayers in Detroit is that the net tax burden has decreased with the collapse in real estate values in the city.

Minnesota does not allow a city income tax, so Minneapolitans are subject to the state’s progressive income tax rates that begin at 5.35 percent and increase to 9.85 percent. Michigan not only has an income tax, but it lets cities adopt their own as well. The highest rates for Detroit are 2.4 percent for residents and 1.2 percent for commuters. That pushes a low-income Detroit resident above the lowest rates in Minneapolis.

Sales in Minneapolis are taxed at 7.7 percent with state, county, city and special levies included. Michigan doesn’t allow local governments to have a local option so purchases in Detroit are at 6 percent.

There are other taxes that these cities enact that may fall on at least some of their residents. Detroit has casino taxes that account for nearly 20 percent of its tax revenue. Minneapolis has a 3 percent liquor and restaurant tax. Detroit has a utility tax while Minneapolis has a utility franchise fee. There are assorted other fees and fines and taxes that will influence how much residents owe their various levels of government.

But a comparison of the two areas doesn’t show Detroit to be a low-tax area. Property taxes are higher and sales taxes are lower. Greater emphasis should be placed on how the resources are managed rather than whether they should increase from already-high rates.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.