News Story

Despite Claim, Tax Cuts Have Not 'Overwhelmed' Michigan

Michigan has seen more major tax increase than reductions

In a story that says Michigan's economy won't get better unless the state spends even more money on education and roads, Michigan State University Economics Professor Charles Ballard made a specious claim about tax policy over the past 20 years.

"Tax cuts have overwhelmed all other policies for the past 20 years," Ballard said in the MLive article.

But James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, said there isn't any way to justify Ballard's claim. In fact, he said there have been more tax increases than cuts in the recent decades.

Hohman looked at five major taxes in the state going back to 1993 and found that two were tax cuts and three were tax increases.

The cuts

In 1994, the state income tax was dropped from 5.35 percent to 4.4 percent. It currently is 4.25 percent. The Single Business Tax evolved into the Corporate Income Tax and the general tax revenue from this was decreased.

The increases

Since 1994, sales and use taxes increased from 4 percent to 6 percent. Tobacco taxes increased from 25 cents per pack to $2 per pack. And gas taxes increased from 15 cents a gallon to 19 cents a gallon.

Also, total tax revenue increased from $15.08 billion to $28.64 billion from 1993 to 2012. Adjusting for inflation, that's a 19.3 percent increase. Hohman said that since Prop A caused a spike in state revenue due to shifting tax burdens from the locals to the state, using 1995 revenue means a 5.7 percent increase after inflation.

Gary Wolfram, the William E. Simon Professor in Economics and Public Policy at Hillsdale College, said he didn't agree that tax cuts have overwhelmed all other policies in the past 20 years.

"We've had major tax changes, certainly," Wolfram said. "Proposal A, Single Business Tax, those are major policy changes. Tax cuts have been important in improving the economic climate in Michigan. But there have been tax increases that have moved us in the opposite direction. Tax changes have certainly been an important part of public policy in Michigan in the last 20 years. But I wouldn't say that tax cuts by themselves have overwhelmed other policies."

Ballard did not return a request for comment.


See also:

Economists: Business Tax Reform Helping, Not Hurting Michigan

Michigan a Top 10 State In Per Capital Spending on K-12 Education

Despite Fewer Students, Michigan School Funding Going Up, Up, Up

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.