Income Tax Cut Could Bring 15,000 New Jobs to Michigan

A tax cut promised in 2007 would help Michigan, if ever delivered

As Michigan citizens bump up against tax day, April 17, we should not forget that Lansing politicians still owe us a tax cut. Cutting the personal income tax rate would keep a promise made to Michigan taxpayers, fuel up Michigan’s economy and hopefully help reverse the trend of people moving out of state.

In 2007 our personal income taxes were raised by 11.5 percent, from a rate of 3.9 percent to 4.35 percent. That increase came with a promise: The hike would be rolled back, starting in 2011. But Gov. Rick Snyder and the Legislature permitted a cut of just one-tenth of one percentage point before stopping the rollback in its tracks.

At the Mackinac Center, we wanted to measure the impact that different tax rates and taxes might have on the Michigan economy, so we worked with the Beacon Hill Institute. For 15 years now, it has used its State Tax Analysis Modeling Program, a model of the state’s economy that predicts the economic effects of tax cuts or hikes.

The model told us that a reduction of the state income tax rate to 3.9 percent should generate 15,000 new jobs after one year. As the benefits of the tax cut build, the total number of new jobs created would rise to 18,400 through 2022.

As a bonus, the new opportunities that are born in Michigan may help reverse its years-long population loss. Recall that during the 2000s, Michigan lost people to other states as they searched for needed jobs and other opportunities. Our net domestic migration is still negative. Reversing Michigan’s tax hike is one way for us to attract more citizens than we have lost in past years.

In 2009 economist Michael Hicks estimated, in a migration study performed for the Mackinac Center, that for every 10 percent increase in personal income taxes, 4,700 people would leave the state every year thereafter. That means that more than 50,000 people left for friendlier states as a result of that 2007 tax hike. Lowering the tax burden means we can increase our population and retain all the wealth and talents folks take with them when they move in pursuit of more opportunity.

Michigan can afford a tax cut. Not only have revenues grown in recent years — outstripping inflation by 9.4 percent during Gov. Snyder’s tenure, but there is still room to cut the state budget. As just one example, we could trade away the state’s corporate welfare apparatus in favor of tax cuts for all. Indeed, why hand out favors to a few people and businesses — through failed programs such as the Michigan Business Development Program and Pure Michigan — when you can let everyone keep more of what they earn in the first place?

Tax cuts will outperform these failed programs and by a wide margin. We have estimated and reported in past research that the state’s MBDP is associated with fewer, not more jobs in the counties in which the subsidies projects are located. Our analysis of the Pure Michigan program found a huge, net negative return on investment.

Last year several lawmakers tried to roll back the personal income tax rate. If they had succeeded, the rollback would have started with a 0.1 percentage-point cut in 2018 and another in 2019. That proposal failed when 12 Republicans joined Democrats to vote against it.

The bottom line here is that taxpayers can get a boost from the tax cut we are owed and deserve. There is plenty of room in the state budget for this cut — and perhaps even a larger one. Michigan lawmakers should make it a priority.