2013 Revenue Comparison: Michigan and the U.S. Average
Memorandum 1140, May 2016
United States Census Bureau data show that Michigan has evolved from a high tax state to a below average state over the past three decades. This change can partly be attributed to economic decline as Michigan’s state and local governments are, for the most part, levying the same tax rates against smaller tax bases caused by the state’s “lost decade” of economic decline. It can also be attributed to policy changes, most notably Michigan’s method of taxing corporate income. Where the state was formerly considered a high tax state for property, individual income, corporate income, and in total, data from 2013 show that Michigan tax revenues were below the U.S. averages for all forms of taxation except property for which Michigan’s tax revenues were close to average.
Michigan’s economy was on the path to recovery by 2013, but the effects of the state’s “lost decade” and the Great Recession of 2007-2009 could still be felt. Diminished personal income affected two of the three primary sources of tax revenues – income and sales – and the burst of the housing bubble and resulting foreclosure crisis affected the third source – property. State income, sales, and use tax revenues each have been on a growth pattern since the depths of the recession, but have not yet rebounded to pre-2000 levels in real terms. Property tax revenues have only recently begun to rebound, but remain far below peak levels.
By 2013, the several tax policy changes enacted at the beginning of the Snyder administration’s first term had begun to take effect. Those changes, mostly enacted in 2011, include elimination of the Michigan Business Tax (MBT), imposition of a six percent replacement corporate income tax, levying the state income tax on public and private pensions, and changes to the Earned Income Tax Credit.
Michigan policymakers have continued to adjust tax policy since 2013. The state’s taxation of personal property was altered in 2014, 2015 tax increases will affect motor fuel and motor vehicle tax revenues, offsetting tax credits will reduce individual income tax revenues, and general sales tax collection for online purchases mandated in 2015 through “Main Street Fairness” legislation will cause sales tax receipts to increase for 2016 and beyond.