Contact: Jeffrey Guilfoyle
or Michael King
734.542.8001

Michigan State and Local Government Tax Burden has Declined

The Citizens Research Council of Michigan has released its analysis of recently released U.S. Census Bureau state and local government finance data. The Census data allow for easy comparisons of tax burdens across the 50 states. CRC's publication of 2009 Tax Revenue Comparison: Michigan and the U.S. Average provides historical and interstate comparisons of tax revenues.

Key findings from CRC's report include:

• Michigan's total state and local tax burden has fallen relative to the U.S. On a per capita basis, Michigan has gone from 9th highest, with tax revenues 14 percent above the national average in 1979, to 32nd highest, with tax revenues 12 percent below the national average in 2009. Much of this drop can be explained by Michigan's prolonged poor economic performance.
• Michigan state and local tax burden measured as a percent of personal income is 1.4 percent above the U.S. average. However, Michigan's tax burden has also declined under this measure. In 1979, Michigan ranked 13th highest, with tax revenues as a percent of personal income 8 percent above the U.S. average. By 2009, Michigan had fallen to 18th highest with tax revenues as a percent of personal income 1.4 percent above the U.S. average.
• Although Michigan's economy fared substantially worse than the nation's during the 2009 recession, this poor economic performance did not materially affect Michigan's tax ranking. Michigan state and local taxes as a percent of personal income ticked up from 0.4 percent above the U.S. average in 2008 to 1.4 percent above in 2009. However, Michigan's tax ranking stayed at 18th highest. Michigan's relatively poor economic performance did affect Michigan's per capita tax burden ranking with Michigan falling from 30th highest in 2008 to 32nd highest in 2009.
• Michigan had a relatively high reliance on property taxes in 2009, ranking 11th highest with tax revenues as a percent of income, 22 percent above the U.S. average. Despite the property tax relief efforts of Proposal A of 1994, the heavy reliance on property tax revenues to fund local governments keeps the property tax burden in Michigan above average.
• Michigan general sales tax revenues were 11 percent above of the U.S. average in 2009, ranking 18th highest, but this ranking was inflated by the Census Bureau classifying a portion of the Michigan Business Tax as a sales tax. If you remove the MBT from the reported sales tax figure, Michigan would rank 31st highest. Michigan state and local individual income tax revenues ranked 35th highest, with the amount raised as a percent of personal income 17 percent below the U.S. average.
• Michigan ranked 38th highest in corporate income tax revenues in 2009, but that was in large part because a significant portion of the MBT was classified as a sales tax by the Census Bureau, with the remainder placed in the corporate income tax category. Placing all of the MBT in the corporate income tax category would have resulted in Michigan having the 6th highest tax with a burden 83 percent above the U.S. average. The fact that many business taxes levied by states are not included in the Census Bureau's corporate income tax category means that this category is not a good measure for comparing the overall business tax burden across states.
• In 2011, Michigan repealed the MBT and replaced it with a corporate income tax (CIT). The CIT is expected to raise $1.6 billion less than the MBT. These revenues were replaced in part with a $1.3 billion individual income tax increase. If these changes had been in place in 2009, Michigan would have ranked 46th highest in corporate income tax revenues as a percent of personal income, second lowest among states that levy a corporate income tax. Michigan's individual income tax ranking would have risen from 35th highest to 31st highest.