2011 Individual Income Tax Policy Change Will Cause Individual Income Tax Burden to Rise in 2013

The Citizens Research Council of Michigan recently published 2009 Tax Revenue Comparison: Michigan and the U.S. Average, an analysis of state and local government finance data recently released by the U.S. Census Bureau for 2009.  The report shows that Michigan’s 2009 state and local individual income tax revenue of $18.91 per $1,000 of personal income ranked 35th highest in the nation.  Only 6 states who levy an individual income tax generated less individual income tax revenue per $1,000 of personal income than Michigan, which was challenged more by the Great Recession than most states.

Michigan’s individual income tax revenue per $1,000 of personal income fell from 11 percent below the U.S. average in 2008 to 17 percent below the average in 2009.  The decline was due to several of the wealthier states, including New York and Maryland, implementing tax policy changes in 2009 that prevented their individual income tax revenues from falling as severely as other wealthy states, such as California and Massachusetts, which kept the U.S. average from falling even further from 2008.  Notably, New York’s tax burden (relative to the U.S. average) increased by 17 percentage points from 2008 to 2009.

Due to changes in individual income tax policy in May 2011, Michigan’s individual income tax burden will increase by 2013.  Michigan’s individual income tax rate was frozen at 4.25 percent and the tax base was expanded by eliminating a number of reductions and exemptions and repealing or reducing a large number of credits.  These tax policy changes are expected to increase revenue by $1.3 billion in fiscal year 2013,which will cause Michigan’s individual income tax revenue per $1,000 of personal income to rise relative to the U.S. average (from 35th highest in 2009 to 31st highest in 2013).  Michigan’s individual income tax burden will be 2 percent above the U.S. average in 2013 compared to 17 percent below the average in 2009.

These individual income tax policy changes, combined with replacement of the Michigan Business Tax (MBT) with a state corporate income tax (CIT) in January 2012, will shift the tax burden from businesses to individuals by 2013 in an attempt to make the state more economically competitive.

 

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One Response to 2011 Individual Income Tax Policy Change Will Cause Individual Income Tax Burden to Rise in 2013

  1. Scott Darragh says:

    When comparing the state’s income tax burden in 2013 did you reduce the additional revenue by the amount generated by freezing the tax rate? That does not raise collections but prevents them from falling as much as they would have were the rate to fall as previously scheduled. If the level of economic activity continues to accelerate across the country, it is likely that other states will experience more rapid growth in income tax collections than we will see in Michigan since the other states have more income elastic tax structures with graduated tax rates.

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