It is about time. The Detroit Free Press has finally stepped up to recognize the need for a change in Michigan's "outmoded tax system." See Yes! New Taxes: Crumbling Michigan Needs a Tax Overhaul", Detroit Free Press, Nov. 15, 2009.
As the editorial notes, taxes are important for schools and universities, roads and bridges, prisons and cops. "They're a distasteful but necessary fuel for government services. And without sufficient tax revenue, no government can effectively deliver on its most basic obligations."
The result of sticking with an outmoded tax system that hasn't change as Michigan and its industries and residents has is that wealth in Michigan "has become concentrated in a smaller, and richer, segment of the population." Michiganders spend a lot of their money for services, but the state doesn't tax most services. Sales of goods, which are taxed, have declined with the decline in the population. But the wealthy have gotten wealthier in Michigan, just like in the rest of the country--"the top 5% of households in MIchigan now have as much or more income than the bottom half." It isn't that the amount of income in the state has declined or is expected to decline. It's a shift in the mix of jobs, and the way wealth pays compared to hard labor. "Total personal income in this state has not declined since 1978, and is not expected to drop in the next two years, either."
The Free Press suggests two ways to solve Michigan's problem: tax more service, such as live entertainment and service contracts, as many other states do; or move from an inflexible flat income tax to a graduated income tax, like the majority of other states have. (The article suggests a three-tier system with 3.9%, 4.35% and 6.9%.)
Today's Press includes a number of letters--thankfully, a good number of them recognizing that new taxes are needed. One senior citizen says "It boggles the mind to think that some of our citizens believe there is a fairy godmother who sprinkles money-dust across Michigan and voila, the schools are funded, the roads are build, health care is available to all, prisoners serve out their terms, and universities welcome those who want to further their education. I have heard supposedly intelligent people say they never, ever, vote for a tax increase of any kind. When asked how schools can still operate, they say they paid taxes when their children went to school and why should they continue to pay even more for other children? It doesn't work that way, obviously."
She's right, it doesn't. IN fact, people should be happy to pay for other people's children to get an education, because it means those people paying will have a better society to live in. Their store clerks will be educated and able to add, avoiding overcharges. Their legislators will be wiser, and able to legislate better. Their cops will be better educated too, and less likely to make major mistakes in putting the wrong person in jail (and maybe even executing the wrong person). We all benefit from the creation of a good society that provides opportunity for everyone to develop human and financial capital.
A graduated tax makes sense--the current flat rate is 4.35%, and that means that many people who are struggling to make ends meet have to pay too much tax--they simply don't have discretionary money to spend. They should be taxed at a lower rate--perhaps as low as 3% on incomes below $25,000. A rate of about 4.5% on those earning in the middle class brackets between 25,000 and 75,000 would make sense, with those in higher income brackets paying 6.5% (75,000 to 150,000), 7% (150,000 to 5oo,0o0), and 8.5% (above 500,000). A graduated rate will require a constitutional change, so Michigan legislators should get moving, now.
Recent Comments