They say nothing is certain except death and taxes. And how high these taxes are also matters to the people. How Much Taxes Do Michigan Citizens Pay and What Is The United States?
The Tax Foundation’s State Business Tax Climate Index is a comprehensive resource that examines and compares how well structured each state’s tax system is. The rankings are compiled by compiling the many tax components of states, including income, wealth, and other individual and corporate taxes.
Overall tax ranking: 14.
From 2014 to 2020, Michigan steadily fell in the ranking, moving from 11th to 17th on the list, mainly due to improvements in tax systems in other states. This year the pattern broke. Michigan ranks 14th in the nation on the 2021 Business Tax Climate Index. It is not entirely clear whether the sudden rise in the ranking is due to Michigan’s own improvement or the shortcomings of other states.
In 2011, Michigan owed the US Treasury Department $ 3.1 billion in outstanding unemployment insurance loans. After nearly ten years, Michigan stopped repaying the loans and removed the obligation rating on corporate tax rates. The Tax Foundation moved Michigan’s UI tax rank from 49th to 17th after the solvency tax was abolished. So the Michigan unemployment insurance debt tax may have been the anchor dragging the overall score down for many years.
The studies of the tax foundation provide many other interesting data on the tax system of the mittens. They break down the percentage that Michigan citizens pay in all major areas.
Individual tax rate: 12.
For income taxes, the Tax Foundation ranks Michigan # 12 among the best in the United States. Great Lakes State has a flat rate tax of 4.25% on income. It stood at 3.9% for decades before rising to 4.35% in 2006 and declining slightly in 2012, where it has remained unchanged. One factor that has changed is Michigan Personal Exemption, which increased from $ 4,750 to $ 4,900 in 2020 as planned by a 2018 law.
Nine states have no income tax, and of the 41 that do, only eight have flat income taxes. Of the eight states that have a proportional tax, Michigan has the third lowest marginal tax rate. Many other states’ progressive tax systems have a higher statutory rate, but Michigan’s proportional tax holds up even compared to the statutory rate for incomes below $ 50,000 a year. With this filter, Michigan ranks 8th out of 41 states with income taxes.
Sales tax: 10
General state and local sales taxes also play a role. Michigan state sales tax has been six percent since 1994. This makes it the 17th highest in the country. However, Michigan is one of only 13 states that don’t levy local sales taxes. So when you compare the state’s combined state tax rates and the average local tax rates, Michigan has the 13th lowest sales tax rate.
Michigan’s gasoline tax plays a small role in the overall sales tax ranking, but it’s still a notable mention. At 41.98 cents per gallon, Michigan’s gas tax is the ninth highest in the country.
Taken together, the Tax Foundation ranked Michigan’s total sales tax component 10th out of 50 states.
Property taxes: 35.
Property taxes are another point of interest when calculating the index. Using the property tax component of their tax index, with 1 being the best property tax laws and 50 being the worst, the Tax Foundation ranked Michigan 35th overall. Michigan property tax laws appear to have not become more competitive in recent years. From 2018 to 2020, Michigan ranked 36th.
The Tax Foundation notes that, unlike taxes on intangible assets, property taxes are generally more transparent and actually benefit those who have to pay the taxes.
One weakness in Michigan tax legislation is the partial taxation of corporate inventory. These taxes penalize companies with larger inventory such as retailers and manufacturers. The Tax Foundation warns that “the immediate abolition of the tax could have a devastating impact on local government budgets.”
Less taxes, more income
While the state’s tax system has improved, its spending continues to increase every year. From 2009 to the pre-pandemic budget in 2019, government revenues rose by $ 9.1 billion. Adjusted for inflation, this is an increase of 16.4 percent.
Government revenues grow as economic prosperity increases, and most experts say that tax policy plays some role in that growth. Research by the Tax Foundation does not examine a taxed dollar amount, but rather the structure of the tax system itself. In recent years, beneficial reforms of the system and, with it, government revenues have increased. This may mean that the reduction in onerous taxes has consequently fueled Michigan’s economic growth. This further increases the Tax Foundation’s emphasis on competitive tax laws in promoting economic growth.
James Hohman, Director of Fiscal Policy at the Mackinac Center for Public Policy, said, “Michigan has shown that states can improve their tax structure without ruining their finances. In fact, Michigan spending continued to grow despite improving tax competitiveness. “
Overall, Michigan’s tax system has no outstanding innovations or adverse flaws, but rather a mid-range structure that leaves room for uncertainty when the economy outperforms the blow of the pandemic. For politicians and taxpayers alike, the figures provided by the Tax Foundation, combined with some retrospective looks at government data, are useful insights that can be a valuable resource in reforming tax systems to best serve Michigan in the years to come.