By Sarah KelloggWashington Bureau
WASHINGTON — Michigan’s reputation as a high-tax state may finally be history.
The portion of their income that Michigan residents pay to state and local governments has been shrinking over the last decade, according to a report from Federal Funds Information for States, a Washington policy group that is funded by the National Governors Association.
“Thirty years ago, Michigan had a reputation as a big-spending and high-tax state,” Marcia Howard, the report’s author, said Monday. “Now Michigan looks pretty typical. Michigan’s become average when you look at taxes and, in some cases, below average.”
In 2000 Michigan’s overall general revenues — dollars raised by local and state governments through taxes and fees — were 16.6 percent of personal income, and the state ranked 13th nationally in that category.
By 2005 Michigan’s general revenues were 15.9 percent of personal income and its ranking was 21st, tied with Alabama.
Critics of the report, which was released last week and is based on U.S. Census Bureau data, say the slide is a result of the state’s recent recession, and not a steady decline in state and local tax burdens.
“If we had the type of robust economy we had in 1999, and more people were making more money, our tax ranking would in fact be higher,” said Michael LaFaive, an economist with the Mackinac Center for Public Policy, a Midland-based policy group. “The fact is fewer people are making less money and paying less into the treasury.”
LaFaive says Michigan’s tax burden remains high, pointing to a study by the Tax Foundation, a conservative, anti-tax group based in Washington, that ranked Michigan 14th in its overall tax burden among the states in 2007. The group ranked Michigan 21st in 2005.
Michigan officials say poverty alone cannot account for Michigan’s declining national ranking on revenues. State taxes are just lower, they say.
“The tax burden has gone down as a percentage of income not just because we’re poorer, but because we’ve cut taxes by over $3 billion in the last decade,” said Robert Kleine, Michigan’s state treasurer, noting that the calculation using personal income is a more reliable measure over time to judge tax burden.
Kleine says Michigan’s growing economic insecurity does show up when comparing its per-capita revenue growth year to year. Between 2004 and 2005, Michigan had the slowest growth of all 50 states in general revenue collections on a per-capita basis.
The report found that the average growth in general revenues between 2004 and 2005 was $368 per person nationally. Michigan’s growth was $149 per person. Michigan’s per-capita share of revenues was $6,632 in 2005, while the national average was $6,816.
Economists say the state’s stagnant wages and shrinking population contribute to Michigan’s showing in the report.
“The overall problem for Michigan is that it is becoming, on a relative basis, a poorer state,” said Dana Johnson, senior economist for Comerica Bank in Detroit. “Four years ago Michigan was 22nd in per-capita real income and now it’s 35th.”
The report also looked at state dependence on individual types of taxes. Michigan depends more on property taxes (24.5 percent of revenues come from this source), sales taxes (22.3 percent) and miscellaneous user fees (21.5 percent) than the national average for those categories.
Michigan is less dependent than the national average on other sources of revenue for its state and local budgets, notably personal income taxes, which account for 12.4 percent of revenues, and licensing and other taxes, which were responsible for 4 percent of revenues in 2005.
