By Gilda Z. Jacobs/Michigan League for Public Policy
As we enter the budget-setting season in Lansing, we need to step back and ask ourselves some important questions.
Does our revenue structure keep up with the times? Does it improve our education levels and at least keep our quality of life from eroding? Does it ‘pay it forward’ by offering the next generation the educational opportunities, protection of natural resources and other advantages that were there for us?
Year after year at the annual Revenue Estimating Conference (scheduled for today), we discover that our revenue is falling short of what’s needed to pay for education, health care, child protection and other existing public structures. This is due not only to a slow economy, but to an outdated revenue system that acts like it’s 1950 by taxing goods but not many services, and missing out on e-trade.
Recent corporate tax breaks mean that businesses will contribute less than 2 percent to the General Fund, the state’s main source of funding. But the working poor – who spend long hours in nursing homes, restaurants, child care and other important but low-paid positions — will get a $262 million tax increase this year. This is because our state Earned Income Tax Credit was slashed by 70 percent to help pay for corporate tax breaks.
These changes worsen Michigan’s undesirable attributes of rising poverty and growing income inequality. In the face of this, how do we attract families to our state, keep families from leaving and bring in new employers?
Modernizing Michigan’s outdated revenue structure will pay off with adequate revenue to pay for a good quality of life — access to quality education, good roads, safe communities and protection of the Great Lakes and other natural resources.
Adjusted for inflation, our General Fund is down more than 15 percent compared with 1968.
Modernizing would pay huge dividends. We would have healthier babies, a more educated and ready workforce, a better quality of life and long-term economic stability and growth. Aren’t these the goals we all strive to achieve?
The League has outlined an agenda to move Michigan forward, including a reduction of the income tax on low-income workers and families by restoring the state Earned Income Tax Credit, which was cut from 20 percent of the federal credit to 6 percent.
* Ensure that business tax changes are at least revenue neutral by increasing the Corporate Income Tax to replace lost revenues with $550 million lost in fiscal year 2012 alone.
* Modernize the sales and use tax by including more services and capturing Internet sales.
* Scrutinize all forms of spending, not just annual appropriations, including tax credits, deductions, deferrals and exclusions that are forms of “silent spending.’’
* Invest in state priorities that are fundamental to job growth and economic development, including education, health, high quality early education and basic income supports.
Let’s face it. Our revenue structure is broken. We must pursue tax reforms that modernize our outdated revenue system. It needs to be more dependable. It needs to be fair. Let’s start asking the right questions and, hopefully, offering the right answers.