Recently released data from the U.S. Census Bureau show that Michigan state and local governments relied more heavily on property tax revenue in 2009 as sales and income tax revenues declined with the Great Recession, and the income tax policy changes adopted in 2011 will not alter these relative proportions of Michigan state and local tax revenue in 2013. Changes to Michiganís direct business tax, however, will cause the state to have the lowest corporate income tax burden among states that levy the tax.
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These are two of several important findings from the 2009 report of state and local government finances in the 50 states and the District of Columbia released by the Census Bureau. This paper examines Michigan tax revenues in 2009 to estimate the effects of tax policy changes adopted in 2011 on Michiganís tax burden relative to the rest of the country and to help policymakers determine if additional tax policy changes may be prudent.
State and local government revenues combined provide the best comparisons of taxation across states, because of the varying assignments of service responsibilities and tax levies to support those services between state and local governments. A stateís total tax burden can be measured in a number of ways, and each manner includes its own set of advantages and disadvantages; however, no single method of measuring tax burden can be considered perfect. This paper uses two measures of tax burden: tax revenue as a percent of personal income and tax revenue per capita.
Tax revenue as a percent of personal income measures the proportion of a stateís income paid in taxes. This contrasts with measures of the raw dollar amount paid in taxes per person, which can be distorted by the size of a stateís wealth. For example, in 2009, people in Maryland, Massachusetts and Virginia paid more in raw tax dollars than people in Mississippi, New Mexico and West Virginia, but people in Mississippi, New Mexico and West Virginia paid a larger percentage of their income in taxes compared to people in Maryland, Massachusetts and Virginia. As such, the tax burden on people in Mississippi, New Mexico and West Virginia was heavier even though they paid less in raw tax dollars. Tax revenue per capita is a good indicator of a stateís wealth and ability to pay taxes. The per capita data in this paper have been adjusted to 2009 dollars using the calendar year U.S. CPI-U.
The 2009 Census Bureau report also provides an opportunity to examine Michiganís comparative tax rankings following many important state tax changes: immediately following the Great Recession; 15 years after the changes brought by Proposal A of 1994;5 and two years after the (subsequently replaced) Michigan Business Tax (MBT) replaced the Single Business Tax (SBT) as the primary direct business tax.
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