- Michigan: Lawmakers working to stamp out taxes where they can
- November 23, 2017 | Authors: David D. Ebersole; Michelle Rood Gearity; David M. Kall
- Law Firms: McDonald Hopkins LLC - Cleveland Office; McDonald Hopkins LLC - Columbus Office
Lawmakers in the Great Lakes State are taking the necessary steps to curb action on two unpopular taxes on soda and personal income. The prohibition on soda taxes became law last week, and one senator is readying a new proposal to eliminate personal income taxes.
Last month in our beverage tax post, we touched on pending legislation in the Michigan senate that would prohibit any locality from taxing food. A companion bill in the House, H4999, made its way quickly through the process and was signed by Gov. Rick Snyder on Oct. 26, 2017. It took effect immediately.
H 4999 is short and sweet. In pertinent part, it reads as follows:
Except as otherwise provided by federal law or a law of this state, a local unit of government shall not do either of the following:
a. Impose an excise tax on the manufacture, distribution, wholesale sale, or retail sale of food for immediate consumption or nonimmediate consumption.
b. Enact, enforce, or administer any ordinance, regulation, resolution, policy, rule, or directive imposing a tax or fee on the manufacture, distribution, wholesale sale, or retail sale of food for immediate consumption or nonimmediate consumption.
Michigan law has already defined food, as “articles used for food or drink for humans or other animals, chewing gum, and articles used for components of any such article.”
Analysis of the final measure justifies it on the grounds that regardless of whether a beverage tax is “designed to raise revenue or prevent health problems…many people believe that it is inappropriate for local units of government to tax the sale or manufacture of food or beverage. Reportedly, in communities where the tax has been imposed, it has had negative consequences for consumers, employees, and businesses…” The document cites the debacle that occurred in Cook County, which was put to rest when the Cook County Board of Commissioners repealed the loathed tax, and which we detailed our post linked above.
The analysis also looked to efforts in Santa Fe, New Mexico, and Telluride, Colorado, in which voters rejected a beverage tax. It asserted that “[a]lthough no local unit of government in Michigan has adopted a tax on food or beverage, and it is questionable whether doing so would be permissible under the State Constitution, it has been suggested that local units be prevented by statute from taking this action.”
Back in March, we pointed to research questioning whether sin taxes actually change behavior. A Wharton researcher noted that cigarette taxes have been relatively ineffective to that end, possibly because it is addiction that drives purchases, resulting in a higher tolerance for taxes. The researcher speculated that sugar consumption is not that different. Even so, some jurisdictions that have passed sugar sweetened beverage taxes, like Mexico and Philadelphia, have reported reduced consumption.
More recently, however, an October 2017 USNews.com article highlights a Journal of Health Economics study that speaks to this question. It suggests that where a jurisdiction’s goal is the improvement of its constituents’ health, a tax could curb consumption if it affects not only sugar sweetened beverages, but a wider variety of sugary foods. The study found that “a 20 percent tax on sugar reduces caloric intake by more than 18 percent, [whereas] a 20 percent tax specifically on soda decreases caloric intake by about 5 percent.”
The article quoted one of the study’s authors, who opined that “[i]n particular, (ingredient) taxes are more effective because they are targeting an (ingredient) across all products so it prevents people from substituting from a taxed product to an untaxed product …”
State Senator Jack Brandenburg, who represents the 8th District, has been working to mitigate Michigan’s personal income tax burden for quite some time. For example, in 2012, he introduced legislation that would have rolled back the income tax rate by 0.1 percent per year until it reach to 3.9 percent. At the time, the rate was 4.35 percent, which lawmakers established in 2007 in the wake of a budget crisis.
Michigan’s current income tax rate is 4.25 percent. For that and other reasons, like the lack of multiple brackets, the Tax Foundation’s 2018 State Business Tax Climate Index gives the state a rank of 14 in the personal income tax category.
In January of this year, the senator introduced Senate Bill 4, which called for the total repeal of the personal income tax over five years. According to his late March 2017 editorial posted on his webpage, Sen. Brandenburg “advocat[ed] this legislation because we need to give our residents much-needed tax relief, and I want very much to grow our population back. Compared to other states, our population has barely grown in the last six years.”
Now, a mid-October article that WLNS posted on its website told of Sen. Brandenburg’s latest attempt, claiming that he “says he has key to eliminating state income tax.” The senator insisted that he can replace the $10 billion in revenue the state relies on to fund things like schools and infrastructure, and although “there will be sacrifices made along the way…those sacrifices, in my mind, are worth it to say that Michigan no longer has a state income tax.”
The senator’s webpage does not divulge his plans, nor does the WLNS article, except to preview his support for a one-penny increase to the state’s sales tax. Michigan’s sales tax is relatively low, at 6 percent, fetching it a rank of number 11 in the Index’s sales tax category. The Tax Foundation index ranks Michigan at number 12 overall, in part because its corporate, individual and sales tax rates, which hold the number 8, 14, and 11 positions respectively, are all low.
The senator will reveal his intentions shortly, according to WLNS. “I can do it. I can do it…I have 99 percent of the ducks in a row.”