The massive tax cuts and slashing of other tax benefits that help working families means most folks in Michigan would not benefit from the tax proposal being floated by President Donald Trump and congressional Republicans, a new report has determined.
A report by the Michigan League for Public Policy says the problem with the tax reform proposal is two-fold: The federal budget approved by Congress allows for massive tax cuts without paying for them, significantly increasing the deficit; and thus cuts are likely to happen to areas like healthcare, assistance programs, college financial aid, housing assistance, infrastructure and more.
“Based on an analysis of the earlier Republican tax plan, Michigan taxpayers among the richest 1 percent — those making $502,500 or more a year — would see an average tax cut of $76,560,” the League said. “On the other hand, Michigan families making less than $23,000 would see over 1,000 times less, an average cut of $70. Middle-class Michiganians would see $440 in tax benefits, or about 174 times less than the top 1 percent.”
Further, millionaires – who would see average tax cuts equal to more than $250,000 – only make up 0.2 percent of Michigan’s population. And the top 1 percent would get over 60 percent of the cuts, the League said.
Attorney General Bill Schuette, who is running for governor next year, praised the proposal, saying on Twitter, “Americans need a break. It’s great to see our fearless leader giving our hardworking citizens a tax cut.” Trump has endorsed Schuette’s gubernatorial bid.
Lt. Governor Brian Calley – who is still expected to run for governor next year but has not yet announced – wrote in a column for the Detroit News that tax reform would “lead our nation forward,” though that was published before yesterday’s release of the proposal.
A request for comment on the MLPP report and the tax plan was not immediately returned by Schuette’s spokesperson, nor from Calley’s office.
Tanya Baker, a spokesperson for Governor Rick Snyder, said the governor is monitoring the tax debate in Washington, but that “as much as things change at the federal level, it will take some time to analyze” the proposal’s impact in Michigan.
However, Snyder also wrote a column, published two days after Calley’s, praising the yet-to-be-released framework that “calls for a simplification of the tax code and a reduction in the tax burden for many individuals, families, and businesses,” helping Michigan “accelerate economic growth, attract job creators and further strengthen local economies for our residents,” it said.
While the bill being proposed by congressional Republicans simplifies the tax system, it also seeks to offset lost revenue by eliminating breaks elsewhere. This plan curtails the mortgage deduction, for example, with the limit for taking a deduction on interest on new homes cut to half of the current allowance (down to $500,000 from $1 million currently).
Michigan residents could lose their deductions for state sales, income and/or property taxes, but that is misleading, MLPP said.
“On the surface, an elimination of the state and local tax deduction would help progressivity in our federal tax code,” the League said. “But this framework uses the elimination to pay at least partially for rate cuts that heavily benefit the wealthiest taxpayers. Even if the deduction is eliminated, 80 percent of the tax cuts would go to the top 1 percent by 2027 nationally.”
That could make it harder for states and local governments – the latter of whom have seen massive cuts from state government during the Snyder administration – to raise or maintain revenue for necessary services such as infrastructure, education, police and fire, the MLPP noted.
The federal tax reform proposal also:
- Repeals the itemized deductions for medical expenses that help families dealing with high medical costs;
- Eliminates the moving deduction allowing those who have moved in the past year to deduct for moving costs;
- Eliminates the household exemption of up to $4,050 for each dependent child and replaces it with a $1,600 credit (up from $1,000 currently);
- Eliminates a tax deduction for Americans with student loan debt;
- Nearly doubles the standard deduction for singles and married couples filing jointly, but eliminates personal exemptions; and
- Eliminates tax exclusion for dependent care assistance accounts.
The Child Tax Credit increase of $600 would be felt by “families making six-figure incomes who are currently marginally eligible or ineligible for the credit,” the MLPP noted.
Yet, about 16 million American children in families with low incomes would be left out of the increase, they said. And no increase or expansion of the federal Earned Income Tax Credit – which would help those families most – has been proposed.
Finally, the League said cutting the corporate tax rate from 35 percent to 20 percent, as is proposed, will not help workers as much as plan proponents say because trickle-down economics simply does not work.
“Most research shows that only a quarter or less of corporate taxes fall on workers,” they said. “Instead, corporate tax cuts give huge payouts to high-income investors and those at the top while leaving little for employees, especially those working low-wage jobs.”