Report: Progressive tax system would fix state budget problems

A new report from the group United for Fair Economy says that if the states adopted progressive tax systems rather than their current regressive ones, they could eliminate their budget deficits and produce surpluses. And that includes Michigan.

A progressive tax system is one in which wealthier residents pay a higher percentage of their income in taxes than lower income residents; a regressive tax system is the opposite. And when you add up all of the taxes paid by taxpayers in Michigan, the system is regressive.

The lowest 20 percent of earners in Michigan pay an average of 8.9 percent of their income in state income, excise and property taxes. The next 20 percent pays 9.9 percent. The middle 20 percent pays 9.8 percent. The second to highest 20 percent pays 9.6 percent. The top 20 percent pays only 7 percent in taxes, with the top 1 percent at only 5.3 percent.

According to the new report, if that situation were reversed it would boost state revenue from $37.6 billion to $43.1 billion. That’s more than enough to turn a systemic annual deficit into an annual surplus, with room left over to reverse many of the deep cuts made in the last few years to education, revenue sharing and other services.

The key to this inverted tax system, the report says, states “must establish, or significantly improve upon, the graduated
personal income tax – the backbone of any progressive tax system. Concurrently, states and localities must significantly
reduce their reliance on regressive sales, excise and property taxes, which fall heavily on low- and middle-income families.”