Michigan's Tax System Is Much Better Than Michigan’s Economy

Even with an expected budget overspending crisis of $1.8 billion next year, Michigan government's revenue situation is doing much better than the rest of the economy.

State tax receipts are largely determined by how well a state's economy is doing. When workers earn more, they pay more income taxes. When consumers buy more, they pay more in sales taxes.

Because of those ties to the economy, every state's tax base is naturally exposed to cyclical factors. But each state responds differently. Over the past year, Michigan's has been far less responsive to the recession than most states.

Here are the facts: Every state lost tax revenue since last year. According to the most recent Census figures, tax collections nationwide were down an average of 11 percent for the first three quarters of 2009. Michigan was above the average with a decrease of about 8 percent. There were 34 other states to get a harder revenue hit than the Great Lakes State.

Over the same period, every state lost jobs, too. Michigan led the nation with a loss of about 8 percent, 313,300 jobs total. The national average was 4 percent. Thus, Michigan lost the most jobs but was better than average in revenue loss.

Put in other terms to see how responsive tax revenues were to job losses, you can calculate an average amount of revenue lost per job lost. The average state lost about $14,300 per job lost. Michigan, however, only lost $6,700 per job lost. Congratulations, Michigan. The state's taxes are more sheltered from recession than all but six other states.

Of course, the number of jobs in the economy is not a perfect measure of the economy, nor is the tax system solely based on the number of jobs. However, as you can see, it's pretty closely tied.

Revenues are still down, and that's a problem for Lansing. But they're not likely to be down forever. Indeed, there are some signs that the state's economy may no longer be the worst performer.

Lansing policymakers will spend a good part of this year arguing for a tax hike. Given that they have more to work with than many states, that the state may be in the middle of a modest economic recovery, and that there are still plenty of ways to save money in Michigan's budget, a tax hike is unnecessary.

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