Tax Reform: A Look Back Since 2011

Tax Reform Since 2011

Uncompetitive. Burdensome. Taxing. Dead last.

These are just some of the terms used to describe Michigan’s taxes prior to 2011. Back then, the state’s tax system was hindering our potential for business growth.

To bring Michigan into the 21st Century, Gov. Rick Snyder led efforts to implement successful tax reform to fuel Michigan’s comeback. His actions displayed to the nation the right way to create an environment that promotes and nurtures business growth.

Early in the governor’s first term, the Michigan Business Tax was eliminated and decades of double-taxation of small job providers and sole proprietors was halted. A Corporate Income Tax with a 6 percent rate was implemented instead.

This business tax applied to companies that file as “C” corporations – typically, those that issue stock – and means nearly 100,000 businesses no longer had to file returns.

With this adjustment, Michigan went from 49th in 2012 to seventh in 2013 in the Tax Foundation’s Corporate Tax Rank.

To streamline other tax efforts, numerous credits, deductions and exemptions were eliminated. And a tax cut for working families and individuals was granted when the state income tax rate was dropped from 4.35 percent to 4.25 percent.

Michigan now has one of the lower flat state income tax rates in the nation.

In the next order of business, the state of Michigan began phasing out the burdensome business Personal Property Tax (PPT) on manufacturing equipment – which was a disincentive to capital purchases and prevented job growth.

With the goal of making Michigan’s tax structure attractive for high-paying jobs, legislation was passed in 2012 and 2014 to reform Michigan’s PPT and create the Local Community Stabilization Authority. Michigan residents also voted in favor of the reform in 2014.

Prior to personal property tax reform, businesses were taxed on industrial machinery and equipment through local millages, creating an uncompetitive economic climate. Reforming the century-old PPT laws was critical to Michigan’s economic growth and sustainability.

Equally as important was ensuring local government units did not lose crucial resources during this change, so the state committed to reimbursing local units who relied on the revenue from the PPT.

All these tax reforms helped strengthen local economies for our residents. They also helped develop more homegrown jobs and boost take-home pay for all Michigan workers.

Some unexpected tax reforms have also benefited taxpayers.

When the federal government enacted changes to its system at the end of 2017, Michiganders were hit with an unintentional $1.5 billion tax increase with the federal exemption set to zero. The administration worked closely with the Michigan Legislature to restore and increase the personal exemption. This tax relief enabled working families to take home more of their paycheck that they earn every day.

The outcome of these reforms has helped foster an environment that promotes business growth, which means more people are finding jobs and bringing home paychecks.

The statistics assert this point too.

Almost a decade ago, the state’s unemployment rate was one of the highest in the nation at nearly 14 percent. Today, Michigan’s unemployment rate is much lower at 4.6 percent. In 2017, Michigan reached its lowest unemployment rate in 17 years.

In 2010, Michigan was at the bottom of the nation for job creation. As of today, the efforts by the administration to implement tax reform has helped create more than 540,000 new private-sector jobs.

Michigan’s labor market is strong and an increasing number of residents are finding work. Since the Great Recession, Michigan per capita personal income has grown faster than the national average.

From 2011 to 2017, per capital income increased from $37,400 to $45,255. This increase of $7,855 represents a 21 percent boost in the amount of dollars our residents are taking home.

Michigan had the 10th highest growth rate in 2016 and fifth highest in 2015. From 2011 to 2017, per capita income grew by 21.0 percent, which ranked eighth nationally.

Overall, the broad reforms to make Michigan competitive in a national and global marketplace has come to fruition. Tax policy will continue to evolve as time passes. But with the policy changes enacted throughout Gov. Rick Snyder’s administration, our state can tout its comeback and status as a national contender with a top ranked business climate.

The next time a business wants to relocate, there’s a good chance they’ll choose Detroit over some other out-of-state city.

Tax Reforms Enacted Since 2011

  • Michigan Business Tax is replaced by a 6 percent Corporate Income Tax. The corporate tax applies to companies that file as “C” corporations.
  • Numerous credits, deductions and exemptions were eliminated.
  • Lowered the state income tax rate to 4.25 percent
  • Provided property tax relief to disabled veterans and their surviving spouses.
  • Enacted Personal Property Tax reform on manufacturing equipment.
  • Earned Income Tax Credit at 6 percent
  • Increased the personal exemption for all taxpayers
  • Homestead Property Tax Credit expansion for tax year 2018

Tax Foundation State Business Tax Climate Index Ranking

  • 2012 – 18
  • 2013 – 12
  • 2014 – 14
  • 2015 – 13
  • 2016 – 13
  • 2017 – 12
  • 2018 – 12

Michigan Per Capital Income 2011-2017

  • 2011    $37,400
  • 2012    $38,702
  • 2013    $39,213
  • 2014    $40,835
  • 2015    $43,072
  • 2016    $44,231
  • 2017    $45,255

State Income Tax Personal Exemption Increases

  • 2018 -- $4,050
  • 2019 -- $4,400
  • 2020 -- $4,750
  • 2021 -- $4,900