Soak the rich is the left’s default answer for filling government coffers. And why not? The ultra-wealthy can certainly afford to pay more. But can everyone else afford the consequences of squeezing the golden geese?
A new Tax Foundation analysis of a proposal to more than double state income taxes on million-dollar earners may have a far greater impact on average Michiganians than it would on those who will actually pay the higher levy.
The Invest in Michigan Kids proposal, the product of a coalition of far-left advocacy groups, would add a 5% surtax on incomes above $1 million for joint filers and $500,000 for single filers.
It would raise Michigan’s top state income tax rate to 9.25%, and for those living in one of the 24 cities — led by Detroit with a local income tax — the wealthiest earners would pay as much as 11.66% in combined state and local taxes.
That’s a rate hike significant enough to prompt the state’s multi-millionaires and billionaires to protect their assets by switching their legal residences to one of the nine states that don’t have an income tax, a group that includes Florida, Texas and Tennessee.
These aren’t just yacht dwellers and country club denizens. The Tax Foundation says it will heavily impact small business owners that employ 2 million workers in Michigan. Most of these are pass-through enterprises that, for tax purposes, count their business revenue as personal income and would pay the doubled rate if the measure passes.
Expect these business owners to raise their prices as well as to hire fewer workers and pay them less. Many will shut their doors as profit margins disappear.
“An examination of high-earner taxes imposed in other states, like California, New York and New Jersey, shows increased out-migration, the loss of Fortune 500 companies, reduced in-state investment, and slower economic growth,” the Tax Foundation concludes.
Michigan is struggling with competitiveness following two years of total Democratic control in Lansing. Polices such as the repeal of Right to Work, imposition of higher wages and more lucrative benefits and stringent workplace regulations are already showing up in decreasing tax revenue.
The state’s 4.25% flat income tax rate is one of the few advantages it has, and that is slipping. The foundation reports that since 2021, 23 states have reduced their top income tax rate to stimulate economic growth.
Our neighbors, Ohio and Indiana, have flat rates of 2.75 and 2.95, respectively. Instead of pegging its rate to those nearby competitors, Michigan would join California (13.3%), New York (10.9%) and Minnesota (9.85%) in the top 10 of the highest-taxing states.
That is not a formula for attracting entrepreneurs or residents.
While proponents of the tax hike say it will bring in $1.7 billion annually in new revenue for schools, that’s not likely to sustain beyond the first year, when the impact on jobs, investment, wages and economic activity kick in.
The Tax Foundation quantifies the impact as 43,000 fewer jobs, a 1% drop in wages and a $10 billion hit to the private economy.
It’s notable the Michigan Education Association is not backing this supposedly pro-education proposal.
Invest in Michigan’s Kids will shrink the state’s economy and population and limit the future opportunities for its children. If a signature gatherer presents you with a petition to get this disaster on the fall ballot, walk away.
