FundingOurFuture

A history of public disinvestment & a community-centered path forward

States provide the infrastructure and services we use the most. However, across the country, a decades-long race to the bottom by state policymakers has left regular people paying more and getting less. This ‘trickle down’ policy agenda has:

  1. Starved states of funding,
  2. Insulated corporations and the wealthiest from taxes, and
  3. Cut public investment in people and communities.

It doesn’t work. But there’s an alternative strategy that does: funding people and communities.

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How it played out in Michigan

In the post WWII era, Michigan’s economy was a model for the world. As the “birthplace of the middle class,” Michiganders set the bar for a rising standard of living and more inclusive prosperity. Detroit’s emergence as a preeminent manufacturing hub, improved working conditions and rising wages won by labor groups, and significant public investment in infrastructure, education, and social programs drove rapid increases across the socioeconomic spectrum. Income inequality shrank, racial disparities declined to the lowest anywhere in the nation, and home ownership and educational attainment skyrocketed.

Yet starting in the 1970s, alongside the taxpayer rebellions playing out across the country, many of these indicators began to level off, and in some instances, reverse. Since then, Michigan has fallen behind most states in household earnings, economic mobility, educational performance, income inequality, racial disparities, and infrastructural integrity. The causes of these reversals are many and complex. But the state’s low-tax, anti-spending economic strategy tracks their fall, just as it does in many other states and communities nationwide.

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Over the last five decades, Michigan has enacted economic policies designed to starve the state of funding.

While everyday Michiganders create the economy, the state’s tax code has been shaped to prioritize the largest corporations and highest-income households. As a result, low revenue is starving Michigan of the resources it needs for critical investments.

Below is a summary of the most notable policy changes impacting public funding and the degree to which Michigan has fallen behind the country in revenue per capita.

Michigan Revenue Per Capita

Percent Above/Below National Average

1
2
3
?
?
4
5
6
7
?
8
?
9

20%

15%

10%

5%

0

-5%

-10%

-15%

-20%

1980

1985

1990

1995

2000

2005

2010

2015

1963

Prohibition of Progressive Income Taxes

Michigan ratifies its fourth and current constitution in 1963. The constitution includes a prohibition on progressive income taxes, banning taxes that scale with households’ ability to pay.

1978

The Headlee Amendment Passes

Anti-tax advocates gain voter approval to restrict state revenue (similar anti-tax bills pass in states across the country). The amendment includes limits on growth in property tax revenues; restrictions on local governments’ taxing authority (direct voter approval required for new or increased taxes); and a cap on total state revenue (ratio of revenue to personal income to be no more than it was in 1978).

1983

Personal Income Tax Rate Increased from 4.6% to 6.35%

A prohibition on marginal income tax rates was included in Michigan’s ratification of a new state Constitution in 1963. Unlike the 32 states that have progressive income tax rates, income taxes in Michigan cannot scale to households’ ability to pay.

1984

Personal Income Tax rate reduced to 5.35%

1985

Personal Income Tax rate reduced to 4.6%

1994

Proposal A

Following the state legislature’s repeal of property taxes as the primary funding source for K-12 schools, voters approve Proposal A, shifting school funding to the (more regressive) state sales tax and adopting further limits on property taxes.

1999

Single Business Tax Phase Out Begins

The Single Business Tax (SBT) rate is reduced by 0.1% per year, effective until the tax is eliminated. It’s elimination contributes to significant declines in business taxes, with per capita business tax revenue in Michigan going from double the national average in 1999 to 36% below national average by 2018.

1999

Personal Income Tax Phase Down

The personal income tax rate is also reduced by 0.1% point per year starting in 2000, with a final reduction to 3.9% occurring in 2004. By 2007, Michigan collects roughly $3 billion less a year in income tax revenue in real dollars.

2007

Michigan Business Tax

The Michigan Business Tax (MBT) is passed, replacing the SBT as the primary business tax in the state. In the following 3 years, business tax revenues fall by over a billion dollars a year in real dollars.

2007

Personal Income Tax rate increased from 3.9% to 4.35%

2011

Corporate Income Tax

A 6% Corporate Income Tax replaces the MBT. By 2018, business tax revenues are 50% below 2007-level and 72% below their 1988 high in real dollars.

2012

Personal Income Tax rate reduced from 4.35% to 4.25%

2018

Property Taxes Struggle to Recover

Provisions in Proposal A and the Headlee Amendment allow property taxes to decline with home prices, yet restrict revenue recovery following the Subprime Mortgage Crisis. Despite housing market recovery, property tax revenues in 2018 remain $3 billion below pre-crisis levels in real dollars.

But it isn’t just less revenue. Our tax code is also less fair.

These policies place more burden on everyday Michiganders by shifting taxes away from corporations and the highest-income earners.

Anti-tax, anti-spending policies in Michigan ensure that households with higher incomes pay a smaller share of their earnings in taxes than low and middle income families. This regressive tax structure also means giving up billions in revenue each year that could otherwise fund schools, infrastructure, and other resources in Michigan communities.

Average Income

Percent paid in state and local taxes

Lowest 20% of Michiganders by income

Lowest 20%

Middle 20% of Michiganders by income

Middle 20%

Top 1% of Michiganders by income

Top
1%

$17,000 / year

$17K / year

10.4% of total income

$43,000 / year

$43K / year

9.2% of total income

$1,250,000 / year

$1.25M / year

6.2% of total income

Curious about how your income compares? Enter it below to visualize it on the chart.

 ? Income paid in state and local taxes based on average for respective earnings decile, with top decile detailed further, including percent paid for top 1%, next 4%, and next 15%.

Source: “Michigan: Who Pays? 6th Edition.” ITEP

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Tax cuts and revenue restrictions aren’t free.

Michigan’s schools, infrastructure, communities, and economy suffer the consequences of lower public investment. While 40 years ago Michigan was a leader in spending on items like K-12 education, public welfare, and hospitals, it now trails most states. Likewise, Michigan’s long-time underfunding of other areas, such as utilities, housing & community development, and natural resources, have gone from bad to worse.

Michigan Spending Above/Below National Average

Use the slider below to explore changes in state funding over the past four decades

The result

Infrastructure

D+

Overall infrastructure grade

$644

Average annual cost to Michigan motorists due to poor roads

1,200

Number of structurally deficient bridges

Education

43rd

School funding equity, national rank.

39th

Early literacy, projected national rank.

42nd

Student to teacher ratio, national rank.

Economic Opportunity

46%

chance of outearning parents if born in the 1980s

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Economic Insecurity

34th

Lowest poverty, national rank.

32nd

Median income, national rank.

28th

Lowest in Income Inequality, national rank.

Racial Disparity

50th

Black-White income gap growth since 1970s, national rank.

23%

Black share of Michigan’s COVID-19 deaths.

>2x

Higher Hispanic & Black poverty versus White Michiganders.

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But it doesn't have to be that way.

Past policy decisions shaped where Michigan is today. However, a community investment centered approach can lay the groundwork for a different future.

Where anti-tax policies fail to deliver inclusive growth, funding infrastructure, education, and social programs yields higher socioeconomic returns and puts money, knowledge, and resources directly into the hands of community members. These investments equip Michiganders with the tools they need to pursue new opportunities, innovate, and build a better tomorrow for themselves and their communities.

The evidence to this effect is conclusive. Investment in public resources have been found to generate substantially more economic activity per dollar than tax cuts for corporations or the wealthy. On average, every dollar of direct government spending on public goods and services generates over 4-times the economic activity as tax cuts for corporations or wealthy households. That means workers who are more prepared for a modern economy, infrastructure that better knits communities together, and programs that provide help when the unexpected happens.

? Economic activity generated based on fiscal multipliers averages from CBO analysis impacts of American Recovery Reinvestment Act on employment and economic output.

What kind of future do you want to fund?

The idea that money is scarce and there’s nothing left for our communities is false. By fixing the problems and distortions in the existing tax code, and making different policy decisions for the future, there’s more than enough funding for any future we dream up together. Build yours below.

What are your investment priorities?

How do we get there?

Let's identify your spending priorities.

Click below to choose the areas in which you'd like to see the state government invest.

How should we adjust revenue to fund this?

Click here to learn more about the revenue options below.

You funded your future! Now let's build it IRL!
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You need to add additional revenue sources to fund your future

Total investment:

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Total revenue:

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Ready to make your vision our real tomorrow?

Let’s chart a different course for Michigan (and other states across the country). Sign up for the latest resources and information on the actions we’re taking to fund the future.