Pop English quiz. Who can tell me the difference between these two headlines?
“Michigan business tax climate soars in Tax Foundation ratings, Snyder says”
Give up? It was the comma. The comma is what makes the Detroit Free Press headline remotely accurate. Because the Michigan Business-Tax climate did not, in fact, “soar” according to the Tax Foundation, though Rick Snyder would love for us to think so.
See, at the Tax Foundation “Business Tax Climate” means a very specific thing. It’s an aggregate of five different tax climates: Corporate Income Tax, Property Tax, Sales Tax, Individual Income Tax, and Unemployment Insurance Tax. That’s what the “Business Tax Climate” is. As distinct from the “Business, Tax Climate”.
Here’s the lead paragraph in the Detroit Free Press article:
The huge changes in Michigan’s tax structure during 2011 has prompted the Tax Foundation to move the state from 49th in terms of tax climate to 7th.
Funny story…that’s not what the official Tax Foundation report actually says. In fact, Michigan’s OVERALL business tax climate is listed at 18th for 2012…DOWN from 17th in 2011. And our Corporate Tax structure is still at 49th for 2012.
“That’s weird” I thought. Would our Governor just LIE about something like this?
So I called the Tax Foundation. Those Tax Foundation dudes were REALLY nice and freely gave me their time and patiently explained to me what was going on.
Here’s what’s going on:
The numbers that Rick Snyder is touting are what are called “hypothetical” numbers. That’s the exact word the gentleman from the Tax Foundation used: “Hypothetical”. I’ll get to that in a minute. First an explanation of the changes.
Basically the official number posted on the website (18th overall in Business Tax Climate and 49th in Corporate Tax Climate) were made before Snyder’s tax policy took effect. So the Tax Foundation decided to see what Michigan might have been ranked IF the current tax policies were in fact accounted for.
So, if we could freeze dry the entire world and go back in time and change ONLY Michigan’s numbers, what would they be?
In this case, Michigan’s CORPORATE tax climate would have gone from 49th to 7th in the nation. CORPORATE tax climate. But Michigan’s overall BUSINESS tax climate would have gone up from 18th to 12th in the nation. A rise! But far from “soaring”. And a rise from an already above average number.
Okay…so why did the Tax Foundation fellow call the revised numbers “Hypothetical” numbers? Two reasons.
ONE: Because the special report assumes that Michigan changed but everybody else stayed still. But that didn’t happen. We really don’t know where we stand relative to other states. We can only guess.
and more importantly
TWO: The revised report does NOT include changes to the Personal Income Tax which INCREASED for 51% of Michiganders as child tax credits and low income home interest tax credits are removed and pensions are now taxed. Our personal income tax situation is getting worse here in Michigan, not better. That’s bound to be a drag on the overall Business Tax Climate.
it should be noted that Michigan’s reform also included some changes to the personal income tax, most of which do not come on line until 2013. These changes are not included in the estimate above.
What Snyder would like to have us believe is that we’ve dramatically improved our Business Tax Climate. We haven’t. Our tax climate was above average at 18th in the nation before Snyder’s tax policies took effect. Even if we apply the new changes without the increase in personal income tax, the rosiest picture is us moving up from above average to slightly more above average.
But even that “rosy” scenario is a distant estimate that doesn’t hold up under scrutiny. All he’s done is give more tax breaks to the mega-corps. GREAT news if you’re a mega corp. For the rest of us, not so much. But we knew that already.