Should Michigan Eliminate State Income Tax?
It's that time of the year where everyone is searching their mailboxes for their W-2s, getting their receipts in order, and checking their account balances as well prepare to do our taxes. Annually, the Internal Revenue Service (IRS) ask all income receiving citizens to report their income and expenses so that they can verify if the correct amount was paid to the government to take care of the country's needs. This is separated in local, state, and national taxes which all have different rates.
Michigan is one of the few states in the country that has a flat income tax rate, meaning that everyone that receives income from the state of Michigan whether they are a resident or not will pay a portion of it back to Michigan. Michigan's current rate is 4.25% which is where it was for years before there was a slight decrease down to 4.05% in 2023. The flat rate isn't bad, but after looking around at some other states, losing the state income tax wouldn't be a bad idea.
Just like any other decision that is made in the world there are pros and cons that have to be weighed. When looking at state income tax, for most it seems like the pros far outweigh the cons, but that may not be the case. When you don't have state income tax, you don't get taxed on your income by the state and only have to submit a federal tax return every year, but those states tend to get their money back in other taxes. They also say that no income tax encourages businesses and residents to move into those states, so Michigan could see some good things come from dropping the state income tax.
Although, this is where all of the cons come in to play, but mostly for those in the working and lower classes as they will end up shouldering most of the weight. In states that don't have income tax they tend to have higher sales tax and property tax rates, which hurt the middle and poor classes more than the wealthy. Alongside these tax rates the in-state tuition at public universities skyrockets and public services are normally underfunded and not as qualified as other states.
There are ups and downs, goods and bads, and the best and worst out there when comparing paying state income tax versus not paying state income tax. So, the question then becomes, what is better for the state of Michigan as a whole? Would residents benefit from no income tax, or would they drown? Would the new businesses and residents be worth it? Or should we just continue paying the state their money? What do you think?
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