Lawmaker Wants to Replace Flat Tax with Graduated Scale to Fix Roads

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A Michigan lawmaker has proposed replacing the state’s flat income tax with a graduated schedule to help pay for road repairs after the defeat of Proposal 1 last week.

The changes proposed by Rep. Jim Townsend, D-Royal Oak, would raise rates for the state’s wealthiest taxpayers, MLive.com reports.

Last week, voters turned down a complex proposal that would have raised the state sales tax by 1 percent to create a pool of money to repair Michigan’s decaying roads.

Townsend said the proposed legislation addresses perceived inequities in the flat tax, which requires all filers to pay a 4.25 percent tax, regardless of how much they earn. That’s unfair to low-income residents, who spend a larger portion of their income on taxes, Townsend said.

“People have a feeling some are not paying their fair share and some are getting a special deal – and they happen to be right,” he said.

Michigan residents pay about a half dozen different taxes at the state and local level. Townsend thinks the Legislature should take a look at all of them to determine how to make the system more fair to all residents.

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“If you establish a graduated income tax, you can equalize the proportion of people’s income paid in overall taxes,” he said.

To accomplish that, a change will required in the Michigan Constitution, which prohibits graduated income taxes. That’s an arduous process in the Republican-controlled Legislature, where constitutional changes require first a two-third supermajority vote, and then voter approval.

Even so, both Townsend and Rep. Jeff Irwin, D-Ann Arbor, have introduced graduated tax resolutions.

A recent EPIC-MRA statewide poll suggested that when told a graduated income tax would reduce rates for most taxpayers, a majority of likely voters supported the graduated tax.

“We wanted to show data so it wasn’t just me and some of my colleagues saying it,” Townsend said.

Opposition is likely from the Michigan Chamber of Commerce, which has billed Irwin’s proposal a form of “class warfare.”

“This sends a clear message about the direction that Michigan Democrats want the state to go: immediate and blatant redistribution of wealth that punishes individuals and job providers for being successful,” the Chamber said in a position paper.

The idea of a graduated tax has been rejected three times – in 1968, 1972 and 1976 – since the income tax was approved in 1967 to address funding deficits. Michigan is one of only eight states with a flat income tax.

Townsend said he thinks voters turned down Proposal 1, in part, because they know the sales tax is regressive.

“Yet we understand that we need more revenue for vital priorities in infrastructure and public safety and education. Where’s that money going to come from?” he said, adding middle-class taxpayers are “pretty tapped out, and obviously the working poor can’t afford to pay more.”

“And yet we have the people in the top 5 percent, and specifically the top 1 percent, who have been doing by all accounts, extremely well,” he said. “That’s great, but this is a state we all have to live in.”

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Photo illustration by DonkeyHotey via Flickr