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The Michigan state legislature convening in 2011, the same year Gov. Rick Snyder's new Corporate Income Tax was passed into law. (Photo: Michigan Municipal League/flickr/cc)

Michigan Corporations to Pay $0 in Taxes This Year, Despite Crises in Flint and Detroit

Under Michigan's tax code, businesses will "effectively contribute nothing to the state coffers" this year—while Flint residents pay for poison water and lawmakers defund Detroit schools

Nika Knight Beauchamp

While residents of beleaguered Flint face rate hikes for the city's lead-poisoned water and Detroit sees teachers staging sickouts after lawmakers threatened to withhold their full salaries, the state treasury announced this week that Michigan businesses are to effectively pay nothing in taxes this year.

In fact, Michigan is projected to give corporations a net refund—even while it faces a budget shortfall of $460 million.

"Officials are projecting a net loss of $99 million in revenue from the state's principal business taxes," reported Detroit News, as corporations "effectively contribute nothing to the state coffers in 2016."

This shortfall "should be a wake-up call for Lansing Republicans hell-bent on smothering government with cuts and miserly policy—and it shouldn't be an excuse for lawmakers to withhold necessary help from the (mostly poor, mostly black) City of Flint and Detroit Public Schools," argued the editorial board of the Detroit Free Press.

The cause of the budget shortfall is a confluence of recent tax code rewrites: automakers and other large companies have continued to take advantage of enormous tax credits enacted after the Great Recession in an attempt to keep jobs in the state, while under Republican Gov. Rick Snyder the state's Corporate Income Tax was rewritten in 2011 to cut business taxes to a flat 6% rate at the same time that it increased personal income taxes and the sales tax. (Policy experts have previously argued that this change not only unfairly burdened individual taxpayers but also failed to instigate the job growth it was intended to.)

Corporate tax credits will drain $1.03 billion from the state this year, reports Detroit News, while revenue from the Corporate Income Tax is projected to only total $932 million. The state treasury indicated that a 20-percent drop in annual business revenue was to blame for the nearly $1 billion net loss in corporate tax income.

Meanwhile, personal income taxes are expected to bring in about $9.4 billion, sales tax about $7 billion, and $950 million and $850 million are expected to be collected from the so-called "sin taxes" on alcohol and the state lottery.

"Fuel taxes and registration fees are also set to increase next year as part of a new road funding plan that critics say does not go far enough to reverse deteriorating conditions," Detroit News writes.

"It's a real problem when people are footing the entire bill and still not getting good services," Democratic State Senator Curtis Hertel Jr. told the local news outlet.
"We should be frustrated. We should be angry."

The Detroit Free Press argues that state lawmakers actually have the means fix the budget shortfall—they just don't want to:

Here's the final irony: The state's rainy day fund contains sufficient dollars to plug this budget hole. But we're pessimistic.

Some House Republicans seemingly believe they owe nothing to either Flint's 100,000 residents, or Detroit's 47,000 students. We fear the looming shortfall will provide them political cover to shirk their obligation to those Michiganders.

But here, political cover is analogous to cowardice. And the kind of craven policy-making that will do real harm to some of the state's most vulnerable citizens. There's no excuse for that.

Indeed, local news outlet MLive points out that state lawmakers have already indicated that the budget hole may mean that Snyder's proposal to allocate $195 million to help Flint cope with its water crisis is at risk.

"With big cuts needed," MLive reported, state budget director John Roberts "said everything was on the table."

"I would say right now from our end everything's on the table. We're going to look at the Flint commitments very seriously," Roberts said.

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