I’d like to thank Mr Wolf for reinforcing my point with his informative email. The difference between consumption taxes (as most of the taxes he mentioned ARE consumption taxes) and income taxes is EXACTLY the reason that some STATES don’t even collect income tax!
Consumption taxes are more progressive than income taxes and (in the East Lansing situation) don’t punish “non-residents” for East Lansing’s financial mismanagement and force them to pay for anyone else’s “quality of life”.
So, yes, compare all you’d like… but please make sure that you are comparing apples to apples… and that you’re not “cherry-picking” your facts.
Voting yes is simply forcing others to pay to support East Lansing’s extravagance and poor planning. And that’s not taking responsibility for the situation the city and residents find themselves in..
Sent: Tuesday, July 31, 2018 10:10 PM
Subject: re: re: Smart Development, Cool City, No Income Tax // Christopher WolfPublic Response: re: re: Smart Development, Cool City, No Income Tax // Christopher Wolf
In response to Dave Finet:
As long as we are comparing East Lansing with other Big Ten cities, some research shows that many of them have already thrown their own “tax hail mary” many years ago. A partial list shows residents of these other cities are paying above and beyond what East Lansing residents pay:
Champaign-Urbana: 2.5% sales tax, plus local motor fuel tax, local hotel/motel tax, local packaged liquor tax, local vehicle tax, local food and beverage tax, local recycling tax and local telecommunications tax
Columbus: 2.5% income tax
Minneapolis-St. Paul: .5% sales tax
Bloomington: 1% county income tax
Evanston: 2% sales tax
Lincoln: 1.75% sales tax plus local vehicle tax
Madison: No other local taxes, but reports from Wisconsin indicate that their local property taxes are among the highest in the nation
This is probably not a complete list.
In addition, Minnesota, Iowa, Wisconsin, New Jersey and Nebraska have much higher state income tax rates than Michigan, while Ohio, Illinois and Maryland also exceed Michigan’s rate. I don’t know how the states apportion that money, but there’s a good chance that they share more state revenue with their cities than Michigan does with our low state income tax rate.
9 thoughts on “Consumption taxes vs Income taxes… // Dave Finet”
I think a consumption tax on alcohol would be a big fund raiser for EL. I don’t think it would adversely hurt bars and liquor sellers, and I don’t think drinkers would complain about the cost. (Well, not after a couple drinks). This would be a great way to cover the costs in services to non-residents that frequent East Lansing.
State law prohibits East Lansing and all other municipalities in Michigan from taxing alcohol for local revenue. We also can’t pass a sales tax. The state also restricts income from property taxes in various ways. If you’d like to read more from a nonpartisan voter guide (disclosure: I co-wrote it) about what East Lansing can and cannot do to raise money, please see:
Alice Dreger / Publisher / East Lansing Info
Several important clarifications on the tax issues:
1. In Michigan, by state law, cities cannot impose consumption (sales) taxes, so that is pretty much irrelevant to the East Lansing discussion. If you think East Lansing should be allowed to have a city sales tax, take it up with state lawmakers.
2. Sales taxes in general are more regressive, not more progressive, than income taxes.
3. City sales taxes do indeed affect (or “punish”, if you prefer) non-residents, since they apply to all sales in the city regardless of who is making the purchase. In fact, this is why consumption taxes such as motel/hotel taxes are popular in certain areas — they are paid almost 100% by non-residents! In this sense, city income taxes in Michigan are less punishing to non-residents than a sales tax is, because non-residents pay only half the income tax rate of residents.
4. The reason that some states find sales tax to be a better choice at the state level is not that they are more progressive or more fair. It is, as explained in the article provided by Mr. Finet, because sales taxes provide more stable revenue through changing economic times.
Thank you Mr Wolf for clarifying and correcting my take on sales taxes vs income taxes.
As you say, implementation of sales taxes are irrelevant to the East Lansing discussion, and therefore I shouldn’t have let your use of them in your comparisons in your original response distract me from the point that a “Yes” vote remains on it’s face a blatant grab of funds from our neighbors (there was a lengthy discussion of the negative effects of the EL income tax on Lansing last go around exactly because it will take money from their income tax collections to cover EL’s mismanagement) and working folks, while rewarding property owners with a tax break in the face of the EL financial trainwreck. And THAT is certainly not progressive…
Never expected to see state and local government public finance, which is my academic specialty, becomes such a topic of debate among community folks. Let me offer a few clarifications.
Local government income taxes are used in 15 states (but really important only in 5), whereas local government sales taxes are used in 37 states. As noted, local governments in Michigan do not have legal authority to levy a general sales tax. However, all county governments in Michigan (including Ingham) collect a hotel/motel sales tax, and Wayne County collects a tax on gross receipts of restaurants, hotels, and car leasing for stadium and convention facilities. So, state government could adopt a new law permitting various types of local government sales taxes, but that likely is a long-term process.
Local general sales taxes tend to especially benefit retail centers, which in this area might mean Meridian Township and Lansing Township especially (although there is Kroger, Meijer, Costco, SBS in EL).
A more immediate action the state government could take is funding existing state intergovernmental grant programs for local government. This would not require any new laws, just larger annual appropriations to the existing programs. I’ll discuss this more in a subsequent post.
Professor of Economics
Michigan State University
I don’t understand this concern over the effect an East Lansing income tax would have on Lansing’s income tax. It has been many, many decades now since Lansing enacted their own “blatant grab of funds from [their] neighbors” to get non-residents to pay for Lansing’s costs through an income tax. Residents of East Lansing and surrounding areas who work in Lansing have been supporting Lansing through this tax ever since. In fact, even if East Lansing enacts an income tax, our residents who work in Lansing will continue to pay the same .5% to Lansing that they always have. The only difference is that some income tax payments would also come in the other direction.
In response to consumption taxes:
Most of us on council have discussed this and some even see this as a better option. Unfortunately the State of Michigan does not allow us to institute a sales tax locally.
EL city council
Unfortunately, Michigan cities are not allowed to levy any consumption taxes.
East Lansing City Council
We must choose amongst real alternatives. Michigan law does not permit cities to levy consumption taxes. The only significant general revenue over which cities in Michigan have some control is either property taxes or income taxes, and both of these are severely circumscribed as to form and rates. Fees for specific services must be consistent with the cost of rendering those services.