Monday, June 22, 2009

Michigan Tax Revenue Continues to Deteriorate

The latest monthly state revenue report was finally released today, and it doesn't look good. A few of the money quotes:
The revenue collected from Michigan’s General Fund and School Aid Fund earmarked taxes totaled $1.3 billion in May, which was down 13.4% from last year’s level.  This marked the  fourth consecutive month  that tax collections have declined in excess of 10.0%.  While  collections for almost all of the major taxes experienced declines in May from their year-ago levels, the most significant declines were experienced by the sales, use, and income taxes.   Compared with the Senate Fiscal Agency’s monthly breakdown of the revised consensus estimates for FY 2008-09, May collections fell below the monthly estimate by $62.0 million and this shortfall was due primarily to weaker-than-expected sales and use tax collections.

When the Senate Fiscal Agency met in mid-May, they estimated the revenues for the remainder of the fiscal year. Despite the fact that they updated their estimates at that time, actual revenues for May declined by $62 million. In other words, in the matter of a few weeks, their estimates were already off. The budget is deteriorating that quickly.

Sales tax revenue totaled $406.6 million in May, which was down a sharp 22.2% from the year-ago  level.   A consistent historical monthly series for the sales tax is available back to FY 1984-85 and the decline in May marks the largest percentage decline  in monthly sales tax collections during this 24-year period.

. . .

Tobacco tax revenue totaled $84.0 million in May, which was down 5.9% from last year’s level.  Most of  this decline is likely due to the large increase in the Federal tobacco tax that went into effect on April 1.  The Federal tax increase is having a negative impact on Michigan’s $2-per-pack cigarette tax because it boosted the price of cigarettes and therefore is having a negative impact on cigarette sales and Michigan’s tax receipts.

That last quote is vitally important. It perfectly exemplifies the power of taxation. It's common sense, but the politicians in Lansing don't seem to get it. The more you tax something, the less of that "something" you're going to get. Clearly, the more cigarettes are taxed, the fewer cigarettes that will be sold. The same goes for businesses. The more you tax businesses, the fewer businesses there will be, and hence the fewer jobs there will be. Gosh, it's pretty simple, but our tax-hiking pals in Lansing and elsewhere don't seem to get it.

Finally, the $406 million of sales tax revenue in May was the lowest monthly level of sales tax collection I could find, going back at least until 2005. Michigan is hurting, folks, and it's only going to get worse, as exemplified by the state's skyrocketing 14.1% unemployment rate.

Read a little about how California's government is collapsing because of that state's inability to enact any rational level of reform: California Collapsing.


  1. We're in the middle of a worldwide economic downturn, a national recession, and an ongoing and comprehensive restructuring of the state's economy (after decades of neglect). As such, I don't think it's fair to analyze the state's economic performance solely through the lens of tax policy.

    Declining cigarette sales (and tax revenues) are a good thing because it means that the state will be paying less for tobacco-related illnesses. Unfortunately that's a long-term cost savings so the results aren't immediate.

    Tax cuts are not a panacea, and slashing the tax rate isn't going to magically turn everything around for the state. If that were the case, the states with the highest tax rates should be doing worse than we are, and yet they're not.

    According to the Tax Foundation, Louisiana has the lowest tax burden in the US and yet their government is still struggling for revenue:

  2. Funny that collection levels would drop so precipitously after taxes were RAISED by $1.5+ BILLION in 2007.

    A guy might get the idea the two were connected...


  3. Southwest WashtenawJune 23, 2009 at 7:16 AM

    Nick - collection levels did not "drop so precipitously after taxes were RAISED by $1.5 BILLION in 2007"

    The House Fiscal Agency Quarterly Revenue Report in October 2008 indicated that total revenue (4th quarter 07-08) had increased from 06-07 (4th quarter) by 8.4%. YTD revenue had increased by 8.2 %.

    4th Quarter (06-07 to 07-08) Income tax revenue was up by 10.1%, Sales and Use taxes were up by 1.7%, MBT/SBT and Insurance taxes were up by 76.2%. Only "Other Revenue" (SET, RET, tobacco tax, and lottery revenue) had declined by 0.6%.

  4. Correlation does not equal causation. If it did, one could draw the conclusions that the Bush Administration's massive tax cuts were responsible for the current recession.

  5. Actually, if you look at taxes collected as a percentage of total personal income in the various States, there doesn't appear to be any correlation between tax levels and unemployment rate. Florida has one of the lowest tax incidences in the nation but their unemployment rate is nearly as bad as Michigan's. In fact if you average the 11 states with the lowest tax rates and the 11 with the highest tax rates, the 11 with the highest tax rate average unemployment rate is lower than the average unemployment rate for the 11 states with the lowest tax rates.

    Oregon, Georgia, Tennessee, Alabama and South Carolina all have low tax rates and unemployment over 10 percent. Meanwhile Vermont, Hawaii, and North Dakota are the three states with the highest tax incidences, and Vermont and Hawaii's unemployment rates are well under 8 percent, and ND unemployment rate is less than 5 percent. I'm not saying that raising taxes is the best thing to do in a recession, but there's more to Michigan's economic woes than taxes, and the State is required to balance the budget.