2004 Income Tax Study Disseminated
At Ann Arbor city council’s recent budget retreat, during a priority-setting exercise in which councilmembers went around the table naming a top priority for them in the coming year, Leigh Greden said he wanted to see a thorough assessment of the possibility of a city income tax. Councilmember Stephen Rapundalo had made a request at the Jan. 5 city council meeting that staff dust off the 2004 income tax study and begin to update it with current information. Tom Crawford, chief financial officer for the city of Ann Arbor, has now disseminated the 2004 Ann Arbor city income tax study [2.5 MB .pdf].
Although the data is five years old, the 2004 study will be useful to Chronicle readers who would like to familiarize themselves with the relevant concepts involved. Because of the multiple charts and graphs presented in landscape orientation, readers might find on-screen viewing somewhat cumbersome and should consider printing out selected portions.
Who are these people and what reality are they living in? Possibility of an additional income tax during a recession? I can’t think of a better way to further drive away potential Ann Arborites and keep our property values sinking…
John V,
re: “additional tax”
One of the key facts reflected in the study is that per city charter, we cannot have both a property tax and an income tax. But the perception of Ann Arbor as “a place where they have that additional tax” is something that I think would be part and parcel of a discussion of whether we want to adopt a city income tax — which I take to be part of your point.
According to the report (absolute page 15), switching from property tax would switch tax burden from 51/48 residents / corporations to 56/22/22 for residents, non-residents, and corporations, respectively.
So a pure plan would be a huge tax break for corporations, and a hit for both residents and non-residents. Why is this a good idea?
This makes me think that we should have a bit more full disclosure from the advocates about their corporate affiliations.
A city income tax hurts people with lower than average wages who must commute to work in Ann Arbor because they can’t afford to live in the city. It increases the size and reach of the bureaucracy. It’s a small business killer. It benefits large corporate development. It’s marketed as a way to get those “big buck” UM earners who don’t live here. For local property taxes, it’s marketed as a wash and a way to lower property taxes.
I put about as much trust in city hall’s claims and projections as I do a Beatles reunion
“So a pure plan would be a huge tax break for corporations, and a hit for both residents and non-residents. Why is this a good idea?”
I haven’t given the 2004 study more than a quick skim-through. My reflex reaction to comment [3] was, “Surely Zimmerman’s got his ‘respectivelys’ mis-configured. But going to page 15 (absolute 15 means the page as viewed on-screen — it’s page 13 if you’ve printed it out) confirms that this, in fact, was the projected burden shift.
So to Fred’s question, I would only add one question mark:
Why is this a good idea??
Wait up, that’s still not quite right. It needs an exclamation point.
Why is this a good idea??!
I’m willing to grant that this is 5-year old data, and the current initiative asks for an updating of the study so that we have current projections. It’s hard to argue against getting updated projections. But now I know which part of the updated study I’ll be looking at first.
This study is out-of-date in several ways, including assumptions that property values and personal income will continue to increase. However, the central conclusion is likely to remain–the city can increase overall revenue by capturing millions from commuters.
Whether residents and corporations pay (proportionately or absolutely) more depends on the amount of income exempted from the tax. The 56/22/22 split comes from the model with the lowest exemption ($600). With an $8000 exemption, the ratio is 47/17/36. Councilperson Greden has stated that he favored a high exemption.
For me, asking non-residents to pay at all is more objectionable than the fact that businesses might pay less. All of the arguments about Ann Arbor’s contributions to the greater community strike me as high-handed arrogance that only reinforces negative images of Ann Arbor. For the record, I live and work in AA.
Bring it on with the 47/17/36 ratio! There is no reason for me as an Ann Arbor resident to provide roads/resources to all of the “out of towners” that commute into jobs at non-taxpaying employers such as UM and UM hospital.
Yes, #7, taxing out of towners will certainly make things better here in Ann Arbor.
Right, it’s not like those people spend millions of dollars at city businesses or donate to city charities or otherwise participate in the city economy.
Making a distinction between “the (local/city) economy” and “municipal services” might be helpful. U-M president Mary Sue Coleman in her comments to faculty regarding the possibility of PILT earlier this week, which the AA News reported on today, referred to the former, while the mayor (understandably) referred to the latter. I see the same potential for talking past each other with Kris’s and Bob’s comments.
I don’t see any talking past. It’s absurd to suggest that city residents do not benefit from non-residents who work in the city.
As with Dave Askins I have really only skimmed the report but …
With the potential for the city to almost double its revenue (at least that is what this report was says) it is certainly easy to see why this is being entertained. However at one point money is money and regardless of how you take it, you have to take it from someone and then they don’t have it. Is this the time to be doubling taxes? The report counseled, “Moving to an income tax increases a community’s dependence on the health of the general economy.” That’s not a concept that should change with an updating of this report.
Of course, the city need not adopt an income tax system and also double its revenues, it could apt for a lower rate to simply redistribute the tax base. But will they?
I was also struck that more than 20 Michigan cities already had city income taxes (including one I have never heard of) adopted as long ago as the 60’s and as recent as the 90’s. With this number of examples in the state I am sorry that the report doesn’t seem to offer some insight into the transition between the two systems (did I miss this?). I am wondering if the corporations raise salaries as their tax burden gets lighter? Does the working population suddenly adjust after adopting a new structure? Do business trends change over time?
Last thought, if commuters’ salaries are to be taxed could they then serve on city boards that right now are only offered to residents?
John V., re comment #1, the more I read the AAC and ArborUpdate, the more it seems to me that there are two fundamental groups of people who post in these venues and float ideas here.
One, the majority here, is composed of people who believe in city government, want to give it more resources, and want it to work more effectively and humanely to provide various desirable services; a lot of those services are to some extent “new” as in they are accorded moderate priority (or, if you will, lip service) under the status quo, e.g higher degrees of environmental sustainability, 100% sidewalk snow removal.
The second group, the minority, is fundamentally skeptical of city government and is operating with a different set of goals, more focused on efficiency and economic growth.
In Ann Arbor, it’s not as simple as saying group #1 is Democrats, group #2 is Republicans.
To answer your question, “who are these people,” I believe there is a sampling problem because group #1 likes these venues more than group #2. I’ll stipulate that group #1 is probably in the majority in AA, but I believe the degree of the majority is exaggerated in this environment. (For various psychodynamic reasons of my own not fully understood by me I have been waging a lonely battle to make up the difference by posting a huge volume of #2 posts.)
Wake up City Council – this property tax may not matter to big employers, but for small start ups, creative types, etc., it’s A REAL BURDEN. Such businesses will need to pay more salary or their employees, who already are risking a lot to work in such a business, need to pay more tax, on what are generally pretty low salaries. This is NOT the way to revitalize the local economy; it certainly doesn’t help folks trying to create jobs to replace companies like Pfizer get off the ground. On the other hand, it might be good for the townships and Ypsilanti which is where your small businesses will move and start spending their money. Stop wasting money on greenway studies and other non-value added programs, and focus on cost effective delivery of basic services if you need to fix the budget.
A city income tax would only eliminate the city operating millage,not all city property taxes. The operating millage was 37% of the total city property tax I paid in 2008 and 14% of my total 2008 property tax bill.
A quick and dirty way to figure out if you would pay more or less with a city income tax is to compare 1% of taxable income (line 16) on the 2007 Michigan return with 14% of the total property tax paid in 2008.