Another Old Income Tax Study
Following the directive from councilmembers during a regular meeting, as well as at a city council budget retreat, to update the most recent study of a city income tax for Ann Arbor, the 2004 Ann Arbor Income Tax Study has been disseminated by Tom Crawford, chief financial officer for the city of Ann Arbor. But the 2004 study was by no means the first such effort to analyze the impact of a city income tax on Ann Arbor.
In 1997, a similar effort was undertaken by the University of Michigan School of Public Policy. Chronicle reader and Stopped.Watched. correspondent Vivienne Armentrout lent her perfect-bound copy of that 73-page document to The Chronicle, which we’ve scanned and converted to a 4 MB .pdf file: [1997 Ann Arbor Income Tax Study].
Although the document itself does not appear to feature any credit for authorship beyond the UM School of Public Policy, in a note to The Chronicle, Armentrout attributed it to Edward Gramlich, who went on to be appointed to the Federal Reserve Board of Governors by President Bill Clinton in 1997, a post he resigned in August 2005.
We have not examined the 1997 study in any detail, but note that it’s rich in historical background (referenda were held in Ann Arbor in the late ’60s and early ’70s, both of which failed) and offers plenty for mathematics mavens to sink their teeth into: ” … we transformed the equation 2.1 by taking the logarithm of both sides.”
We suggest that one use of comments on this article could be to summarize some bite-sized sections of the 1997 study for other readers.
The first thing I noticed was that on p. 39 of the PDF the study came to the same conclusion as the more recent study: this is a huge tax break for businesses. Both scenarios lead to a tax reduction for businesses of 30%, or $6.1M.
In light of this, I renew my call for improved disclosure of financial interests by advocates of the income tax, especially the pseudonymous ones.
The study is not correct when it says that workers in Detroit and live in Ann Arbor would not pay in Ann Arbor. It was learned to the Ypsi tax fight that a resident that works in an income tax city pays the non resident rate in both cities.
So if you work in Detroit you pay the 1.25% non resident rate to Detroit and live in Ann Arbor you pay the 0.5% non-resident rate to Ann Arbor. This was according the treasury official from Pontiac during one of the town hall meetings and Ypsi’s legal counsel.
I also noticed that the report does not give information about its authorship or how it came about.
It was the result of the recommendation of the Budget Review Committee, reported in the Council minutes of May 13, 1996. The committee recommended “contracting with a consultant” as the first step…toward potential implementation of a city income tax.”
Here is the entry in the Council minutes of February 2, 1997: “Edward Gramlich, Dean of the University of Michigan School of Public Policy, and his graduate students, Karen Gates, Kim Hill, Chris Sauer, Darby Miller Steiger and Meghan Henson, presented a summary of ΑThe Revenue Impacts of a City Income
Tax for Ann Arbor. Mr. Gramlich reported that the purpose of the study was not to support or oppose a city income tax, but to analyze its impact on the City budget and on different categories of individuals in the City.”
Well, that’s certainly an authoritative author!
The idea of an Ann Arbor city income tax was discussed in detail by the Ann Arbor Area Chamber of Commerce, I believe both in 1997 and 2004. The Chamber’s Public Policy committee, of which I was a member, spent a lot of time on this issue. It is important to gather all points of view and include in the discussion reports that the Chamber put out on the topic. Although at the moment I don’t recall all of the details, it is my recollection that the Chamber felt a city income tax would NOT benefit most businesses and felt that the U of M study, led by Edward Gramlich, was lacking and did not necessarily reflect the reality of such a tax in Ann Arbor. In this tough business climate, we want to make sure we don’t put an extra burden on businesses or employees and make the situation even worse. Fortunately, such a tax would have to be voted on by city residents so a complete discussion would likely occur if a ballot initiative is proposed. In the meantime, the city should continue to look for ways to cut their spending and not start counting their eggs before they are hatched – or voted on…
Peg,
I think there are a couple of aspects to the question of whether an income tax would “benefit” Ann Arbor businesses Both the Gramsci study and the 2004 study reached unequivocal conclusions that the income tax would result in a very substantial — multi-million dollar — shift of taxes from businesses to (primarily) nonresidents and (partly) residents. Money talks!
I agree that even despite that $ savings, an income tax would be bad for business. I agree with all the arguments about burdening business owners, creating disincentives for job creation, etc.
But, Peg, if you are still connected to the Chamber, I wouldn’t advise either you or the Chamber to wait for the ballot initiative to be proposed … the “complete discussion” has already begun, here and at Arbor Update … it’s pretty interesting to see city politics moving online.
I heartily agree that city should plan on cutting spending because I think there is no way an income tax will pass.