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Michigan Tax Reform Proposals

Budget Cuts Threaten State Programs

Summary:

• Michigan cut $350 million from state programs this year.
• Facing a $1.7 billion deficit, state agencies have been ordered to cut an additional 8 percent.
• Tax changes are being considered.


Ethel McCauley passed out while driving near Muskegon last August. Her car careened across five lanes of traffic and smashed into a utility pole. Rescue workers used the jaws of life to extract the 88-year-old woman from her vehicle.

Thanks to a pilot state program called Single Point of Entry for Long Term Care, her son and daughter-in-law, Floyd and Cheryl McCauley, received guidance from a counselor trained in navigating the long-term care system in placing Ethel in an assisted living center in North Muskegon.

But the three-year-old program that helped them and 55,000 other families find suitable caregivers within the Medicaid system was ended by Gov. Jennifer Granholm, D, and the legislature in June as part of $350 million in budget cuts. Effective Oct. 1, Granholm has proposed another 8 percent in state agency cuts to address the worst deficit in 50 years.

“In the face of a $1.7 billion state deficit, the legislature could be forced to wipe out virtually every human service Michigan continues to offer to resolve that deficit,” said Steve Gools, senior state director of AARP Michigan.

Among the program cuts so far:

Single Point of Entry for Long Term Care: When the governor cut the remaining $2.1 million of the state’s $6.3 million annual share, federal matching funds evaporated and the program ended May 31. The state and federal governments had split the annual cost of the $12.7 million pilot program.

• No Worker Left Behind: $7.8 million was cut from the $130.6 million federal-state program that helps retrain workers who have lost their jobs.

Medicaid: $20 million was cut from the state’s $1.6 billion share of the federal-state Medicaid program. That reduced payments to doctors, nursing homes and assisted living facilities. Chiropractic, vision and dental services were eliminated.

The dramatic spending cuts have prompted groups like AARP and UAW to lobby lawmakers in person, send e-mails, produce surveys and host rallies calling on the legislature to reinstate or preserve vital services.

Three tax proposals have drawn the most attention:

1. Closing tax loopholes estimated to be worth $400 million. Granholm has proposed closing loopholes worth $230 million.

2. Expanding the 6 percent sales tax to cover services such as haircuts and lawn care. It would raise an estimated $1.6 billion a year­—but the legislature hastily repealed a previous effort two years ago in the face of widespread opposition.

3. Replacing the state’s 4.35 percent income tax with a graduated income tax. It would raise an estimated $600 million but would require a constitutional amendment that would have to be approved by voters.

The Michigan League for Human Services estimated a graduated income tax could reduce the tax burden on more than 90 percent of taxpayers. AARP and other coalition members support the graduated tax as the most equitable way to generate revenue.

“With our current flat tax, we are taxing individuals below the poverty level at the same rate as millionaires and billionaires,” Gools said.

A recent poll showed strong public support for the graduated tax.

“We need revenue solutions, not more cuts,” said Sharon Parks, director of the Michigan League for Human Services.

The option that appears to have the best chance is closing tax loopholes. A coalition, including AARP, is calling for the reform. Cheryl McCauley said there is a need to restore services such as the Single Point of Entry program.

“I couldn’t navigate the system by myself,” she said. When she finally found help, “You wouldn’t believe the relief I felt physically and emotionally.”

Maureen McDonald is a freelance writer living in Detroit, Mich. 

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