Michigan Voters Reject Sales Tax Increase, Expanded EITC

By Lauren Pescatore

Yesterday, Michigan residents voted against a ballot proposal to increase the state’s sales tax in order to boost funding for schools, transportation and support for lower-income workers and their families. Proposal 1 would have raised the sales tax from 6 percent to 7 percent, raising nearly $1.3 billion to improve the quality of Michigan roads and hundreds of millions more in support for low-wage workers. The legislation more than tripled the size of the Michigan Earned Income Tax Credit (EITC), bringing it from 6 percent to 20 percent of the federal credit by 2016. The increase would have restored cuts to the credit made by lawmakers in 2011, reversing a nearly $247 million tax increase for working families

Many of the proposal’s advocates attribute its failure to the complex nature of the legislation. Recent polling in the state showed that 64 percent of respondents would support a 1 percent increase in the state’s sales tax if they knew that all of the revenue raised would go towards roads, bridges and transportation. But 61 percent of those same voters noted that they planned to vote “no” on Proposal 1, indicating a lack of understanding of the legislation. When asked about alternative funding sources for improving road quality, 86 percent opposed cuts to support for the poor, elderly and disabled. The legislation would have provided a tax cut to some of Michigan’s poorest workers in the form of the EITC.

The Tax Foundation estimates that Proposal 1 as a whole would have increased state revenue by $2 billion.