Emerging issue: graduated income tax

Michigan has a flat 4.25% income tax rate for all earners, but each year proposals to move to a graduated income tax surface and MFB policy is silent on the issue. The income tax in general has a direct impact on financial stability given the high volatility of farm income due to market fluctuations and weather. For the state’s 43,000+ farms—98% of which are family-owned and operated as pass-through entities—taxes can create fundamental change in how agricultural volatility and business reinvestment are handled.

A flat tax is considered regressive because it imposes a higher proportional burden on lower-income individuals than on wealthier ones. Lower-income households must spend a larger share of their income on necessities; therefore, a flat-tax rate takes a larger portion of their “disposable” income. Currently, Michigan’s Constitution requires a flat tax. A group called Invest in MI Kids is currently collecting signatures to place a proposal on the statewide ballot to establish a graduated income tax to help fund education. This proposal would create a 5% tax on annual income over $500,000 for individuals or $1 million for joint filers. This boost in education funding proposes to fund classrooms, special education, and teacher retention.

While a graduated tax is often framed as a tax on the wealthy, its application to pass-through entities means many Michigan family farms could face increased tax rates in certain years. This could have an impact on margins required for profitability and sustainability.

Questions to Consider

• Should MFB policy support or oppose a graduated income tax?
• Would a reduction in income tax be beneficial to Michigan agriculture?
• Should wealthy earners pay more in income tax to create balance for Michigan families?