Detroit City Income Tax

**BrushStart** · July-31-10, 08:16 PM

Detroit City Income tax for residents is 2.5%, and for non-residents is 1.25%, while in Chicago, it is 0% for both.

What are people's feelings on this? I am not crazy about tax reform, but it seems to me that these taxes actually do deter people from living in the city.

Lowering the resident income tax to equal the non-resident tax would entice people who work in the city to live in the city, or so I seem to think. Any chance this happens under Bing's administration?

**Huggybear** · July-31-10, 11:55 PM

It's worth a lot of money to the city. With what would you replace it?

**kraig** · August-01-10, 09:23 AM

More unfortunately, the State of Michigan pulled a fast one on Detroit a some years back. There was a roll back on the City's income tax that was tied to a freeze in state revenue sharing [[ If I remember correctly, it had something to do with casino revenue as well.). But they were seperate bills. The state then reneged on its portion of the state revenue while leaving the City bringing in less income tax. Between the less in income tax and the reduction in state revenue it pretty much nullified the extra revenue that was being brought in by the casinos.

Just another example of why Detroit doesn't trust Lansing.

**BrushStart** · August-01-10, 01:36 PM

Originally Posted by Huggybear

It's worth a lot of money to the city. With what would you replace it?

I think the city should do some studies. The first survey should assess whether people who work in Detroit and pay 1.25% would consider living inthe city if their tax rate would stay the same.

The second survey should ask people who live outside the city if a reduction in the resident tax rate would entice them to move to Detroit.

The bottom line is that if the studies showed that a lower resident tax rate would bring people into the city, the city's revenues might not change because more people would be contributing, albeit at a lesser rate. The city gets the same revenue in its coffers and a higher population. A real win-win.

bartock · August-01-10, 02:54 PM

Originally Posted by BrushStart

I think the city should do some studies. The first survey should assess whether people who work in Detroit and pay 1.25% would consider living inthe city if their tax rate would stay the same.

The second survey should ask people who live outside the city if a reduction in the resident tax rate would entice them to move to Detroit.

The bottom line is that if the studies showed that a lower resident tax rate would bring people into the city, the city's revenues might not change because more people would be contributing, albeit at a lesser rate. The city gets the same revenue in its coffers and a higher population. A real win-win.

I'm guessing the problem with that would be the "taxation without representation problem." Right now, I'm paying half a resident's tax because, in theory, I'm not getting the full benefit of city services [[snicker). The taxation without representation camp would have a much better argument if the numbers were the same, and I wonder if it wouldn't be illegal.

**BrushStart** · August-01-10, 03:23 PM

Originally Posted by bartock

I'm guessing the problem with that would be the "taxation without representation problem." Right now, I'm paying half a resident's tax because, in theory, I'm not getting the full benefit of city services [[snicker). The taxation without representation camp would have a much better argument if the numbers were the same, and I wonder if it wouldn't be illegal.

I see what you're saying, but for the sake of continuing the discussion, Detroit could study the effect of making the resident tax rate 1% and the non-resident tax rate .5%, that way it would still be half, but lower for both.

The basis of my argument is this; suppose Detroit had a tax rate of 10% for residents [[an extreme example), very few people would live in the city considering the alternatives. Now, imagine the tax rate is 5%, more people would be inclined to live in Detroit than at 10%, but less than at 2.5%. If you had the data and graphed it, there would be an intersection point that showed the best possible rate.

At 2.5%, there are people willing to live in the city, but the rate seems to be arbitrarily picked rather than based on calculation. The point is, Detroit might be able to lower its resident tax rate to say 1.21357% and it would still collect the same revenue it does now because more people would be willing to live in the city and pay that lower rate than the 2.5% currently levied. There needs to be some research done. I don't think the current tax structure is efficient. It seems arbitrary.

**Hermod** · August-02-10, 11:34 AM

Originally Posted by bartock

I'm guessing the problem with that would be the "taxation without representation problem." Right now, I'm paying half a resident's tax because, in theory, I'm not getting the full benefit of city services [[snicker). The taxation without representation camp would have a much better argument if the numbers were the same, and I wonder if it wouldn't be illegal.

Unless it is illegal under a state constitution or state law, a city, town, village, county, or township can impose a tax on income earned in the entity. it could be a two-tiered tax with a lower rate for non-residents or it could be a uniform rate. It could actually be a higher "effective" rate for non-residents by giving residents a "homestead exemption"..

What restrains an entity from unbridled greed and exploitation of non-residents is the real possibility that the non-resident employees may band together and coerce their employer to un-ass the jurisdiction.

**douglasm** · August-01-10, 10:02 AM

The reasoning behind the non resident tax back in the 60's when it was put in place, was that non residents who work in the city use city services without directly paying for them, but don't use them at the rate residents do. I don't think lowering the resident rate would 1) cause people who work in the city to move back in, and 2) be unfair to non residents who don't use city services 24/7.

**MCP-001** · August-01-10, 10:42 AM

"No taxation without representation."

I recall a country getting started over that argument.

If Detroit wants to shake down non-residents with a direct tax on their income, then it only stands to reason that those very same people should have a say in exactly how that money is spent.

People were arguing in front of CC this week regarding taking away the right to vote [[i.e. mayorial takeover of school district), why is this any different?

**Huggybear** · August-01-10, 02:21 PM

How is it taxation without representation? Detroit's power to impose income taxes is a function of state law [[Act 284 of 1964), not some claimed inherent authority of the city [[which is just a political subdivision of the state anyway). If non-resident Detroit workers living in Michigan are upset about non-resident taxes or want to condition collecting them on giving them a vote, they can petition their own elected state legislators to amend the state tax statute accordingly.

Originally Posted by MCP-001

"No taxation without representation."

I recall a country getting started over that argument.

If Detroit wants to shake down non-residents with a direct tax on their income, then it only stands to reason that those very same people should have a say in exactly how that money is spent.

People were arguing in front of CC this week regarding taking away the right to vote [[i.e. mayorial takeover of school district), why is this any different?

**R8RBOB** · August-01-10, 02:34 PM

Originally Posted by Huggybear

How is it taxation without representation? Detroit's power to impose income taxes is a function of state law [[Act 284 of 1964), not some claimed inherent authority of the city [[which is just a political subdivision of the state anyway). If non-resident Detroit workers living in Michigan are upset about non-resident taxes or want to condition collecting them on giving them a vote, they can petition their own elected state legislators to amend the state tax statute accordingly.

This I can agree with. The people can lobby to change the tax codes and have Act 284 repealed to remove local income taxes. To think that Detroit alone is going to remove the tax is a pipedream. It would be nice if Detroit didn't charge a tax but you have other cities that do the same thing, collect a local tax.

LodgeDodger · August-01-10, 02:41 PM

Hell, the property taxes are what keeps people from considering a move back to Detroit.

**Patrick** · August-01-10, 02:45 PM

Originally Posted by LodgeDodger

Hell, the property taxes are what keeps people from considering a move back to Detroit.

Pretty much this

**MCP-001** · August-01-10, 03:28 PM

Originally Posted by R8RBOB

This I can agree with. The people can lobby to change the tax codes and have Act 284 repealed to remove local income taxes. To think that Detroit alone is going to remove the tax is a pipedream. It would be nice if Detroit didn't charge a tax but you have other cities that do the same thing, collect a local tax.

It actually started off as a MI Supreme Court Case [[Dooley v. City of Detroit) which was eventually made into the public law you cited after the newly re-written Michigan Constitution forbad it.

Your right, people can lobby to change this. But given the fact that 22 Michigan cities imposed income taxes on their non-residents, and most of the states population resides in cities, I don't need my Magic 8-Ball to tell you the final outcome.

With the number of Michigan homes under-water, government is not going to be giving up any revenue sources in the foreseeable future.

**Huggybear** · August-01-10, 05:23 PM

Interesting that there was an unsuccessful class action on this in 1963. Are you sure that the 1963 constitution actually forbade local income taxation? Or did it just require such taxes to be authorized by state law? I'm just a little puzzled about how if the constitution prohibited something, you could get around that by simply passing a law. It all is, however, an academic point because the authorizing statute is still in effect and apparently hasn't been successfully challenged in 46 years.

I would disagree about the likelihood of overturning the local taxation statute - outstate interests did it with Detroit's residency requirements for public employees. The fact that everyone in Michigan lives in a city is not as important as the voting block that the 22 taxing municipalities might make. In reality, nonresident taxes probably aren't a big-ticket issue, and it's not really in the interest of a city without one to force cities with taxes to become more competitive.

Really, though, isn't the whole discussion of local tax rates in this thread a little bit upside-down? The first issue is pragmatic. There are certainly Detroiters who feel that the income tax is an inhibitor to business. But you probably wouldn't want to give up revenues by cutting the rate or eliminating the tax unless you were absolutely sure that you could make it up. And fundamental to that is making sure there are no other inhibitors such as crime, an uneducated workforce, lack of transit, etc. The better thing to do is to build tax breaks into development incentives where necessary. Making some brutal, across-the-board cut to the tax rates threatens that you will have a city that is bankrupt in addition to having other inhibitors.

The second question is related to localization. Of what people pay in taxes, city taxes are much more likely to stay local. Why aren't people attacking the export of money to the state, which for decades dumped tons of Detroit money into an irresponsibly large infrastructure and financially supported balkanized local governments? If you want to put a point or two of income-tax sweeteners into Detroit, I'd say take it from Lansing's cut.

Originally Posted by MCP-001

It actually started off as a MI Supreme Court Case [[Dooley v. City of Detroit) which was eventually made into the public law you cited after the newly re-written Michigan Constitution forbad it.

Your right, people can lobby to change this. But given the fact that 22 Michigan cities imposed income taxes on their non-residents, and most of the states population resides in cities, I don't need my Magic 8-Ball to tell you the final outcome.

With the number of Michigan homes under-water, government is not going to be giving up any revenue sources in the foreseeable future.

**Patrick** · August-01-10, 12:14 PM

If you do not live in the city, but pay taxes as an employee based in Detroit, do you still get charged a fee at the DPL?

**douglasm** · August-01-10, 02:20 PM

Patrick....
.....I don't know about now, but "back in the day", you got use of DPL without a fee.

I remember MCP-100's argument about taxation without representation coming up in the original discussion about city income taxes in the 60's, but there must be a legal basis for it. 22 cities in the state have variable rate [[resident/non resident) income taxes.

**DanFromDetroit** · August-02-10, 08:14 AM

I'm sure all those BCBS & Quicken folk are going to LOVE it - look at all the advantages you get!

**bailey** · August-02-10, 11:14 AM

Originally Posted by DanFromDetroit

I'm sure all those BCBS & Quicken folk are going to LOVE it - look at all the advantages you get!

or they could buy in an NEZ and see reduced taxes for 12 years...

**DanFromDetroit** · August-02-10, 12:44 PM

Originally Posted by bailey

or they could buy in an NEZ and see reduced taxes for 12 years...

Yeah, I'm sure Joe and Sally Quicken/BCBS would LOVE to move their 2.2 children, dog, 2 SUVs to the city & try and sell their McMansion for that little slice of awesome.

**rooms222** · August-02-10, 02:41 PM

They took away the DPL access to those who worked in Detroit [[aka non-resident taxpayer) about 5-10 years ago)......

**bailey** · August-02-10, 02:44 PM

Originally Posted by DanFromDetroit

Yeah, I'm sure Joe and Sally Quicken/BCBS would LOVE to move their 2.2 children, dog, 2 SUVs to the city & try and sell their McMansion for that little slice of awesome.

..but they are going to quit their jobs because they need to pay 2.5% tax to the city?

**DanFromDetroit** · August-02-10, 03:07 PM

Originally Posted by bailey

..but they are going to quit their jobs because they need to pay 2.5% tax to the city?

My point was that it doesn't take much motivation to push people to look for jobs in other regions. A plethora of [[mostly) suburbanites that all of a sudden are faced with a reduction in pay & the lack of benefits from that cost and I wouldn't be surprised if some look elsewhere. I've often heard from the Detroit ex-pat's [[myself included) about the "last straw" effect. City tax is one more thing that isn't going to help attract talent to the region. Instead the tax will drive it away & those that are left may not be rightly qualified for the vacant positions.

**Hermod** · August-02-10, 05:22 PM

Originally Posted by bailey

..but they are going to quit their jobs because they need to pay 2.5% tax to the city?

Maybe band together and go to the boss en masse. Tell him that the worker bees have decided that they would enjoy a grander life style on the same pay if the office moved to Troy.

**kryptonite** · August-02-10, 02:47 PM

The city income tax was part of the reason some people left. A friend I had 30 years ago moved out of Detroit. I asked why, that he could have bought a bigger house in his pretty, stable, Detroit neighborhood for a very low price. He said that because of the high property taxes, private schools, higher home and car insurance, and the city income tax, that it was cheaper for him to live in the suburbs.