Detroit City Income Tax

[Novine]

"It was found that city income tax was the reason 50% of residents who leave Philly for the suburbs each year chose to leave."

Doesn't sound right. The tax amount is almost the same for residents versus non-residents so the impact of leaving the city has minimal impact on what you pay.

http://www.phila.gov/revenue/Earnings_Tax.html

[Det_ard]

"It was found that city income tax was the reason 50% of residents who leave Philly for the suburbs each year chose to leave."

Doesn't sound right. The tax amount is almost the same for residents versus non-residents so the impact of leaving the city has minimal impact on what you pay.

http://www.phila.gov/revenue/Earnings_Tax.html

What you write is true IF you work in the city. If you work in suburban Philly then moving to the burbs gets you out of paying the 4% city income tax. There are residential streets that are the border between Philly and a suburb. Identical houses on the suburban side sell for more due to income and property tax savings.

[lo_to_d]

That's a good point, but it's not just Detroit, it's multiple other cities around the state, which I would guess, makes up a significant % of population. Still, it would take lawmakers who actually give a damn about Michigan's failing cities. It wouldn't be an instant cure, but a piece of the puzzle..

"So you're telling me that laws cannot be changed? Sounds like the Michigan way to me."

You tell me how the law gets changed so that non-residents, who are mainly represented by lawmakers outside of Detroit, have to pay an amount equal to what residents pay. What state representative or state senator is going to vote for that?

[lo_to_d]

Also, I thought all Republicans would back a tax cut. ??? Sad, if that's only true if it affects them.

[Novine]

"What you write is true IF you work in the city."

Fair enough but I still don't believe that it accounts for 50% of residents leaving the city. If these people didn't want to pay city taxes in the first place, why would they have moved to the city?

"That's a good point, but it's not just Detroit, it's multiple other cities around the state, which I would guess, makes up a significant % of population."

That's not the case. As you might expect, Grand Rapids, Lansing and Flint levy a local income tax. But the rest of the cities are smaller cities. It's a mix of older suburbs, college towns and cities with a lot of non-taxable property like prisons.

"Also, I thought all Republicans would back a tax cut. ??? Sad, if that's only true if it affects them."

Who would be getting the tax cuts? If you change the system so that everyone pays the same amount, it's city residents getting the tax cut while non-residents do not.

[docmo]

The city income tax was my primary reason for moving out of the city. As a physician living in the city and working in the suburbs, it really toasted my buns paying that tax. Living downtown was fun, but not that fun. The McMansion in Northville does just fine and leaves me thousands in my wallet.

How many of Detroit's young professional athletes live in the city? You can probably count them on one hand. Why would you willingly turn over thousands of dollars to the City? Detroit simply does not have the attributes that make it worth this punitive tax.

[lo_to_d]

This post says it all about the decrease of not only wealthy people choosing not to live in the city, but also businesses not locating in the city. It's harder to compete for business and residents when neighboring communities have a 2.5% advantage.

The city income tax was my primary reason for moving out of the city. As a physician living in the city and working in the suburbs, it really toasted my buns paying that tax. Living downtown was fun, but not that fun. The McMansion in Northville does just fine and leaves me thousands in my wallet.

How many of Detroit's young professional athletes live in the city? You can probably count them on one hand. Why would you willingly turn over thousands of dollars to the City? Detroit simply does not have the attributes that make it worth this punitive tax.

[Parkguy]

When the median US household income is $50000 per year, a $1200 income tax hit is very huge, especially when you realize that the city income tax has to be paid out of what is left after paying state and federal income taxes. When you factor that in, the hit is actually closer to 3% of net. Add to that the double to triple hit in higher property taxes for a similarly-priced home, you can end up paying a total of $4000 to $5000 more in taxes than would be the case if you lived in the suburbs. That is roughly an additional 10% hit to the average household's yearly income. And the case is even worse for small businesses who also own their property. This guarantees that there would be a steady flow of residents and small businesses out of the city. Add to that all of the other problems of daily life, and the result is clear, both on the residential blocks and the business streets.

Don't get me wrong, I was a teacher for over 30 years, a public employee. I believe that you have to pay for the quality of service you get. But as each individual who moved out of the city took his or her tax support away, someone else had to pick up the slack.

[Novine]

"It's harder to compete for business and residents when neighboring communities have a 2.5% advantage."

Does it? I would say that it's harder to compete when the city has to shoulder most of the burden of supporting the majority of the poor and unemployable people in the region on a non-existent tax base. I can tell you that Dr. Docmo's Northville has no need to levy a local income tax because it's McMansions generate enough dollars in property taxes to provide the basic levels of services that residents in the suburbs need. Northville doesn't have to provide for the poor or the uneducated or the homeless. Northville doesn't have to provide anywhere near the level of police or fire services that Detroit has to muster. There's no general bus service in Northville and much of Northville's households have at least as many cars as they have drivers as compared to Detroit where many households are entirely relying on public transit.

If Northville had to share the cost and burden of providing those services, the discrepancy in tax rates between the two communities would be a lot less.

[Novine]

"Don't get me wrong, I was a teacher for over 30 years, a public employee. I believe that you have to pay for the quality of service you get. But as each individual who moved out of the city took his or her tax support away, someone else had to pick up the slack."

Take away the City Income Tax, the Utility Users tax and slash property tax millage rates to those comparable to the suburbs. You've now cut $450 million dollars out of the city's budget. How do you propose to make that up?

[lo_to_d]

I don't think it can be done all at once, but removing the city income tax, I believe, would repay itself in a couple of years from more residents with money living in the city and more sales tax dollars because of those people shopping around where they live.

"Don't get me wrong, I was a teacher for over 30 years, a public employee. I believe that you have to pay for the quality of service you get. But as each individual who moved out of the city took his or her tax support away, someone else had to pick up the slack."

Take away the City Income Tax, the Utility Users tax and slash property tax millage rates to those comparable to the suburbs. You've now cut $450 million dollars out of the city's budget. How do you propose to make that up?

[Novine]

Stick to the city income tax. It's the largest of the three taxes. Slash a couple hundred million more out of the city budget. Less police, less fire, less city services. Why would people move into the city?

[Huggybear]

I would consider shaving hundreds of hours a year off my commute; enjoying a nice view; being able to take an easy 20-mile Saturday bike ride on Belle Isle on an impulse; and having proximity to cultural institutions like the DIA, the Symphony, and the Michigan Opera Theater as being worth what I pay in city income taxes.

It all depends on where your priorities are. Cities historically have been centers of commerce and culture. You can build 12 Oaks or a Fountainwalk, but you can't make it mean anything. You can have a few thousand dollars more in your pocket, but that might require you to pay a pretty heavy price in other ways [[and certainly lots of people who left Detroit were willing to pay it).

But since you've made it clear that your focus is money, consider this. Taking into account your federal tax bracket and what you're getting from it where you live [[pretty much nothing), I would think you would be on a rampage about the national taxes and not the local ones. A 2.5% [["punitive") resident tax has nothing on a 33% federal income tax hit. At least in Detroit there is some ROI on the federal tax payments you make.

Why would you willingly turn over thousands of dollars to the City? Detroit simply does not have the attributes that make it worth this punitive tax.

[Huggybear]

When the median US household income is $50000 per year, a $1200 income tax hit is very huge

No, actually, the income tax is equally painful to everyone who pays it, since it is a flat rate with no deductions. According to your math, if you made $500,000 you would pay $12,000 [[in reality, 2.5% of $50,000 is $1,250).

But taking your round number of $1,200, or $100/month, it's the same size amount of money that many, many median-income families spend on [[take your pick) cell phone bills, cable TV, gas for a truck instead of a car, Starbucks, and suburban-community water and sewage markups. Any one of those is comparable.

Your point that it is expensive depends on aggregating it with property taxes - which according to the numbers discussed here are about 50% higher at most, not three times higher as you claim [[62 mills in Detroit vs. 42-52 in the adjoining suburbs).

[lo_to_d]

The city income tax is levied on companies too. When a company is on the verge of bancruptcy [[like so many in this region have been at different times), it's an easy choice for the bean counters to recommend moving the company north of 8 mile and immediately cut annual losses by 1.3%.

[Novine]

The case has been made that reducing Detroit's income tax rate should result in residents and businesses moving back into the city. The rate today is lower than it was 10 years ago. Where are those residents and businesses?

[docmo]

Huggy,

Sure, you're right. I hate the fact that Obama & Congress are raising my Federal tax bracket to 39.6% on Jan 1st. What the hell can I do about that? Do you think sending letters or making phone calls to Obama, Levin or Stabenow will change their minds. McCotter is already for extending the tax cuts.

The real point is that the City income tax is something that can be very easily addressed. Just move out of the City and the tax goes away. I moved back to Northville Township and I love it. It's really nice here. Two quaint and vibrant downtowns [[Northville & Plymouth). Easy access to Ann Arbor or downtown Detroit. Great parks nearby.

I am a fan of the City. I recently rented a loft downtown for 2 years. It was great at that time in my life, but it sure wasn't some panacea. Everyone on this board is well aware of Detroit's warts and some here even appreciate her attributes. Despite those warts [[ City Income Tax included), Detroit works for you. For me, the beautiful house and yard on a golf course with no city income tax works better. You enjoy your bike rides on Belle Isle, I enjoy my runs in Hines Park and Maybury State Park.

On one of your next bike rides, maybe you'll pass me, my wife and our 11 month old daughter taking a stroll down the RiverWalk. We remain fans of Detroit. We also remain fans of money staying in our bank account rather than going to the City. We have to save up for that Obama tax man!

[professorscott]

Boy, this is an unusually simple one, at least IMHO.

1. The City's biggest problem, for decades now, is that it is losing residents and businesses to the suburbs. Most of the suburban communities have no local income tax; the city has one. So on this count, get rid of it.

2. Some people asked, well, if the City kills the income tax, how does it make up that supply of income? Answer: IT DOESN'T. The City has to restructure to be able to live within reasonable means, like everybody else on Earth. Bullshit to the scare tactics, like "we'll have to cut police! Booga booga!" Cut the ridiculous and overstuffed bureaucracy. Live like Dearborn or Royal Oak or Taylor lives.

So to sum it up: The city income tax is poison; GET RID OF IT.

[Crumbled_pavement]

Huggy,

Sure, you're right. I hate the fact that Obama & Congress are raising my Federal tax bracket to 39.6% on Jan 1st. What the hell can I do about that? Do you think sending letters or making phone calls to Obama, Levin or Stabenow will change their minds. McCotter is already for extending the tax cuts.

The real point is that the City income tax is something that can be very easily addressed. Just move out of the City and the tax goes away. I moved back to Northville Township and I love it. It's really nice here. Two quaint and vibrant downtowns [[Northville & Plymouth). Easy access to Ann Arbor or downtown Detroit. Great parks nearby.

I am a fan of the City. I recently rented a loft downtown for 2 years. It was great at that time in my life, but it sure wasn't some panacea. Everyone on this board is well aware of Detroit's warts and some here even appreciate her attributes. Despite those warts [[ City Income Tax included), Detroit works for you. For me, the beautiful house and yard on a golf course with no city income tax works better. You enjoy your bike rides on Belle Isle, I enjoy my runs in Hines Park and Maybury State Park.

On one of your next bike rides, maybe you'll pass me, my wife and our 11 month old daughter taking a stroll down the RiverWalk. We remain fans of Detroit. We also remain fans of money staying in our bank account rather than going to the City. We have to save up for that Obama tax man!

Thanks Docmo for your post. So far this entire debate has been very enjoyable, reading both sides of the argument. Question for you, would you prefer to live in Detroit compared to where you are now if you didn't have to pay the Detroit income tax?

[Novine]

"So to sum it up: The city income tax is poison; GET RID OF IT."

Come on Prof, you're smarter than this. I'm not going to defend the waste or excess in Detroit city government. But to claim that Detroit and the needs of its residents are no different than Dearborn or Royal Oak or Taylor shows either blind ignorance or a willingness to ignore reality. I don't think either apply to you.

Here's the reality for anyone who doesn't get it. Detroit, as a city, and with the population that it has, can't survive on property taxes alone. Its property values are so low that even with its sky-high property tax rates, it still brings in far less per mill in revenue than almost any suburban community. That means that for Detroit to provide even the basic services to its residents and businesses, it has to have other revenue streams. But Detroit can't get away with just providing the basics. It's residents also need a whole layer of services like transportation and health services and enhanced levels of police and fire service that few suburban communities are expected to provide and that few of them even attempt to match. The question is where are those revenues going to come from if not from a local income tax?

[EastSider]

http://www.nytimes.com/2010/07/20/bu...20maywood.html

"A City Outsources Everything. Sky Doesn't Fall"

City officials last month fired all of Maywood’s employees and outsourced their jobs. While many communities are fearfully contemplating extensive cuts, Maywood says it is the first city in the nation in the current downturn to take an ax to everyone.

The school crossing guards were let go. Parking enforcement was contracted out, City Hall workers dismissed, street maintenance workers made redundant. The public safety duties of the Police Department were handed over to the Los Angeles County Sheriff’s Department.

At first, people in this poor, long-troubled and heavily Hispanic city southeast of Los Angeles braced for anarchy.

Senior citizens were afraid they would be assaulted as they walked down the street. Parents worried the parks would be shut and their children would have nowhere to safely play. Landlords said their tenants had begun suggesting that without city-run services they would no longer feel obliged to pay rent.

The apocalypse never arrived. In fact, it seems this city was so bad at being a city that outsourcing — so far, at least — is being viewed as an act of municipal genius.

[Novine]

Do I get to note the irony that Maywood outsourced many of their services to Bell, California, the recent home of the highest paid city manager in the US?

[econ expat]

"So to sum it up: The city income tax is poison; GET RID OF IT."

Come on Prof, you're smarter than this. I'm not going to defend the waste or excess in Detroit city government. But to claim that Detroit and the needs of its residents are no different than Dearborn or Royal Oak or Taylor shows either blind ignorance or a willingness to ignore reality. I don't think either apply to you.

Here's the reality for anyone who doesn't get it. Detroit, as a city, and with the population that it has, can't survive on property taxes alone. Its property values are so low that even with its sky-high property tax rates, it still brings in far less per mill in revenue than almost any suburban community. That means that for Detroit to provide even the basic services to its residents and businesses, it has to have other revenue streams. But Detroit can't get away with just providing the basics. It's residents also need a whole layer of services like transportation and health services and enhanced levels of police and fire service that few suburban communities are expected to provide and that few of them even attempt to match. The question is where are those revenues going to come from if not from a local income tax?

Summing it up, after adding a change:

Sure, the property values are obviously low.
But assessors still seem to believe a house sold for maybe $3000-$5000 is worth 10x that. And good luck getting the assessment lowered, no matter if the house was on the market for years....

Prof posted what many believe- No matter how much extra income the city brings in, it can be wasted if a budget is not followed.
More people might consider living and working in Detroit if taxes and planning are for the future. Why would anyone want to pay a tax that is for old issues[[budget shortfalls).Paying for mistakes of the past?

[iheartthed]

Do I get to note the irony that Maywood outsourced many of their services to Bell, California, the recent home of the highest paid city manager in the US?

Not just that but the highest paid elected officials in all of California. City officials in Maywood are apparently paid more than city officials in Beverly Hills and Malibu.

Maywood and Bell are neighboring municipalities, btw. I have no doubt that the two stories are related in more ways than them just being next door neighbors...

[Novine]

"But assessors still seem to believe a house sold for maybe $3000-$5000 is worth 10x that. And good luck getting the assessment lowered, no matter if the house was on the market for years...."

Which only reinforces the point I made. If property values are as low as you think they are, is Detroit going to be able to raise it's millage rates by 5 to 10 times to make up the difference?

Detroit's city budget is filled with waste and its city government is the poster child for inefficiency. But even if you gave someone like Robert Bobb semi-dictatorial powers, it doesn't change the fact that for the level of services Detroit residents need, you couldn't do it on the current property tax base.