As budget negotiations continue behind closed doors in Lansing, Gov. Jennifer Granholm (D) has floated at least two new tax hikes on cigarettes and beer.

Under a proposal by Granholm and some state legislators, the state cigarette tax would rise by 12.5% to $2.25 per pack and the tax on beer would double to 3.8-cents per bottle. The additional revenue would be used partially cover Michigan’s $2.7 billion overspending problem (aka “budget shortfall”) for the next fiscal year.
On Wednesday, the “Coalition for the Needy” came out in public support of the Granholm plan arguing that higher taxes will ensure that government services are not cut for the poor in the current budget. However, the logic behind this argument is completely backwards: low-income residents are the primary consumers of tobacco and alcohol products. For example, smokers have a median income of a little less than $36,000, which is about 30% less than non-smokers. How is taking money out of low-income residents’ pockets, routing it through an inefficient government bureaucracy, and returning it in the form of subpar government services supposed to help anyone?
Over the past months, there has also been much discussion in Michigan – albeit unlikely – about switching to a graduated tax structure from the state’s current flat 4.35% personal income tax (see here and here). However, 81% of Michigan businesses are small businesses and well over two-thirds of these employers pay taxes under the personal income tax. This means higher taxes for small businesses and less money to expand, hire more employees, or raise wages.  All while Michigan has the highest unemployment in the nation at 15.2%.
See below or click here for ATR’s press release condemning Gov. Granholm’s proposed tax hikes.
Taxpayer Group Slams Gov. Granholm’s Tax Hike Proposals
Raising the Cigarette and Beer Tax will Disproportionately Affect Low-Income Michiganders
WASHINGTON, D.C. – Americans for Tax Reform (ATR) today condemned Michigan Gov. Jennifer Granholm (D) for proposing hikes in both the state cigarette and beer tax. The tax hike would be used to partially cover Michigan’s projected $2.7 billion overspending problem.
While the governor and special interest groups claim the additional revenue is needed to balance the budget and maintain services for the poor, ATR contends that low-income residents will predominantly pay for these higher taxes. Gov. Granholm’s proposal would double the beer tax to 3.8-cents per bottle and raise the cigarette tax by 12.5 percent. Tobacco consumers have a median income of a little more than $36,000, which is 30 percent less than non-smokers.
“The supposed rationale for raising taxes on smokers and beer drinkers in Michigan is completely backwards,” said Grover Norquist, president of Americans for Tax Reform.  “The proposed tax increases will disproportionately hit the poor – the very people these tax hikers say they are trying to help. How is taking more money out of the pockets of Michigan’s low-income residents to cover up a multi-billion dollar overspending problem going to help anyone?”
ATR also criticized calls from policymakers who have floated a graduated income tax. In Michigan, 81 percent of Michigan business establishments are small businesses and well over two-thirds of these small businesses pay taxes under the personal income tax. Small businesses would thus be subject to the higher graduated tax structure.
“Michigan’s flat income tax is the state’s one saving grace. Switching to a progressive, graduated income tax will result in more small business closures, more jobs lost in the state with the highest unemployment rate, and an even larger number of people leaving Michigan for better opportunities elsewhere,” added Norquist. “Between higher taxes on tobacco and alcohol, and calls for making the income tax even less friendly than it already is, Michigan policymakers are cooking up a dire recipe for disaster.”

(photo by Matt Hampel)