TAX NEWS - JUNE 2010

Detroit Tax: Newt Gingrich's suggestion of a 10-year tax holiday for Detroit is worth consideration

Mackinac Island -- Former House Speaker Newt Gingrich's suggestion of a 10-year tax holiday for Detroit, made at the Detroit Regional Chamber's policy conference here, is worth considering. Detroit needs to do something dramatic to shake its image as a violent, declining Rust Belt city. A tax holiday would send a strong message that the city is open for business.

Yes, it would be hard. The city is struggling now with plummeting revenues and budget cutbacks. Such a move would need an extraordinary amount of cooperation from Detroit's own elected leaders, politicians at the county and state levels and members of Congress.

Certainly, the city's taxes aren't its only problem. A dysfunctional school system and a violent crime rate of nearly 2,000 incidents for every 100,000 residents are also deterrents to people living and working in the city.

But Detroit is an expensive place for the middle class. According to a survey by the District of Columbia finance department, which calculates a city's relative tax burden on families, Detroit in 2008 ranked fourth among major cities in its tax burden on a hypothetical family of three with an income of $50,000. Taxes are much less of a burden for a family near poverty. The tax burden falls to 17th for the same family with a $25,000 income.

It's possible to quibble with the calculations, but relatively high costs for relatively poor public services are one reason for the flight from the city over the last several decades.

It's refreshing that some city leaders such as City Council President Charles Pugh are open to the idea. After hearing the Gingrich proposal, Pugh rightly told The News that Detroit needs to send a revolutionary message.

After all, he observed, "we're in a desperate place. And the way we've been trying to create jobs and stimulate investment in our community hasn't really worked."

Getting from here -- high taxes -- to there -- no taxes -- would be complex. The city would have to have some kind of sustaining operating revenue from somewhere, and it's a $3 billion annual operation.

But a bold move such as the citywide tax holiday or some other large gesture is required.

The city has been on some kind of life support through state aid for some time. The mayor's budget proposal estimates that state revenue sharing will amount to more at $233 million than the proceeds from either city income taxes at $215 million or property taxes at about $148 million.

Detroit needs to broaden and expand its tax base through new residents and new development so state aid doesn't play such a large role in city finances.

A tax holiday may be a long shot.

But Detroit and those who would help it need to think big.