Smokes, Drinks Are Tax Targets in Michigan

Published June 1, 2007

A proposal to raise taxes on “services” in Michigan appears unlikely to move forward, but proposals to raise taxes on liquor, cigarettes, and other tobacco products apparently are still under consideration.

Gov. Jennifer Granholm (D) has proposed a variety of excise tax hikes to boost state revenues. On March 22 the Republican-led Senate rejected her proposal to impose a 2 percent sales tax on services, but at press time Granholm was still pushing a variety of other tax hikes. These include:

  • raising the state cigarette tax from $2 to $2.05 a pack;
  • doubling the tax on smokeless tobacco and other tobacco products (Michigan’s current tax on smokeless and other tobacco products is 32 percent of the wholesale price); and
  • raising the state tax on liquor from $10.53 to $14.40 a gallon. Some fees for liquor licenses at restaurants and bars also would increase.

“The governor’s tax on distilled spirits will devastate Michigan’s hospitality industry,” said Cathy Pavick, executive director of the Michigan Licensed Beverage Association. “This will affect everyone from bartenders to busboys–not to mention the small business owners who will have to watch more and more customers travel across state lines to get their alcohol.”

Region’s Highest Liquor Tax

A study of liquor taxes by the Distilled Spirits Council of the United States (DISCUS) shows Michigan’s current $10.53 a gallon tax is by far the highest in the region and the sixth-highest in the nation.

Ohio has the next-highest liquor tax in the region at $8.40 a gallon. The neighboring states of Indiana and Wisconsin have taxes of $2.68 and $3.23 a gallon, respectively, according to DISCUS spokesman Ben Jenkins.

“Michigan’s spirits taxes are already nearly four times as much as those in Indiana,” said David Wojnar, DISCUS vice president. “If Michigan raises its tax even higher, [more] consumers will cross the border to shop and dine, which would drain Michigan’s tax revenues even more.”

Wojnar noted that half the price of a typical bottle of spirits in Michigan already goes to taxes and fees.

“On the one hand, the governor has made boosting tourism a top priority for Michigan,” Wojnar said. “On the other hand, she slaps a tax on tourism-related businesses and their workers. That just doesn’t make good business sense.”

Constituent Complaints

Jack McHugh, legislative analyst at the Michigan-based Mackinac Center for Public Policy, said lawmakers rejected the governor’s proposed 2 percent services tax “because they heard complaints from constituents, big-time.”

“Since the defeat of the 2 percent services tax, the governor has not proposed a new tax,” McHugh said. However, he noted, “A bill has been introduced to increase the income tax from 3.9 to 4.6 percent. And there’s lots of talk about a ballot initiative to repeal the prohibition [in the state constitution] on a graduated income tax.”

McHugh said there is no way to know if these or other proposals will advance, but he added there is strong sentiment among the public against raising taxes.

At the same time, there appears to be little stomach among lawmakers for cuts in spending, McHugh observed, a sentiment driven by government unions that want to protect their members’ pay and perks.

“It all boils down to a political establishment, with elements on the Republican side who are friendly to this, that wants to protect government workers from the impact of the economic realities that have affected everyone else,” McHugh said.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.