Mackinac Center: Tax Break for College Grads Is Unfair Policy

Gretchen Whitmer
Gretchen Whitmer / Getty Images

Gov. Gretchen Whitmer’s suggestion to possibly carve out special tax breaks for recent college graduates is "fundamentally unfair" to Michiganders who did not go to college, according to a scholar at the Michigan-based, free-market Mackinac Center.

"This is a tax preference proposal that would carve out favors for college graduates who presumably chose on their own accord to attend college or university," Michael LaFaive, the senior director of the Morey Fiscal Policy Initiative at the Mackinac Center, said in an email.

"Most likely they did so for the expected future gains to their own economic well-being," he added. "It would be fundamentally unfair to make the majority of people who don’t go to college, among others, basically cross-subsidize those who do to a greater degree than they do now."

LaFaive’s comments come after Whitmer spoke out about this issue during a roundtable discussion hosted by MLive, a Michigan media group. Candice Crutcher – the student body president at Eastern Michigan University – asked Whitmer what she would do to alleviate the debt burden of recent college grads, because Whitmer’s plan to reduce college student debt focused on current and prospective students.

To solve the burden, Whitmer referenced a potential policy in which recent college graduates would enter into the income tax in phases "so that they don’t pay as much until they’ve been here for five years." She said this kind of policy would incentivize "young people" to stay in Michigan immediately after graduation.

Although the governor didn’t cite where her idea came from, MLive reported that Rob Cleveland, the president of the Cornerstone Alliance, an economic development organization, has written extensively about this type of proposal.

According to Cleveland’s five-year Homegrown Undergrad and Graduate Education Incentive – or HUGE incentive – eligible graduates would pay no state income tax in their first full year after graduation. The graduate would pay one percent income tax the next year, three percent the next two years, then four percent the following year. The next year, they would pay the full state income tax, which is 4.25 percent.

Whitmer did not formally endorse the plan, but rather said it is a potential solution.

LaFaive encouraged the governor to push for policy that aided Michigan as a whole rather than one that provides special help to certain groups.

"If keeping recent graduates around is a goal, then we should be more concerned with making Michigan a more attractive destination state overall, rather than trying to cross subsidize their decision to stick around with a temporary incentive," he said. "There is no guarantee that graduates who were incentivized to stay wouldn’t just leave after their incentives ran out."

LaFaive said it is good to see people talking about harmful taxes, but that if a tax cut is a solution, then all Michiganders should get to reap the benefits of a reduction, instead of just a few. He said that cutting the personal income tax for all Michiganders would prevent people from leaving the state in droves.

According to a study released in January, more people are leaving Michigan than moving into Michigan. It was the 10th most outbound state.