The Buzz

Detroit’s strange earnings tax

Updated: 2013-07-26T14:33:36Z

Detroit’s lumbering slog through the bankruptcy court is well underway, of course — with the requisite examination of its lessons for other communities across the country.

One lesson might be found in Detroit’s weird earnings tax.

It collects an income tax from residents, as well as non-resident income earned in the city, just like Kansas City.

But the rate for residents is much higher: 2.4 percent of income. For non-residents, it’s 1.2 percent.

Does that make any sense?

Someone working inside Detroit can simply move outside the city limits and give himself or herself a 1.2 percent raise.

That seems like an incentive for people to move outside of Detroit, the very problem the city faces in bankruptcy.

As it turns out, the rate for non-residents’ income tax appears to be lower because of Michigan state law, which limits non-resident e-taxes to half the rate of residents.

There have also been rollbacks in Detroit’s e-tax scheme because of financial failures in the city.

Kansas City’s e-tax, at 1 percent for all taxpayers living and/or working in the city, has long been the subject of debate in the area, and will be the subject of a citywide vote in 2016.

If you have an e-tax, though, keeping the levy the same for all taxpayers seems to make more sense than taxing residents at twice the rate of non-residents.

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