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The financially strapped City of Detroit must cut its income tax take by $8.5 million beginning July 1, effectively adding to a deficit that puts the city in peril of a takeover by a state-appointed emergency manager.

Unless the Legislature steps in, a cut in the income tax rate — from 2.5% to 2.4% for residents and from 1.25% to 1.20% for nonresidents — will be required under a 1998 state law that was part of a deal to preserve the city’s state revenue-sharing payments in return for a gradual reduction in the income tax.

State Rep. Maureen Stapleton, D-Detroit, said Tuesday that the requirement is “ridiculous” and should be waived. Detroit needs to be able to control its destiny, and that includes setting its own tax rates, she said.

“I certainly would hope that the Legislature … would at least take the handcuffs off,” Stapleton said.

An analysis by the Citizens Research Council of Michigan, released Friday, estimates that the lost revenue to the city — or savings to taxpayers — would be about $8.5 million in the fiscal year that begins July 1.

The law allows the city to seek a waiver of annual rate cuts if it fails to meet benchmarks of financial health.

Detroit sought the waiver from a state administrative board in December. But it was denied because a Department of Treasury analysis found the city met only two of four indicators of financial stress: a depleted rainy day fund and high unemployment. The law requires three for the waiver to be granted.

Surprisingly, Detroit did not meet the threshold for financial distress for overall income tax revenue — Detroit’s rose slightly between 2010 and 2011 — and property values.

Read the rest of this article by Dawson Bell of the Lansing Bureau in the Detroit Free Press

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