Michigan is running on empty.
General and School Aid fund revenues are already weak, and are projected to decline by $6.2 billion in the next two budget years. Michigan’s current tax system simply cannot generate the revenues needed to combat the COVID-19 crisis or rebuild the state’s economy. But with enough revenue, recovery is possible. Here are the League’s top recommendations for increasing revenue in the face of economic struggles.
Advocate for Additional Federal Relief
State lawmakers and advocates alike need to put pressure on the federal lawmakers to pass additional, unrestricted, direct relief to states and local units of government. Ideally, relief funds would be sustained and tied to economic and fiscal conditions in the state.
Make Use of the Rainy Day Fund
This fund was created under the state’s Management and Budget Act specifically for fiscal crises like the one that Michigan is facing. The remaining funds could be used to partially fill gaps in the 2019-20 budget while the governor and Legislature focus on medium- to long-term solutions
Create a Michigan-Specific Estate Tax
If lawmakers were to decouple the Michigan estate tax and make an exemption for estates with less than $1 million in assets, the state would bring in an average of $360 million a year.
Reform Michigan’s Corporate Tax System
To raise revenue to supplement general fund expenditures, Michigan lawmakers should increase the corporate income tax rate and create parity between business types.
Redesign Michigan’s Personal Income Tax
It is time to increase the personal income tax rate to capture more taxes from households in upper income brackets while providing more-than-adequate relief for the average household.
Modernize the State Sales Tax
Expanding the sales tax base to include services for personal consumption would raise approximately $4 billion in revenues.
Reevaluate the Effectiveness of Tax Expenditures
Many tax expenditures have either outlived their useful life or have proven to be ineffective at achieving their desired goals. In the 2019 budget year, tax expenditures were estimated to be $42 billion.
Other Taxes to Consider
Michigan’s taxes on cannabis sales are the some of the lowest in the country. Legislators could increase the tax on cannabis consumption to bring in stable revenues. Alcohol taxes are also a possible target for increase. The excise tax on alcohol are set through the Michigan Liquor Control Code of 1998, and those rates have not been reevaluated since. Because liquor, beer, and wine taxes are based on quantity and not price, these rates have not kept up with inflation.