TAX POLICY BASICS
DOLLARS AND SENSE: MICHIGAN TAXES MADE SIMPLE
Updated April 2026 | Nicholas Hess, Fiscal Policy Analyst
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- State and local tax collection estimates determined during the Consensus Revenue Estimating Conference (CREC) establish a baseline budget for legislative negotiations.
- Michigan has a variety of revenue sources, but despite recent improvements, its structure is still somewhat regressive, asking more of households with low to moderate incomes and maintaining or worsening racial inequities.
In fiscal year (FY) 2023-2024, Michigan collected approximately $41.5 billion in tax revenue, which is on par with how much revenue was collected the prior year ($39.5 billion).[1] The largest revenue sources include the individual income tax (32.5%) as well as sales and use taxes (30.8%). The vast majority of state revenue supports the General Fund/General Purpose (GF/GP), the state’s main operating fund not dedicated to a particular purpose, as well as the School Aid Fund (SAF), which provides the majority of state funding for schools.
Twice a year, in January and May, the House Fiscal Agency, the Senate Fiscal Agency and the Treasury meet to forecast GF/GP and SAF revenue during the Consensus Revenue Estimating Conference (CREC). This biannual meeting is important for legislators because, as with most states, Michigan must balance its budget every year. The results of this meeting establish a baseline for anticipated revenue for state budgeting purposes.
The annual growth rate in the GF/GP tax revenue has had trouble keeping up with inflation for the last 20 years despite Michigan’s growing economy. However, in the last two years, the GF/GP revenue grew and matched GDP growth, but due to the state income tax trigger — which reduced the tax rate from 4.25% to 4.05% — Michigan collected less in revenue for 2023.[2] Although the GF/GP fund has exceeded $14 billion, inflation-adjusted revenue is below what it was in 2000.[3]
In addition to state taxes, households may also pay certain local taxes to support budgets for counties, cities, villages, and townships (CVT) and schools. Local governments are generally only authorized to collect property taxes which are set through ballot initiatives and establish millage rates to fund schools, libraries, fire departments and other local services. The state has also authorized certain counties to levy taxes on accommodations (hotel/motel stays) depending on population size.[4] In addition, cities are authorized to set local income tax rates and 24 cities in Michigan have done so.
Compared to many states, Michigan’s local governments are highly constrained in terms of the taxes they can levy; most municipalities are limited to property taxes. Apart from the unprecedented flow of federal aid in the wake of COVID-19, federal aid to localities has decreased, further hampering local control over their budgets.[5] Research shows Black and Hispanic homeowners tend to pay higher effective tax rates, making local governments’ reliance on property taxes just one aspect contributing to racial inequity in Michigan’s tax system.|6| CVTs that wish to address long-standing inequities are prevented by state statutes that stretch long back to the time of legal segregation.
The source of GF/GP revenue has shifted remarkably in the past two decades, largely as a result of 2011 tax changes. These changes greatly reduced the share paid by corporations, largely pushing the costs of government activities onto individuals to offset the reduced taxes on corporations. Originally, the 2011 tax reforms (Public Act 38) included eliminations of the $600 child deduction and the city income tax credit as well as reductions to the Earned Income Tax Credit (EITC) and the Homestead Property Tax Credit, beneficial policies that help working families.
In 2023, the Michigan Legislature passed Public Act 4, which reversed some of the 2011 tax reforms, most notably increasing the state EITC to 30% of the federal ETIC from the 6% cap under the 2011 reforms.[7] The bipartisan EITC has been found to have a myriad of societal and economic benefits including, but not limited to, reducing poverty and promoting work.[8],[9] Although these changes are welcome, the majority of the GF/GP revenue is still shouldered by the income tax, with income taxes making up 68% on average in the last ten years, compared to the 50% on average in the ten years prior to 2011.[10] Before the 2011 tax reforms, approximately 20% of GF/GP revenue came from business taxes, but this has shrunk to less than 10%.
Analysis by the Institute on Taxation and Economic Policy demonstrates how Michigan households with low incomes are paying more than their fair share. While the marginal tax rate is the same for everyone (for example, 4.25% for income or 6% for sales), the effective tax rate is the amount of tax paid as a share of income. In Michigan, the households earning the least pay a higher share of their income towards taxes than the top 1%.[11] These impacts amplify racial inequity due to the overrepresentation of Black, Hispanic and Indigenous households earning incomes in the bottom 20%.
The heavy reliance on sales and property taxes as well as a flat income tax means Michigan households in the lowest income quintile — earning less than $21,300 per year — pay an effective tax rate at 7.1% while the highest-earning households — those earning over $670,300 — spend the lowest at an effective rate of only 5.7%. We are able to reduce tax liabilities for families with low incomes, making our tax system fairer, with strong refundable tax credits like the EITC.
[1] Review of How Much Tax Does the State Collect? 2024. State Budget Office. 2024. https://www.michigan.gov/budget/budget-offices/ofm/faq-pages/state-finances/how-much-tax-does-the-state-collect.
[2] Outline of the Michigan Tax System – 2023 – Citizens Research Council of Michigan.” 2023. Citizens Research Council of Michigan. July 11, 2023. https://crcmich.org/publications/outline-of-the-michigan-tax-system-2023.
[3] Cleary, Mary Ann, and Kevin Koorstra. 2024. Review of Budget Briefing: State Budget Overview. House Fiscal Agency. January 2024. https://www.house.mi.gov/hfa/PDF/Briefings/state_budget_overview_briefing_fy23-24.pdf.
[4] “Outline of the Michigan Tax System.” Citizens Research Council of Michigan, May 2021. https://crcmich.org/PUBLICAT/2020s/2021/Tax_Outline_2021.pdf.
[5] Tharpe, Wesley. “Easing State Restraints on Local Taxing Power Can Strengthen Democracy, Promote Prosperity and Equity.” Center on Budget and Policy Priorities. March 28, 2023. https://www.cbpp.org/research/state-budget-and-tax/easing-state-restraints-on-local-taxing-power-can-strengthen.
[6] “Advancing Racial Equity with State Tax Policy.” 2018. Center on Budget and Policy Priorities. November 15, 2018. https://www.cbpp.org/research/state-budget-and-tax/advancing-racial-equity-with-state-tax-policy.
[7] Stegbauer, Alex, Jim Stansell, and Ben Gielczyk. 2023. Review of Legislative Analysis: Income Tax Act Changes. House Fiscal Agency. 2023. https://legislature.mi.gov/documents/2023-2024/billanalysis/House/pdf/2023-HLA-4001-92F63454.pdf. Stegbauer, Alex. 2023. Review of Legislative Snapshot: Three Tiered Treatment of Retirement Income. House Fiscal Agency. March 2023. https://www.house.mi.gov/hfa/PDF/FiscalSnapshot/Tax_Three_Tiered_Treatment_of_Retirement_Income_Mar2023.pdf.
[8] “Research Shows Long-Lasting Benefits of EITC.” Center for Law and Social Policy. October 1, 2017. https://www.clasp.org/wp-content/uploads/2022/04/Research-shows-long-lasting-benefits-of-EITC-5.pdf.
[9] “Policy Basics: The Earned Income Tax Credit.” Center on Budget and Policy Priorities. April 28, 2023. https://www.cbpp.org/research/policy-basics-the-earned-income-tax-credit.
[10] “General Fund/General Purpose Revenue: FY 1978-79 To Estimated FY 2024-25.” Senate Fiscal Agency. June 25, 2024. https://sfa.senate.michigan.gov/Revenue/GFGPRevDollars.PDF.
[11] “Michigan: Who Pays? 7th Edition.” Institute on Taxation and Economic Policy. January 9, 2024. https://itep.org/whopays/michigan-who-pays-7th-edition/.
Jay Cutler joined the League in March 2026 as the Kids Count Senior Data Analyst, where he collects, analyzes, and prepares data for Kids Count in Michigan.
Danielle Taylor-Basemore joined the League as the Development Data and Stewardship Coordinator in June 2025. She brings with her five years of nonprofit experience with a special focus on community engagement, data visualization and strategic programming. Prior to joining the League, Danielle served as the Business District, Safety, and Digital Manager at Jefferson East, Inc.
Scott Preston is a Senior Policy Analyst with the Michigan League for Public Policy, where he leads the organization’s immigration and criminal justice reform portfolios. In the three years prior to joining the League, Scott facilitated the Southeast Michigan Refugee Collaborative and managed a small business economic development program at Global Detroit. His work included launching Michigan’s first Refugee Film Festival and building on a trusted connector model that linked marginalized communities with crucial resources. Scott’s work at the League is informed by his background in journalism and research. He spent four years covering the Syrian refugee crisis in the Middle East for publications such as The Economist, and later worked with unaccompanied refugee minors through Samaritas. Scott holds a master’s degree in international migration and public policy from the London School of Economics and Political Science.
Kate Powers joined the League as the Chief Development Officer in February 2025. Prior to joining the League, Kate held leadership positions at many Michigan nonprofit organizations, most recently serving as the COO and Chief Development Officer of Ele’s Place. Kate has spent the bulk of her career in fundraising, with a short stint in the state Legislature as a legislative aide to members in both chambers. Kate is a graduate of Michigan State University’s James Madison College with a Bachelor of Arts in Social Relations and has a certificate in fundraising management from the Lilly Family School of Philanthropy at Indiana University. Additionally, Kate served on the East Lansing Public Schools Board of Education and is a past President of the Junior League of Lansing. In her free time, she enjoys traveling with her husband and her son and saving outfit of the day and home decor ideas on Pinterest. 
Nicholas Hess joined the League as the Fiscal Policy Analyst in September of 2024. In this role, Nicholas focuses on tax policy, government revenue, and their impact on working families and racial equity, including the effects of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). Nicholas values the role that judicious fiscal policy can play in the improvement of people’s lives and the economy, alleviating inequities along the way.
Audrey Matusz joined the League as the Visual Communications Specialist in September 2024. She supports the team with implementing social media strategies and brainstorming creative ways to talk about public policy. She brings with her nearly a decade of experience in producing digital products for evidence-based social justice initiatives. 
Jacob Kaplan 
Donald Stuckey 
Alexandra Stamm 
Amari Fuller
Mikell Frey is a communications professional with a passion for using the art of storytelling to positively impact lives. She strongly believes that positive social change can be inspired by the sharing of data-driven information coupled with the unique perspectives of people from all walks of life across Michigan, especially those who have faced extraordinary barriers. 
Yona Isaacs (she/hers) is an Early Childhood Data Analyst for the Kids Count project. After earning her Bachelor of Science in Biopsychology, Cognition, and Neuroscience at the University of Michigan, she began her career as a research coordinator in pediatric psychiatry using data to understand the impacts of brain activity and genetics on children’s behavior and mental health symptoms. This work prompted an interest in exploring social determinants of health and the role of policy in promoting equitable opportunities for all children, families, and communities. She returned to the University of Michigan to complete her Masters in Social Work focused on Social Policy and Evaluation, during which she interned with the ACLU of Michigan’s policy and legislative team and assisted local nonprofit organizations in creating data and evaluation metrics. She currently serves as a coordinator for the Michigan Center for Youth Justice on a project aiming to increase placement options and enhance cultural competency within the juvenile justice system for LGBTQIA+ youth. Yona is eager to put her data skills to work at the League in support of data-driven policies that advocate for equitable access to healthcare, education, economic security, and opportunity for 0-5 year old children. In her free time, she enjoys tackling DIY house projects and trying new outdoor activities with her dog.
Rachel Richards rejoined the League in December 2020 as the Fiscal Policy Director working on state budget and tax policies. Prior to returning to the League, she served as the Director of Legislative Affairs for the Michigan Department of Treasury, the tax policy analyst and Legislative Director for the Michigan League for Public Policy, and a policy analyst and the Appropriations Coordinator for the Democratic Caucus of the Michigan House of Representatives. She brings with her over a decade of experience in policies focused on economic opportunity, including workforce issues, tax, and state budget.
Simon Marshall-Shah joined the Michigan League for Public Policy as a State Policy Fellow in August 2019. His work focuses on state policy as it relates to the budget, immigration, health care and other League policy priorities. Before joining the League, he worked in Washington, D.C. at the Association for Community Affiliated Plans (ACAP), providing federal policy and advocacy support to nonprofit, Medicaid health plans (Safety Net Health Plans) related to the ACA Marketplaces as well as Quality & Operations.
Renell Weathers, Michigan League for Public Policy (MLPP) Community Engagement Consultant. As community engagement consultant, Renell works with organizations throughout the state in connecting the impact of budget and tax policies to their communities. She is motivated by the belief that all children and adults deserve the opportunity to achieve their dreams regardless of race, ethnicity, religion or economic class.
Emily Jorgensen joined the Michigan League for Public Policy in July 2019. She deeply cares about the well-being of individuals and families and has a great love for Michigan. She is grateful that her position at the League enables her to combine these passions and work to help promote policies that will lead to better opportunities and security for all Michiganders.
Megan Farnsworth joined the League’s staff in December 2022 as Executive Assistant. Megan is driven by work that is personally fulfilling, and feels honored to help support the work of an organization that pushes for more robust programming and opportunities for the residents of our state. She’s excited and motivated to gain overarching knowledge of the policies and agendas that the League supports.
