TAX POLICY BASICS
DOLLARS AND SENSE: MICHIGAN TAXES MADE SIMPLE
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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 its structure is highly regressive, asking more of households with low incomes and maintaining or worsening racial inequities.
In 2020, Michigan collected over $34 billion in revenue, with taxes alone accounting for roughly 80% of state revenue. The largest revenue sources include the individual income tax (31%) as well as sales and use taxes (28%). The vast majority of state revenue supports General Fund/General Purpose (GF/GP), the state’s main operating fund not dedicated to a particular purpose, and the School Aid Fund (SAF), which provides the majority of state funding for schools.[1]
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.[2]
Over the past 15 years, revenue collections have failed to keep up with inflation, in large part due to policy decisions constraining growth.[3] Despite Michigan’s consistent economic growth—as measured by gross domestic product (GDP)—in the last decade, revenue losses prevent the state from investing in areas like schools and infrastructure.
In addition to state taxes, households may also pay certain local taxes to support budgets for cities, villages and townships. Local governments are generally only authorized to collect property taxes, set through ballot initiatives establishing 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, something 24 cities throughout the state have opted for.[5]
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. 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]
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 through the reduction or elimination of personal credits and exemptions.
Some of the changes include the elimination of the $600 child deduction, a reduction of the Earned Income Tax Credit (EITC) from 20% to 6%, a decrease in the Homestead Property Tax Credit, and an end to the city income tax credit.[7] As a result, individual income taxes made up 70% of GF/GP revenue in the past five years on average, compared to only 50% in the five years predating the shift.
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 are paying the highest effective tax rate. 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 $17,600 per year—pay the highest effective tax rate at 10.4% while the highest-earning households—those earning over $422,100—spend the lowest at an effective rate of only 6.2%.[8]
Throughout these fact sheets, our policy recommendations will adhere to the following principles of good tax policy:
[1] “State Source and Distribution.” House Fiscal Agency, August 2021. https://www.house.mi.gov/hfa/PDF/RevenueForecast/Source_and_Distribution_Aug2021.pdf.
[2] The Management and Budget Act, Act 431 (1984). http://www.legislature.mi.gov/documents/mcl/pdf/mcl-Act-431-of-1984.pdf.
[3] Elizabeth Pratt and David Zin. “General Fund/General Purpose Revenue Growth.” State Notes. Senate Fiscal Agency, Spring 2017. https://www.senate.michigan.gov/sfa/Publications/Notes/2017Notes/NotesSpr17lpdz.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] Michigan Department of Treasury. “What Cities Impose an Income Tax?,” 2021. https://www.michigan.gov/taxes/0,4676,7-238-75545_43715-153955–,00.html.
[6] Michael Leachman, Michael Mitchell, Nicholas Johnson and Erica Williams. “Advancing Racial Equity with State Tax Policy.” 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] “A Summary of House Bills 4361 & 4362 as Introduced 3-1-11.” Legislative Analysis. House Fiscal Agency, March 8, 2011. https://www.house.mi.gov/hfa/archives/pdf/summaries/11h4361_4362s2.pdf.
[8] “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.” Institute on Taxation and Economic Policy, 2018. https://itep.org/whopays/.
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.
Jacob Kaplan 
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. 
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.
Donald Stuckey 
Patrick Schaefer
Alexandra Stamm 
Amari Fuller
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.
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.
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.
Amber Bellazaire joined the Michigan League for Public Policy as a policy analyst in June of 2019. Her work primarily focuses on state policy and budgets affecting Michigan’s Medicaid programs. Previously, Amber worked at the National Conference of State Legislatures tracking legislation and research related to injury and violence prevention, adolescent health, and maternal and child health. She also brings with her two years of Americorps service. As a full time volunteer, Amber had the opportunity to tutor high school students in Chelsea, Massachusetts and address issues of healthcare access and food insecurity through in-person outreach in Seattle, Washington.
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.
