Economists Estimate Tax Revenue to Jump in the Next Two Years
The state of Michigan is projected to have tax revenue totaling close to $31.5 billion this year, according to recent projections. While this is a slight increase from previous projections, it is nearly $400 million less than the previous year. However, economists estimate that tax revenue will jump by close to $1 billion in each of the next two years.
Eric Bussis, the chief economist in the state’s Department of Treasury, stated that the recent projections come “as things return more to normal.” This economic outlook follows a year in which newly powerful Democrats passed the state’s highest-ever budget of $82 billion, with a surplus that had been projected to exceed $9 billion.
Impact of Tax Rate Cuts and Policy Changes
Due to the high tax revenues, the state’s income tax rate was lowered from 4.25% to 4.05%. However, this rate will return to 4.25% as Michigan’s attorney general ruled that the initial tax cut was only meant to be temporary.
In addition to the tax rate cut, Democrats implemented several other tax policy changes that contributed to the slightly lower estimated revenue for 2024. These changes included phasing out taxes on public and private pensions to provide relief to retirees, as well as significantly expanding the state’s Earned Income Tax Credit from 6% to a 30% match of the federal rate.
Autoworker Strike and Legislative Implications
Economists have reassured that the nearly month-and-a-half-long autoworker strike targeting Detroit’s three carmakers did not have a significant negative impact on tax revenues.
These projections will provide lawmakers with an idea of how much they can spend in this year’s legislative session, which began on Wednesday. Democrats will once again control the legislative agenda; however, they will no longer have full control of the state House, which is currently tied at 54-54 after two Democrats vacated their seats due to winning mayoral races in November.
Governor Whitmer’s Priorities
Michigan Governor, Gretchen Whitmer, now in her second term, is set to outline her policy priorities for the year in her sixth State of the State speech on January 24. Education, economic development, and the implementation of a paid family and medical leave plan, previously called for by the governor but not passed, are expected to be among her top priorities.
The House and Senate Fiscal agencies will hold a second revenue estimating conference in May to further assess the state’s financial outlook.
