Michigan's tax revenues will decline slightly this year, but will recover over the next two years. State officials predicted Friday that the main reason is tax policy changes implemented by upstart Democrats, who posted record surpluses last year.
Economists from the state Legislature and Democratic Gov. Gretchen Whitmer's administration outlined their projections for state tax revenue at a meeting in Lansing on Friday. The projections will be used by lawmakers in the coming months to craft the state's annual budget.
The state's tax revenue is expected to total nearly $31.5 billion this year, according to the forecast, a slight increase from previous projections but nearly $400 million less than a year ago. Economists estimate that tax revenues will increase by nearly $1 billion in each of the next two years.
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Eric Busis, chief economist at the state's Treasury Department, said Friday's forecast will come “as things return to more normality.”
The economic outlook follows a year in which upstart Democrats passed an $82 billion budget, the largest in state history, and posted a surplus that was expected to exceed $9 billion in federal pandemic aid. It became a thing.
As a result of higher tax revenues, the state's income tax rate was reduced from 4.25% to 4.05%. The tax rate will return to 4.25% after the Michigan attorney general rules that the tax cut law is temporary.
The Michigan State Capitol in Lansing in the fall. Trees colored green, gold, and red can be seen in the foreground. (St. Petersburg)
In addition to the tax rate cuts, Democrats passed a number of other tax changes that contributed to slightly below estimated 2024 revenues. Lawmakers sought to provide relief to retirees by phasing out public and private pensions and state taxes on earned income. The tax credit was significantly expanded from the current 6% to his 30% of the federal tax rate.
Economists added Friday that the nearly month-and-a-half auto workers strike at three Detroit automakers did not have a material negative impact on profits.
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Friday's forecast will help give lawmakers an idea of how much money they can spend in this year's legislative session, which opens Wednesday.
Democrats will once again control legislative policy, but they no longer have full control of state legislatures. The state House is currently tied 54-54 after two Democrats vacated their seats after winning November's mayoral election.
Whitmer, now in her second term, is scheduled to outline this year's policy priorities during her sixth State of the State address on January 24th. The governor is expected to prioritize education, economic development and the paid family and medical leave plan she called for. Last year, it never passed.
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House and Senate fiscal officials will hold a second revenue estimation meeting in May.
