Tri-City Sun

The Mackinac Center for Public Policy recently published a blog advocating for Michigan’s Legislature to lower the state's income tax rate.

In 2007 the state passed a tax rate increase to address projected overspending, because it was easier to raise taxes than to cut the budget. The increase was supposed to be temporary and eventually phased out as the state's budget recovered, but it is still on the books in 2021. 

However, the tax increase didn't save Michigan from the nation's economy imploding in 2007. From 2007 to 2011, state revenues dropped by over $3 billion, an 11% decrease overall. That didn't stop the state from spending, though. Federal bailouts drove state spending to record highs and continued to be rolled in, even as the state's economy recovered.

Since then, state revenue has recovered, climbing from $25.2 billion in 2011 to $35.4 billion for the current fiscal year, a 17% increase when adjusted for inflation.

The state’s current finances are actually in good shape, despite the ongoing COVID-19 pandemic, partly because the “temporary” tax increase has been in place for so long. The state coffers have grown to a point where the economic problems from 2007 are no longer an issue.

The Center argues that state lawmakers can afford to return the tax rate to the pre-2007 rate and that it's only fair to do so, if the state can afford it. Leaving more money in the hands of taxpayers would also be good for business and promote economic growth across the state, according to the Mackinac Center.

Reverting the income tax rate to its 2006 level would decrease state revenue by approximately $870 million, but revenue would still increase due to economic growth. The bottom line is the state could lower the income tax rate and still have more funds to spend next year than it did this year.