Lawmakers, new revenue needs stand between COVID-19 recovery or next crisis

LANSING—In order to avoid a deep economic crisis brought on by the current pandemic, lawmakers must address the state’s lack of revenue, according to a new report from the Michigan League for Public Policy. The report, “COVID-19 Crisis Highlights Need for More State Revenue” (https://mlpp.org/covid-19-highlights-the-need-for-more-state-revenue/) explores the reasons Michigan is woefully unprepared for this economic downturn and presents recommendations for recovery.

Economists estimate that the current crisis will have a substantially larger impact on Michigan’s economy and fiscal health than the Great Recession, which itself hit Michigan harder and lasted longer than almost any other state. Michigan’s General Fund and School Aid Fund revenues are projected to decline by $6.2 billion in this budget year and the next one, and the state cannot rebound without additional funds coming in.

“We’re talking about a $6.2 billion loss in a budget that’s already been cut to the bone over the last decade, putting our kids, our workers and our communities at risk in the process. We’ve got to raise some money if we’re going to survive this downfall—and it must start with a more equitable and more robust tax system. It must start with people and businesses who have the means to step up and pay their fair share for the services they gain from being in Michigan,” said Gilda Z. Jacobs, President and CEO of the Michigan League for Public Policy.

As a share of tax collections, net business taxes have dropped from 5.5 percent to 2.6 percent since 2011. The top one percent of Michiganders pay less of their personal income in taxes (just over 6 percent) than those who earn under $17,000, who pay nearly 10.5 percent of what they earn in taxes.

The League recommends multiple avenues for raising revenue through taxes, from making sure corporations pay their fair share to implementing a tax on services to exploring additional taxes on recreational marijuana sales—Michigan’s taxes on cannabis are among the lowest in the nation currently.

Beyond taxes, the League urges lawmakers to push for additional federal relief that is flexible and tied to state economic conditions and COVID-related revenue shortfalls, while taking maximum advantage of the state’s Rainy Day Fund. Last week, the Michigan Senate passed bipartisan legislation, Senate Resolution 124, which calls for more flexibility in federal CARES funding, and state budget negotiations have been extended to await further action by Congress.

“We’re not on our own here. This pandemic is a national problem and it requires a national solution—and bipartisan voices in Michigan are needed for bipartisan action in Washington. The state absolutely must advocate for new federal funds in the Senate version of the HEROES Act as well as more flexibility on existing CARES Act dollars, and then we must use those funds for priority spending on the health, safety and well-being of Michiganders,” Jacobs said