State Spending Up Huge, With Or Without Federal COVID-Bucks

It’s time to roll-back the “temporary” income tax increase that was implemented under Gov. Jennifer Granholm now that Lansing has a surge in revenue, according to James Hohman, director of fiscal policy at Mackinac Center for Public Policy.

The income tax was increased in 2007 from 3.9 percent to 4.35 percent, an 11.5 percent increase, to avoid a government shutdown and spending cuts. It was supposed to roll back to 3.9 percent starting in 2011, but Gov. Rick Snyder and the Legislature agreed to limit the roll-back to a mere one-tenth of one percentage point.

“Lawmakers can afford to lower the tax burdens on a public that’s struggled through the pandemic,” says Hohman. He notes income taxes discourage income which affects job growth.

If the legislature and governor cut the state income tax increase back to 3.9 percent as promised, taxpayers would save around $1 billion for a full fiscal year according to a Senate Fiscal Agency report. State revenue would also decrease by $1 billion but revenue is currently up by $3.6 billion, a 10.4 percent increase.

And that does not include the flood of pandemic-related federal dollars law flowing into the state - $30.3 billion in the current budget compared to $23.6 billion last year - with yet more that hasn't been allocated yet. Even without that federal money, state spending increased from $34.4 billion in the year before the pandemic to $38.0 billion in the budget that was just adopted in September.

Even though revenue is up, employment is down 241,333 since the beginning of the pandemic, a 5.1 percent decline. Reducing the income rate would also create 15k jobs according to a 2018 State Tax Analysis Modeling Program.