Michigan anticipates tax revenue rebound following 2023 slump

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Michigan's tax revenues will see a slight decline this year before rebounding for the next two years after that — in large part because of tax policy changes implemented by newly powerful Democrats who were working last year with a record surplus, state officials projected Friday.

Economists in the Legislature and Democratic Gov. Gretchen Whitmer’s administration outlined their projections for the state's tax revenue during a conference Friday in Lansing. The projections will be used by lawmakers over the next several months to craft the state's annual budget.

The projections show that the state's tax revenue will total close to $31.5 billion this year, a slight increase from previous projections but close to $400 million less than the previous year. The economists estimated that tax revenue will jump by close to $1 billion in each of the next two years.

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The projections Friday come "as things return more to normal," said Eric Bussis, the chief economist in the state's Department of Treasury.

The economic outlook followed a year in which newly powerful Democrats passed the state's highest ever budget — $82 billion — with a surplus that had been projected to exceed $9 billion because of federal pandemic aid.

As a result of the high tax revenues, the state's income tax rate was lowered to 4.05% from 4.25%. The rate will return back to 4.25% after Michigan's attorney general ruled that the law lowering the tax was meant to be temporary.

Michigan State Capitol in Lansing during Autumn, with green, golden, and red colored trees in the foreground.  (iStock)

In addition to the tax rate cut, Democrats passed a number of other tax policy changes that contributed to the slightly lower estimated revenue for 2024. Lawmakers attempted to provided relief to retirees by phasing out taxes on public and private pensions, and the state’s Earned Income Tax Credit was significantly expanded from the current 6% to a 30% match of the federal rate.

Economists added Friday that a nearly month-and-a-half-long autoworker strike targeting Detroit’s three carmakers did not have a significant negative impact on revenues.

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Friday's projections will help provide lawmakers with an idea of how much they can spend in this year's legislative session, which kicked off on Wednesday.

Democrats will once again control the legislative agenda but they will no longer have full control of the state Legislature. The state House is currently tied 54-54 after two Democrats vacated their seats after winning mayoral races in November.

Whitmer, now in her second term, will outline her policy priorities for the year in her sixth State of the State speech on Jan. 24. The governor is expected to prioritize education, economic development and a paid family and medical leave plan that she called for last year but which was never passed.

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The House and Senate Fiscal agencies will hold a second revenue estimating conference in May.