Our recovery requires revenue
Michigan is experiencing a severe fiscal crisis.
Because COVID-19 has slowed the economy to a grinding halt for nearly three months, incomes and consumer activity have fallen dramatically. That means tax collections will be drastically below any level recorded in recent history. Part of the losses in revenue will be borne by Michigan this year — approximately $3.2 billion. The 2020-21 state budget will be just as severe, with a decline of nearly $3 billion from previous estimates.
The state is woefully unprepared for an economic downturn like this.
The Michigan Legislature has historically underinvested in critical services and infrastructure, placing the state in a vulnerable position during this crisis — the budget has already been cut to the bone by lawmakers who favor tax cuts for wealthy individuals and corporations. State policymakers made some major mistakes during the 2009-10 recession, cutting business taxes and reducing state revenues in the process. That caused substantial fallout for schools, local governments, state infrastructure and public health — ultimately leading to the Flint water crisis.
Because of the many policy failures during the last recession, we already know that tax breaks for businesses aren’t the answer to economic recovery during tough times — investment is. Polling shows the public wants to see greater investment, not budget cuts, and Michigan’s public servants should follow suit.
Last week, the Michigan League for Public Policy released a report highlighting policy recommendations that will help the economy recover and bring in new state revenue (available at mlpp.org). Those recommendations put the interests of the vast majority of residents first, in protecting our vital infrastructure, responding to the crisis effectively, and making sure our government continues to serve the people. For a strong economic recovery, the Legislature must:
∫ Advocate for additional federal relief that is flexible and tied to state economic conditions and COVID-related revenue shortfalls.
∫ Take maximum advantage of the state’s Countercyclical Budget and Economic Stabilization Fund, also known as the rainy day fund.
∫ Ensure corporations are paying their fair share for the services that support their businesses.
∫ Modernize the state sales tax to reflect the current economy and the growth of the services sector.
∫ Reform the state’s estate tax by decoupling it from the federal estate tax.
∫ Reform Michigan’s personal income tax to make it more progressive and based on the ability to pay.
∫ Reevaluate the effectiveness of tax expenditures.
Those revenue proposals strike a balance between bringing in new money while ensuring the businesses and residents with the most wealth are paying their fair share. And the alternative to those revenue-generating policies is the sure decimation of the service structure of the state. Publicly funded services are needed now more than ever because of the COVID pandemic, especially for Michiganders who were already living paycheck to paycheck.
Michigan’s current tax system simply cannot generate the revenues needed to combat the COVID-19 crisis or rebuild the state’s economy. The time for the Legislature to take on these bold revenue solutions is now.
Brandon Betz is tax policy analyst at the Michigan League for Public Policy.