New state budget leaves out ways to raise revenue in order to protect vital services for Michiganders
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The fiscal year 2026-2027 state budget was signed into law last week by Gov. Gretchen Whitmer. We here at the Michigan League for Public Policy are digging into the final agreement that was reached, and while it does include some positive investments, tools that would raise state revenues to protect vital services were unfortunately left out.
This is especially concerning given last year's passage of the so-called "One Big, Beautiful Bill Act" (OBBBA) by Congress, which has left Michigan bracing for the significant harm that will be caused by cuts to social safety net programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP).
An estimated 40% of Michigan households already struggle to afford basic needs, and many of them will be left far worse off because of decisions our federal lawmakers and leaders have made. These are households that either fall below the poverty line or are just above the poverty line, but still do not earn enough to afford basic living expenses.
Looking more locally at poverty rates alone, our latest Census fact sheets show that 18%, 12%, 18% and 14% of people in Alpena, Alcona, Montmorency and Presque Isle counties, respectively, are living in poverty. The unconscionable cuts included in the OBBBA will severely impact these Michiganders who are already struggling to make ends meet and will shift insurmountable costs that our state simply cannot absorb.
Federal changes have already hit state budgets hard, including here in Michigan. For instance, the state has had to invest more funding in administrative costs for SNAP, as well as in hiring costs for new staff who must now ensure new federal eligibility requirements are followed. And the financial burden on Michigan's budget will only grow, because changes are slated to be implemented over many years.
With all of this in mind, state lawmakers and leaders must recognize that raising revenues is critical to addressing major budget challenges today and in the future. We understand it won't be easy, but one important thing to keep in mind is that Michigan is not a high-tax state anymore. The state's so-called "tax burdens" have already been greatly reduced by policy changes, and Michigan currently ranks 38th in the nation when you look at the total state and local taxes as a percent of personal income
Michigan's total state tax collections are capped at 9.49% of personal income as a part of this constitutional change, but we haven't reached that limit since 2000. If state tax collections had simply kept pace with personal income since then, the state would have an additional $14 billion for Michiganders' present-day critical needs. It would mean more funding for things like healthcare, food assistance, education, childcare and more.
There are many options for raising state revenue, including raising taxes on profitable corporations, ensuring flow-through businesses pay the same tax rate as traditional corporations and considering the various policy solutions that would increase taxes for the wealthiest Michiganders.
Michigan currently doesn't have any wealth taxes even though they have tremendous revenue-raising potential. Raising the capital gains tax rate higher than the income tax rate, installing a progressive mansion tax rate, expanding the real estate tax, and decoupling from the federal estate tax and implementing either a state inheritance or estate tax are just a few ways our state can make sure the wealthiest Michiganders are paying their fair share, while also reducing inequality.
Additionally, we at the League have been longtime advocates for a graduated income tax, so those who earn the most pay an equitable portion of their income in taxes. Right now that is not the case, as Michigan has a flat income tax of 4.25%, meaning everyone from all income groups pays the same rate in taxes. This is deeply unfair for Michiganders earning the least, as they pay the largest share of their income in taxes.
Tax increases on commodities like tobacco and gambling to increase funding for healthcare are also great examples of tools we can use to stabilize the state budget--and make sure our residents are healthier. Gov. Gretchen Whitmer proposed this in her executive budget earlier this year, and it would have been a major win. Sadly, it didn't end up in the state's final budget.
State lawmakers must start to address current and future state budget challenges so Michiganders don't have to go without the vital services they need. It's important for our legislators to understand that although it may not be easy, we have many options to adequately and equitably raise revenues so the needs of Michiganders are no longer placed in peril.