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Election season puts a spotlight on key issues, and taxes typically rise to the top of the lsit. This year, under the misconception that taxes are too high here in the Mitten State, candidates for state office have been eyeing risky tax reforms. Some proposals would cut Michigan's income tax or even eliminate it entirely. It might look good on a campaign mailer, but cuts like this would cause deep harm to communities around the state.
Besides gutting $14 billion in programs like public education and healthcare, the savings from the tax cut would mainly benefit the wealthiest households here in Michigan -- those who earn more than $1 million a year. It would also blow a hole in the budget, where the income tax accounts for 65.5% of the state's General Fund and 20.6% of the state's School Aid Fund. That's a hole that would be too big to plug.
And who would benefit? According to the Institute on Taxation and Economic Policy, 66.2% of the savings from eliminating the income tax would go to the wealthiest 20% of Michigan households. The bottom 40% would see just 5.2%. The top 1% would get an average cut of $61,620, while the bottom 20% would get about $122. That’s a difference of more than 500 times.
Put another way, a household in the top 1% could buy a new pickup truck with its tax cut. A household in the bottom 20% might be able to buy one tire.
That’s not a tax cut for working families.
Proposals to cut the income tax rarely explain how to make up the lost revenue, likely because it’s hard to do--both politically and mathematically. The options are steep spending cuts, including to schools, or much higher sales or property taxes, which fall hardest on low- and middle-income families. Missouri considered eliminating its income tax and raising its sales tax, and voters strongly rejected the idea after analysis showed nearly everyone would pay more while the wealthiest few saved.
The same story plays out for even minor or modest tax cuts. Last year, the Michigan House passed a tax cut proposal that would lower the income tax rate from 4.25% to 4.05%. Even this "minor" tax cut would have cost the state about $700 million, with more than 60% going to the wealthiest 20% of households and the top 1% receiving an average cut of $2,830. Tax cuts almost always benefit the richest few at the expense of the many.
Arguments that reducing or eliminating Michigan's income tax would spur our economy and boost our budget are unfounded. Cuts like these would gut the state budget. Lawmakers already face problems as the federal government pulls back support from states. Adjusted for inflation, Michigan’s School Aid Fund is only slightly above 2000 levels, and the General Fund, the state’s only unrestricted fund, is nearly 26% below them. As the cost of basic services rises, proven programs already compete for too few dollars.
And eliminating the income tax would make things worse. Michigan's income tax provides nearly $4.4 billion to our School Aid Fund; pulling this out would result in drastic cuts to an educational system that is already facing a $5 billion gap. To balance this, policymakers would need to cut more than $3,100 per student, which would directly reduce dollars going into our classrooms. This would result in larger class sizes and fewer services. Or Michigan could reverse recent gains in affordable preschool and postsecondary education, eliminating the state-funded universal Pre-K program, eliminating state funding for community colleges, and cutting our higher education budget in half. Even then, schools would still be nearly $2 billion short. Recent investments in literacy, school meals, mental health and school safety would also be at risk. These are investments in our future doctors, teachers, farmers and skilled tradespeople.
The story is worse for the rest of state services, which receive $9.2 billion from the income tax. Based on the 2026-27 General Fund budget, eliminating it would require a 71.3% across-the-board cut to every state department and agency. It would also weaken Michigan’s ability to draw down federal funds for programs like Medicaid, which many rural hospitals depend on, and child care scholarships. Even the small 0.2 percentage point cut would have meant at least a 5% across-the-board General Fund cut. These choices would create lasting structural problems and leave our children and grandchildren to fix them.
Michigan is already a low-tax state, and the income tax is a powerful tool to raise revenue. If anything, Michigan leaders should be coming up with a plan to instate a graduated income tax to increase revenue and improve equity in our tax code.