New Revenues Must Be Part of Solution to State’s Budget Crisis

by Douglas M. Paterson, MPA, MPCA Director State Policy

As legislators return to Lansing after a summer break, they face a budget deficit that approaches $3 billion (between the General fund and School Aid budgets). While legislative leaders and the Governor’s office have continued to meet over the past weeks, they still remain far apart on whether revenue has to be part of the solution.  

Democrats and the Administration seem to be concerned about the long-term impact that cuts of $3 billion will have on the future of Michigan, while Republicans argue that raising taxes at a time with 15% employment and a bad business climate will only drive businesses (and future jobs) away.  Both are legitimate concerns.  However, with a deadline of September 30 looming, all agree that they need to make the hard decisions soon. 

In the meantime, while conference committees (three members of each party) have been established for each of the budget areas, they still have not been given “targets” with which to work to make their decisions. These targets have to be set by leadership. 

The Michigan Primary Care Association has taken a formal position that new revenues have to be part of the solution. We are living with an outdated tax structure that cannot support the basic level of governmental services that most citizens need and which should be performed by government (even in good times).

Legislators must avoid the notion that by simply making the numbers add up they have done their jobs. If they fail to consider what their decisions will mean for our state’s future, then they have failed in their jobs — as well as failed the next generation of Michigan’s children.

To highlight this point, The Michigan League for Human Services recently released a report showing that budget cuts to health and human service programs will likely exacerbate the health disparities that already currently exist. Read more

Among the revenue options that should be considered are:

  • Eliminate tax incentives for companies failing to create and retain jobs and close tax loopholes, while requiring yearly performance reviews for all remaining tax credits and incentives. This will save our state over $600 million per year, with increased savings in the following years.
  • Implement a graduated income tax — securing a tax cut for up to 90% of Michigan residents — by adjusting our tax base and more fairly distributing the tax burden. The legislature must act immediately to put this option before the voters.
  • Expand the state’s sales tax to include luxury and non-essential services, which would generate as much as $1.65 billion in new revenue for the state, with growth potential as the state’s economy rebounds. This expansion would not include business-to-business, health care, legal, or child care services. The Center on Budget and Policy Priorities released a report last week showing that Michigan could collect $2.5 billion by taxing a broad range of services.
  • Reform Michigan’s tax code to enable collection of taxes on estates over $2 million by de-linking from the Federal Estate Tax, generating $160 million per year in revenue for our state.
  • Modernize the 1966 beer tax of 2 cents per 12 ounces up to 6 cents per 12 ounces. This increase of less than 25 cents per 6-pack would generate $90 million in additional revenue per year for our state.
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