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The state’s economy has not returned to what it was before the coronavirus pandemic.
This is a drop of 321,600 jobs, a loss of 7.2%, the eighth worst in the country.
There are 207,800 fewer people in the workforce.
Total economic output has not fully recovered and is lagging behind the nation.
But, despite these losses, tax revenues continue to increase and the state budget continues to grow.
By the end of this fiscal year, lawmakers will have spent about $ 1 billion more in state taxes than before the pandemic, an increase of 2.9%. Federal money, including extraordinary stimulus payments, added even more.
The increase in state tax revenues comes on top of a decade of growth in the state budget. Lawmakers spent $ 9.1 billion more in state tax dollars than in fiscal year 2011-12, a 13.6% gain above inflation. That’s a substantial increase, given that the state’s population hasn’t changed much over the period.
There are more, but it is not clear by how much the upcoming budget will increase. According to the latest projections, the revenues of the two main state funds will increase by $ 3.8 billion in the next fiscal year. The directors also estimate that there is $ 4.6 billion in these two funds.
So the state collects far more from taxpayers than it did a decade ago, it has already more than recouped from its small losses during the pandemic, and state revenues are expected to increase.
Of course, lawmakers don’t have to spend every dollar of income and every dollar in their bank account. In fact, they probably shouldn’t.
Limiting the growth of the state budget to the rate of inflation – even the higher than usual rate expected for the coming year – would allow lawmakers to spend about $ 900 million more. Lawmakers will already increase spending more than the rate of inflation thanks to the school aid budget they passed this summer, which allocates an additional $ 1.2 billion in public funds.
Between growing state revenue, excess fund balances and what has already been budgeted, there could be $ 6 billion in state funds available to lawmakers for the next fiscal year, even without counting. additional federal stimulus spending.
State lawmakers are unlikely to have ever had so much money waiting to be spent.
This surplus means that there is a lot of money to reduce taxes if elected officials want to make it a priority. Cutting the state income tax rate to 3.9% would allow people to keep more of their money and leave lawmakers with plenty of money for the state budget to grow more. faster than inflation. Its extraordinary growth during the pandemic should make lowering taxes a much easier option for them.
The income tax rate would be 3.9% right now if lawmakers had not reversed a planned rate cut in 2011. They may not have considered future cuts to be affordable in the future. era, but the state is now inundated with money.
Michigan residents have been struggling since March 2020.
State legislators can afford to ease their tax burden if they choose.
They have the money to do it.
James M. Hohman is Director of Tax Policy at the Mackinac Center for Public Policy.
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