Revenue estimates take multi-billion-dollar hit from tax cuts
New revenue forecasts out Friday show Michigan’s recent slew of tax changes could cost the state billions of dollars over the next few years.
The numbers come from the state’s May Consensus Revenue Estimating Conference. It’s when economists from the House and Senate Fiscal Agencies as well as the executive branch come together and agree on what the state’s revenue for the near future could look like.
Those numbers then help lawmakers and the governor’s office craft the next budget.
In Friday’s case, estimates for the current fiscal year came in $883 million below what the group had predicted at its January conference. Fiscal Year 2024 projections fell $1.8 billion lower than the previous estimate.
Still, the consensus remains that the state will have a surplus.
Michigan was looking at ending the current budget year with a roughly $9 billion baseline surplus. Now, State Budget Director Chris Harkins estimates that will be closer to $7.5 billion as a baseline level to carry into Fiscal Year 2024.
State Treasurer Rachel Eubanks said the context of the tax policies that spurred the difference matters when looking at the drop in forecasted revenue.
This year, the state raised its earned income tax credit, lowered retirement taxes, and earmarked some money for business incentives. That’s on top of an income tax cut triggered by a projected surplus outlined in January.
“Strong revenue growth has allowed us to provide responsible tax relief while also maintaining and investing in critical programs to create an environment where individuals and businesses can thrive. So, if you take out that tax relief, and you just look at the economy, our revenues are consistent with expectations,” Eubanks told reporters Friday.
She emphasized projections were still higher than pre-pandemic numbers even if they fell lower than January’s.
In all, a presentation given during Friday’s conference projected those tax cuts to add up to around $4.4 billion in lost revenue through Fiscal Year 2025.
Despite the seemingly alarming numbers, budget proposals floated so far should mostly account for the effects of those policies, according to Harkins.
“We have the resources necessary to make sure that we deliver on the governor’s priorities, that we can incorporate the priorities we’ve seen from the Legislature and that they’ve worked through this process,” Harkins said.
He told media the governor’s budget proposal didn’t account for the income tax cut, but legislative proposals should. Other changes have been factored in.
Republican lawmakers are using the lower projections to call for caution while writing the budget.
“All of the evidence points to future state revenue falling, but the Democrat majority is spending money like they have it to burn. The budget proposals they have brought forward so far are simply unsustainable, and the projections we received today confirm that,” House Appropriations Committee Minority Vice Chair Sarah Lightner (R-Springport) said in a press release.
The state has a June 30 statutory deadline to finalize its next budget.
Aside from tax-related falls in revenue, general uncertainty about the state and county’s economic future made up another theme of Friday’s conference.
Michigan’s embarking on its own budget process as the country approaches its debt limit in the background. Congress has yet to work out a deal.