Home Budget & Tax News Don’t Use Pandemic as Excuse to Raise State Taxes

Don’t Use Pandemic as Excuse to Raise State Taxes

Michigan state financial analysts now expect that the COVID-19 pandemic has had a much smaller effect on state revenue and on corporate and income taxes than previously estimated. The state now expects to collect 97 percent of what it collected last year, and it expects to receive 93 percent of that amount in the year after.

Between federal relief efforts and savings agreed upon earlier this year, lawmakers report that not much will have to be cut for the upcoming budget, directly contradicting many claims made earlier in the year about needing to find ways to generate more revenue. However, state lawmakers may have some tough decisions to face when federal money runs out.

Possible Solutions

Over the next year, lawmakers ought to negotiate about how they can live within their means. The Michigan-based Mackinac Center for Public Policy has some ideas available for how state-level policymakers can save money in their budgets. Some ideas include reducing state revenue sharing, ending state corporate welfare handouts, eliminating state subsidies for services provided at the local level, and reevaluating the costs and necessity of the benefits given to state employees. The legislators elected in the fall may have different priorities. Other officials, like the state budget director, do not want to re-prioritize anything.

Whether lawmakers agree to save money, go into debt, or raise taxes depends on what citizens will tolerate. A general expectation that increasing financial burdens—or future burdens—on the population is inappropriate will be enough to get lawmakers to agree that they can find ways to save money.

Lawmakers argue about how to spend the limited tax dollars collected from residents and businesses every year. That duty doesn’t change if the number goes down due to the pandemic, and lawmakers ought to expect to cut the budget instead of going into debt or raising taxes.

Originally posted at the Mackinac Center for Public Policy. Republished with permission.

James M. Hohman
James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy. He holds a degree in economics from Northwood University in Midland, Mich.

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