State Could Roll Back Big Granholm Tax Hike And Still Have $2.6 Billion More Next Year

And taxpayers would get to keep $1 billion of their earnings

In the fall of 2007, faced with a massive shortfall between proposed state spending and expected state revenue, a Democratic House and Republican Senate passed what was called a “temporary” state income tax increase, raising the rate from 3.9% to 4.35%. Gov. Jennifer Granholm signed the tax hike bill on Oct. 1, 2007.

Plausibly or not, tax-hiking politicians frequently claim the increased burdens they impose are “temporary,” but the law authorizing this one actually had the roll-back written right into its provisions. It promised, “Beginning on October 1, 2011 and each October 1 after 2011, the maximum rate under this subsection shall be reduced by 0.1 each year,” reverting to 3.9% “on and after October 1, 2015.”

In 2012, a Republican House, Senate and Governor agreed to let the rate fall to 4.25% on Oct. 1 of that year and “call it good,” canceling the rest of the alleged roll-back.

Had Republicans left Granholm's promised income tax roll-back proceed, Michigan workers and investors would today be paying around $1 billion less each year according to the Senate Fiscal Agency.

Tha would have the effect of reducing state revenue by the same billion-dollar amount, but the “hit” would come to an annual state budget that is already spending $3.6 billion more than the previous year. Much of that is from federal epidemic relief and “stimulus” payments, but the state itself is also collecting and spending substantially more on its own. State of Michigan tax collections are projected to rise from $34.4 billion in the year before the pandemic to $38.0 billion in current 2021-22 fiscal year.

James Hohman, a fiscal analyst at the Midland based Mackinac Center for Public Policy (which publishes Michigan Capitol Confidential) thinks this is the time to revisit that broken promise. Even though state revenue is up, he observes there are still 241,333 fewer residents who have jobs since the pandemic began, a 5.1 percent decline. A pre-pandemic 2018 State Tax Analysis Modeling Program analysis indicated that cutting the income tax income rate would create 15k jobs in its first year.

“Lawmakers can afford to lower the tax burdens on a public that’s struggled through the pandemic,” Hohman said in an email.


Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.