Michigan spending has ratcheted up, and the governor’s spending proposals would keep it up.
Lawmakers increased the state budget from $34.4 billion to $45.8 billion during Gov. Whitmer’s first term, excluding federal transfers as well as small amounts of local and private funding. That is a 22% increase above inflation, including the recent spike. State revenue is up by a lot, even though many budget experts feared the state’s pandemic job losses would take a chunk out of tax income.
Nor is this a blip. Tax receipts have ramped up, and the latest revenue estimates suggest the numbers aren’t going back down.
The spending surge will continue. State administrators expect that policymakers have a lot of money at their disposal for this and next year. The governor has a plan to spend most of it. Whitmer’s budget and tax plans whittle the state’s $8.5 billion surplus down to $250 million.
Not all of the plan involves budget increases. The added tax preferences for pension benefits (but not for other types of retirement income) means the state won’t collect as much revenue. An increase in the Earned Income Tax Credit will give many people a check for more than they owe in taxes, but because it is administered through the tax code, the spending doesn’t show up in the budget.
Whitmer also wants to avoid the scheduled decrease in the income tax rate that has been part of state law since 2015. This will will cost taxpayers $673 million and will increase state funds.
Residents deserve a tax cut. Improvements to the state’s business climate can help turn around Michigan’s flagging job recovery, which has been weaker than the recovery in many other states. The state’s large surpluses demonstrate that we can afford to lower taxes.
There is also a lot of fluff in the governor’s spending proposals. Whitmer wants to cover the preschool costs of households earning more than $75,000. Families earning less than that are already covered by existing programs. The state’s higher education funding policy is to fly bombers over state universities and drop crates of cash on them, and the governor wants to put more cash in the crates next year. She also wants to spend more on a business subsidy program, which allows the governor to grant however much money she decides to whatever corporations she chooses.
If lawmakers choose to spend less, they will be more judicious about how they spend taxpayer money. Perhaps there won’t be the billion-plus in district projects that appear in the budget at the last minute. There will be enough to ensure that the state can lower the income tax, in case the governor’s gambit to avoid that requirement doesn’t work. Plus, lawmakers will have money available in the event of unforeseen circumstance. And it is always important to keep some money available in case revenue takes an unexpected dip.
Whitmer seems to recognize that there are benefits from not spending every dollar of revenue. She recommended setting $1.1 billion aside in the rainy day fund.
Lawmakers have a lot of cash at their disposal right now, and Whitmer has a plan to use nearly all of it. They ought to be careful. There is a lot in the budget that provides questionable value to residents. There are good reasons to practice restraint.
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