Michigan lawmakers ended a four-hour partial government shutdown early Monday morning by enacting two bills designed to deal with a projected $1.75 billion deficit. House Bill 5194 includes an increase in the state's single income tax rate from 3.9 to 4.35 percent. The rate increase will be phased out between 2011 and 2015 and is expected to increase revenues by $765 million a year. The second revenue-raising bill (HB 5198) broadens the sales tax base to cover many services, including landscaping services, bail bond services, and even baby shoe bronzing services. This is expected to increase state revenues by $750 million. The budget also includes $440 million in spending cuts.
Michigan lawmakers deserve credit for making tough decisions to ensure that the state can work to adequately meet the needs of Michiganders. We expect other states will eventually follow Michigan's lead and expand their sales tax base as economies continue to change from goods-based to service-based. For more on sales tax base expansion options see ITEP's policy brief.