New tax cuts, recovering car sales: 7 big things playing into Michigan's revenue
LANSING − State officials said Friday they remain bullish on Michigan's economic fortunes after agreeing to lower revenue forecasts they said are entirely the result of recently approved tax changes and not because of a cooling economy.
"Michigan's economy continues to show signs of growth and resilience," said Treasurer Rachael Eubanks.
Though down from the record year of 2022, state tax revenues are still running above pre-pandemic levels and have allowed the administration of Gov. Gretchen Whitmer to deliver targeted tax relief, Eubanks said after the revenue estimating conference at the Capitol.
But state Rep. Sarah Lightner, R-Springport, minority vice chair of the House Appropriations Committee, said the lower revenue numbers, along with economic signs such as recent bank failures, point to the need to reduce the overall size of Whitmer's proposed budget. “All of the evidence points to future state revenue falling, but the Democrat majority is spending money like they have it to burn," she said.
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Here are seven key takeaways from the conference, which is a key step in finalizing the budget for the fiscal year that begins Oct. 1:
State revenues down close to $2.7B from January
Officials agreed to lower revenue expectations by nearly $883 million for the current fiscal year and by $1.8 billion for 2024 from what was estimated in January. Though one of the projections they used factored in the loss of over $400 million because of a cooling economy, the consensus numbers did not. The consensus report said the entire downward revision was expected based on recently approved tax cuts and tax expenditures, including reduced taxes on retirement income, a more generous Earned Income Tax Credit, a reduction in the income tax rate for the 2023 tax year, and the earmarking of $600 million a year in corporate income tax revenues for economic development projects.
State budget headed to conference committee
The numbers agreed to Friday will be used to set new budget targets as early as next week, after which a conference committee with representatives from both parties in the House and Senate is likely to finalize what is expected to be a roughly $80 billion budget in early June.
State approaching full job recovery from pandemic
Unlike the rest of the nation, Michigan has yet to regain all the jobs it lost during the pandemic. But it is very close to doing so, said Gabriel Ehrlich, director of the Research Seminar in Quantitative Economics at U-M. The U.S. lost about 14% of its total jobs and recovered fully about the middle of last year, he said. Michigan lost 24% of its jobs and is now within about 30,000 jobs of a full recovery, he said.
Economist: This downturn will be different for Michigan
Michigan usually gets hit much harder than the rest of the nation by an economic downturn. But that should not be the case this time, and Michigan is expected to continue to grow jobs through 2025, though at a slower rate, Ehrlich said. The main reason is the resilience of the auto sector, where pent-up demand for automobiles is expected to cushion those manufacturing jobs through a possible mild recession.
Detroit Three auto sales projected to grow
The Detroit Three share of car and light truck sales is expected to grow from 5.3 million units last year to 6 million units in 2025, though that growth does not return Michigan to pre-pandemic levels, Ehrlich said. Sales frequently topped 7 million between 2014 and 2019.
Higher wages offset by inflation
Though personal income is growing, that higher pay is mostly being eaten up by the effects of inflation, which is expected to gradually decline. Inflation-adjusted income declined by nearly 10% last year, Ehrlich said.
State is aging, not growing
Michigan's population is aging and is older, on average, than most of the rest of the nation. That has implications for both labor participation rates and for the higher level of services seniors require, said State Demographer Jaclyn Butler. Low participation in the labor force, combined with a state population that has not been growing, makes it tough to grow employment, said Daniil Manaenkov, a U-M economic forecaster.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.
This article originally appeared on Detroit Free Press: Michigan revenue conference: 7 key takeaways
