Michigan lawmakers are considering lowering the corporate tax rate to ease the tax burden on companies still affected by the pandemic and to make the state more competitive. Senate Bill 392 would retroactively lower the state’s corporate tax rate from 6 percent to 5.5 in tax year 2021 and then back to 4.9 percent for tax year 2022 by the entire Senate.
Michigan is nowhere near the first to approve rate cuts this legislature. Ten states (Arizona, Idaho, Iowa, Louisiana, Missouri, Montana, Nebraska, New Hampshire, Ohio, and Oklahoma) passed income tax cuts this year, five of which (Idaho, Louisiana, Nebraska, New Hampshire, and Oklahoma) cut their corporate tax rates.
With so many states pushing income tax reform, it is even more important that Michigan consider its competitiveness in the context of the changing tax landscape. Currently, Michigan’s flat corporate tax rate of 6 percent is mid-range compared to other states, but if SB 392 were enacted, the Great Lake State’s top rate in 2022 would be among the top 10 lowest in the country, presumably no coincidence that the interest rate cut fully implemented is State with neighboring Indiana, whose previous rate has fallen from 5.25 percent on July 1 to 4.9 percent.
The tariff cut would cost the state $ 240 million annually if fully implemented. While this change is substantial, Michigan can afford to forego so much revenue, especially to improve the business climate. As is common across the country, the state saw sales decline at the start of the pandemic, but ended fiscal 2021 in a large surplus. Even if a large part of this income is due to one-off federal aid, a large part is also due to considerable increases in the state’s own tax revenues.
The Senate Fiscal Agency (SFA) forecasts continued revenue growth in the coming years that would exceed the amount lost by the proposed income tax cut. However, the SFA also predicts that this marked improvement will lag behind the rest of the country. Since the state can afford it, the legislature would do well to prop up the state economy by lowering the tax burden on existing companies and making the state more attractive for new companies.
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