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Opinion | Use federal COVID cash to fix Michigan roads, cut taxes and debt

State lawmakers have a lot of money left over from federal stimulus packages and tax revenue growth, but little consensus around how to spend it.

James Hohman
James Hohman is director of fiscal policy at the Mackinac Center. (Courtesy photo)

They ought to agree on some basic improvements. They should share long-term goals like improving road quality, helping economic recovery, and paying down state debts. Outside of those uses, the existence of excess state funds show that lawmakers can reduce the burden of state taxes.

Michigan is getting close to the point where road builders are putting the roads back together faster than they fall apart. The roads need some extra money to get them over that point and set the state on a course for continual improvement over a long term. The state has been collecting more money from its taxes due to economic growth, despite the pandemic, so lawmakers can use some of those gains to increase annual road funding.

Michigan lawmakers set the state’s budget in September for the 2021-22 fiscal year without allocating every dollar in expected revenue. Now that Michigan is a couple of months into its fiscal year, that extra money ought to be used to pay down debt. This would improve the state’s long-term financial condition, saving taxpayers money and freeing up cash for a time when lawmakers may have more agreement about their priorities.

Lawmakers ought to pay special attention to pension debt, since they accidentally made school workers the state’s largest creditors — something bad for teachers and taxpayers alike.

The unemployment insurance system automatically increases its tax rates, which are levied on payrolls, when more people claim benefits. An extraordinary amount of people collected benefits in 2020, and those automatic tax increases affect employee pay and employer costs today. Michigan is still down 212,400 jobs from pre-pandemic job levels, a 4.8 percent decrease, and raising payroll taxes will only discourage further job growth. Putting extra cash into the unemployment insurance system can help the state recover faster by letting it avoid those automatic increases in payroll taxes.

To further encourage growth, lawmakers ought to consider cutting tax rates. This would make the state more competitive. During the pandemic, 14 other states lowered their taxes. That includes Ohio, which now has a lower income tax rate than Michigan. Letting people keep more of what they earn encourages job growth and household income, and the state could use more of that. The extra revenue makes it easier for lawmakers to reduce the tax burden without having to reduce state spending.

Reducing tax rates is often viewed as a partisan issue, with Republican support and Democratic opposition. It doesn’t have to be this way, especially in state politics. For instance, voters in Louisiana — another state with a Republican legislature and Democratic governor — recently approved constitutional amendments to cut taxes. The proposals, which lowered corporate and personal income tax rates, and eliminated federal deductibility, were put on the ballot by lawmakers with unanimous bipartisan support.

When Michigan is awash in extra funds and other compromises are tough to find, lowering tax burdens is something that ought to be attractive to people on both sides of the aisle.

Lowering taxes would be a long-term improvement in the state’s business climate. Unemployment insurance reforms could stave off job-killing tax hikes. Paying down debt would save money over decades, and improving road quality provides better services and saves money over time. These are ideas that ought to get strong bipartisan support.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan. Bridge does not endorse any individual guest commentary submission. If you are interested in submitting a guest commentary, please contact Ron French. Click here for details and submission guidelines.

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