Legislature Funds Budget on the Backs of Businesses, Undercuts Competitiveness 

The Michigan state budget for fiscal year 2025-26 finally came to fruition, at the expense of businesses, which will incur a massive tax increase and suffer losses in other economic development incentives. 

Related | Statement: State Budget Comes Amid Historic Challenges for Business

Tax Decoupling: A $2 Billion Tax Increase 

A coalition of Michigan’s top business organizations, including the Detroit Regional Chamber, strongly opposed the move to separate the state’s tax law from the federal code. 

• The Tax Hike: The decision to decouple from federal tax reforms results in Michigan businesses paying higher state taxes, effectively amounting to more than a $2 billion tax increase on businesses over the next five fiscal years.

• Lost Investment Incentives: By separating, or decoupling, state taxes from federal policy, the state essentially blocked its companies from realizing the full benefits of federal tax cuts designed to spur economic activity. These federal tax policy changes were intended to enable companies to support and plan for R&D and equipment investments, helping them to hire more workers, raise wages, and reshore jobs.

• Competitive Disadvantage: Historically, Michigan has aligned with federal tax policy changes. Now, businesses of all sizes will face increased taxes and administrative complexities that competitors in other states will not. As other states make it cheaper to invest, produce, and sell, Michigan loses.

• Stacked Cards: The business community has warned that this action comes at a time when Michigan companies are already facing disproportionate levels of uncertainty from tariffs and supply chain threats, along with having higher unemployment and lower educational outcomes than its peer states.

Detrimental Cuts and Program Eliminations 

Due to the change in revenue the state is experiencing as a result of the One Big Beautiful Bill Act, several key economic programs have been cut or eliminated to free up state dollars. 

• Economic Development Fund Cut: The Business Attraction and Community Revitalization line item was cut by more than $40 million.

• Incentive Tools Reduced: Strategic incentive placeholders tied to the Strategic Outreach and Attraction Reserve (SOAR) Fund were eliminated.

• Going PRO Talent Fund: The Going PRO Talent Fund, essential for business-led training and upskilling, faced a net reduction of $22.9 million and had the remaining funding shifted entirely to unreliable one-time appropriations.
• Workforce Education Initiatives: Several programs that directly support the talent pipeline and teacher recruitment were cut.

Education and Workforce Investment 

• Foundation Allowance Increase: The budget increases the target foundation allowance by 4.6% (over $400 per pupil) to $10,050 per pupil. Cyber charter school foundations were also increased to 100% of the target allowance. 

• Career and Technical Education (CTE) Funding: CTE funding was increased through several channels. This includes a 4.6% weighted funding increase of $2.2 million for ongoing programs and, most notably, a new $70 million one-time appropriation for “CTE Pathways to Success” to add and expand programs in areas of the state that lack them. 

• Small Class Sizes (K-3): The budget includes a new $65 million competitive grant program specifically for districts to reduce class sizes in grades K through 3. Additionally, the rules for at-risk funding were changed to allow any district to use up to 30% of those funds for class size reduction. 

• Literacy Program Funding: The budget included $70 million for one-time literacy supports, $42 million for literacy coaches, and $10 million for LETRS professional learning, totaling $122 million. 

• FAFSA Completion: Funding was retained at $10 million to support FAFSA completion initiatives. 

• Advanced Placement (AP) Incentive Program: Funding increased to $2.6 million, representing a $1.4 million increase over the previous year’s funding of $1.2 million. 

Positive Adjustments: Infrastructure and Public Safety

Despite the tax hike on businesses, the revenue generated was channeled into key government priorities, including:

• Road Funding: The Legislature and Governor ultimately finalized a Transportation Funding Package allocating an estimated $1.5 billion in new funds toward road and bridge construction.

• Public Safety Grants: The budget includes $70 million in state-restricted revenue for Public Safety Revenue Sharing Grants for counties and cities/villages, along with $25 million in restricted revenue for Public Safety Constituency Grants targeted at local prosecutors and firefighters.

• K-12 Education: The School Aid budget also benefited from the new revenue, which helped fund a 4.6% increase to the Foundation Allowance and a 25% increase for At-Risk pupils.

The business community has made it clear: while a balanced budget is necessary, imposing a massive tax increase on Michigan businesses to fund essential government operations undercuts their ability to innovate and compete and is a strategic failure that makes Michigan less attractive for future investment.