New Report: ‘Invest in MI Kids’ Undercuts State’s Business Climate, Hurts Small Business 

• The “Invest in MI Kids” proposal would give Michigan one of the highest tax rates in the country. 

• Small businesses, not just high earners, would shoulder the burden. 

• This structural shift will damage Michigan’s competitiveness and will stifle efforts to drive economic growth. 

Michigan’s business community could be facing a pivotal moment if the proposed graduated income tax ballot measure, branded as “Invest in MI Kids,” gains enough signatures to move forward for voter consideration.  

While its supporters frame it as a surcharge on high earners to boost school funding, a new analysis from the Tax Foundation presents a sharply different reality. The findings signal serious economic ramifications for employers, small businesses, and the state’s long-term competitiveness.  

Here are three things to know about the proposed ballot initiative. 

At the core of the proposal is a 5% surtax on income above $500,000 for single filers and $1 million for joint filers. This would raise Michigan’s top income tax rate to 9.25%, surpassing most Midwestern states and placing Michigan closer to high-tax coastal states — a dramatic change for a state that currently operates under a constitutionally protected flat tax system, which is critical to its economic competitiveness.

The Tax Foundation projects that the consequences would be substantial:

• Wages would fall by roughly 1%

• An estimated 43,000 jobs would be eliminated

• Michigan’s economy would shrink by $8.5 billion

• Outmigration, especially among small business owners, would accelerate

Proponents’ claims that this is merely a school funding surcharge mask the reality that the measure effectively creates a graduated income tax system, which is currently prohibited under Michigan’s constitution, a point the Detroit Regional Chamber emphasizes as misleading and deeply concerning.

In 2023, there were over 900,000 small businesses in the state, representing 99.6% of the state’s total businesses and collectively employing almost half of the state’s workforce.

A related defining feature of Michigan’s economy is its abundance of pass-through businesses whose income flows directly onto owners’ individual tax returns. That means the surtax doesn’t just touch wealthy households; it directly hits job creators and entrepreneurial firms.

There are four types of pass-through businesses: sole proprietorships, partnerships, limited liability companies (LLCs), and S-corporations (S-corps). Regardless of type, any pass-through business owner with more than $500,000 in income (business and personal combined) would be subject to the new 9.25% income tax rate, as would joint filers with pass-through businesses making more than $1 million.

The numbers tell the story:

• Nearly 12% of Michigan partnerships and Scorps—about 28,750 firms—report income above $500,000.

• Many fall within the 150,000 small businesses with employees who would feel the tax increase most acutely.

As the Tax Foundation highlights, any tax policy that targets small businesses will affect residents throughout the state, whether they’re small business owners or employees.

The projected response from these small firms is troubling: reductions in hiring, slower wage growth, and cutbacks in investment. All told, the measure would be particularly hard for Michigan’s entrepreneurial ecosystem, which is critical to job creation and innovation and ensures that residents in every community in the state have the opportunity to operate or work at a successful small business if they so choose.

With Michigan already battling population loss and needing a more diversified economy, this proposal would push the state in the wrong economic direction, given its disproportionate risk to federal policies impacting trade with Canada, Mexico, and the automotive and mobility industry.

Creating long-term prosperity depends on many factors that the ballot proposal would negatively impact:

• Maintaining a stable, predictable tax environment

• Promoting a positive climate for business investment and expansion

• Ensuring transparent, accountable government spending rather than relying on punitive tax shifts

By adopting a 5% surtax and transitioning to a progressive income tax structure with a top rate of 9.25%, Michigan would immediately become an outlier regionally and nationally, according to the Tax Foundation analysis.

Currently, neighboring states Indiana and Ohio have flat individual income tax rates of 2.95% and 2.75%, respectively. Meanwhile, Michigan would join the ranks of states with the highest marginal income tax rates in the country, including California (13.3%), Hawaii (11.0%), New York (10.9%),  the District of Columbia (10.75%) New Jersey (10.75%), Oregon (9.9%), and Minnesota (9.85%).

The Chamber remains firmly opposed to the measure and is working with other major business organizations around the state to educate voters on the impacts of this ballot proposal.