Ballot Proposal Will Undermine Michigan’s Most Successful Small Businesses

A new ballot initiative was recently launched in Michigan that has the potential to deal a significant blow to small businesses across the state. This initiative is called “Invest in MI Kids,” but ironically, it will most certainly result in disinvestment in Michigan.  It proposes a 5% “surcharge” on annual taxable income of more than $500,000 for single filers, and $1,000,000 for joint filers. While the proposal may use words like “surcharge” to try and disguise the intentions of this initiative, this initiative is an attempt to more than double Michigan’s top personal income tax rate from the current 4.25% to a staggering 9.25%.  

Proponents of this campaign argue that this proposed change is targeted at the state’s highest earners, but in reality, this campaign would hurt growth oriented small businesses the most. A majority of Michigan’s small businesses are organized as pass-through entities, meaning their business income is taxed on the owners’ personal return at the individual income tax rate. This initiative would significantly raise the tax rate on pass through income, even if the actual income distributions to the owner are much lower than the income thresholds in the proposal.  

Much of the time, net income of the business must stay in the business to go toward growth, equipment, benefit cost increases, and other obligations. This tax increase isn’t just for our state’s highest earners, it’s a penalty on small businesses which will doubtlessly reduce their ability to reinvest, grow their business, and to provide wages and benefits for their employees. 

Meanwhile, the stated targets of this tax increase – the top-earning individuals in the state – often have the mobility and flexibility to change residency to another state with a lower tax rate or no income tax at all. It certainly wouldn’t be hard to find another state with a lower tax rate, as this proposal would give Michigan the sixth-highest income tax rate anywhere in the country. Small businesses, who have built their companies and their lives here in Michigan, are invested in our state and are invested in their communities. Most small businesses cannot simply relocate to better conditions and will endure the brunt of these costly increases.  

Advocates for this initiative have launched a messaging campaign, claiming that this tax hike would raise an additional $1.7 billion annually for Michigan’s K-12 education system. I wouldn’t, because it will reduce job growth and chase away higher wage earners. 

This proposed ballot measure needs roughly 450,000 valid signatures to be placed on Michigan ballots next November, and if passed, would amend the state’s Constitution to include these harmful changes.  

Click here for more News & Resources.