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New Proposals Threaten Michigan’s Small Businesses

June 30, 2025

There are two new threats to small business owners on the horizon as out-of-state special interest groups continue their assault on the business climate in Michigan. These threats come in the form of petition referendums that could place proposals on the ballot in 2026, which would be damaging to small businesses.  

As usual, SBAM goes to work whenever and wherever you need us. In this case, we led a coalition of business associations in negotiating changes to petition language. We were successful in removing or modifying some of the most obnoxiously prejudicial descriptions of the proposals that would appear on the petition forms. But all that does is ensure petition signers have more neutral descriptions of the proposals. It does not change how damaging these proposals would be if they were to be adopted by voters in 2026. 

Graduated Income Tax 

The first is a constitutional amendment to permanently increase income taxes. Here are the lowlights of this proposal: 

  1. Add a permanent graduated income tax into the constitution, increasing taxes on income over $500,000 for single filers and $1,000,000 for joint filers, from 4.25% to 9.25%. While thousands of small businesses will be subjected to this tax increase, large publicly traded companies will stay at their current lower rate of 6%. 
  1. “Abrogate” the current constitutional ban on graduated income taxes. “Abrogate” is a fancy word that means repeal. This opens more small businesses up for the old “bait and switch.”  The legislature would be free to later expand the income thresholds to apply to more small businesses. 
  1. Deposit the revenue generated through these new taxes into the School Aid Fund. The wording in the proposal is quite poorly drafted, and the limits on the use of funds are far from clear. But what is clear is that there’s no requirement that the money be distributed evenly or fairly to benefit all students. Nor is there any expectation established regarding student outcomes.  

This is a classic move by proponents of this constitutional amendment to manufacture a schools vs. businesses conflict. This is truly ironic as we at SBAM, along with many others in the businesses community, have advocated strongly for improved schools, including the establishment of the Michigan Education Guarantee and a school reform agenda that explicitly includes increasing funding and well-defined student achievement outcomes.

Important Factors to Consider

The income thresholds will seem large to many people. But there are three important factors to consider here: 

  1. Most small business income is taxed at the individual level (Sole Proprietors, LLCs, S Corps, Partnerships). The income of thousands of small businesses will be subject to this tax increase, while large, publicly traded corporations are not impacted at all. 
  1. Growing small businesses often must leave profits in the business to cover cash flow, capital, and growth needs. It is quite rare for the profits of the business to exactly match the actual amount the owner takes. This tax will require business owners to distribute the cash of the business to pay higher taxes, restricting their ability to fund wages and benefit increases, new hires, and business expansions.  
  1. This is just the starting point. Since this constitutional amendment “abrogates” the ban on graduated income taxes, the legislature will be free to expand new graduated income taxes to more small business owners in the future.  

In recent years, state government has made owning and operating a small business more and more expensive. Enough is enough! This proposed constitutional amendment is poorly written and ill-conceived. It should be rejected.  

Repeal Public Act 1 of 2025 

The second petition that will start circulating for signatures soon is a repeal of the bipartisan law passed earlier this year to increase the minimum wage while preserving the tipped wage system in bars and restaurants. 

It is difficult to understand what the proponents of this referendum are thinking. The practical impact of the repeal of PA 1 of 2025 is that the regular minimum wage would be lowered, and the tipped wage system would be eliminated. Consider these points: 

  1. The elimination of the tipped wage system is an existential threat to many restaurants and bars. We know from the experience in other jurisdictions where this has been implemented that thousands would go out of business. 
  1. The regular minimum wage would literally decrease and revert to a set schedule created by the Supreme Court in 2024. 
  1. Restaurant and bar workers would end up with fewer jobs and lower pay. 

This is yet another example of an out-of-state special interest group parachuting into Michigan and trying to impose their values on our people. The best thing to do here is to stand with restaurant and bar owners and employees and reject this proposal. 

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