Lansing — Michigan Gov. Gretchen Whitmer is expected to propose a long-term road funding plan next week that includes an increase in the 6% corporate income tax, according to three sources with knowledge of the strategy that’s been floated privately by Democrats.
The sources requested anonymity to discuss the plan because they weren’t authorized to speak publicly about it. However, they described an approach that would effectively shift revenue from the 6% sales tax on gasoline to roads and replace the roughly $700 million that flows through the tax on fuel to schools by bumping up the corporate income tax and directing the money to the education budget.
A 1.5 percentage point increase in the corporate income tax rate, moving it from 6% to 7.5%, would produce about $600 million in new revenue next year, according to an analysis of past projections from the nonpartisan House Fiscal Agency.
The budget proposal for Fiscal Year 2026 that Whitmer’s team laid out Wednesday didn’t include a significant financial increase for road projects, essentially holding the state Department of Transportation’s annual funding steady at about $6.8 billion.
“I don’t want to get ahead of the governor’s proposal,” Whitmer’s state budget director, Jen Flood, said Wednesday. “She’s long been a champion for fixing the damn roads, and we’re going to see a proposal next week on a long-term road funding plan.
“Residents expect leaders in Lansing to find a solution to this problem, and we look forward to getting it done,” Flood added.
A spokesman for Whitmer, a second-term Democratic governor who campaigned for office in 2018 with the slogan of “fix the damn roads,” didn’t respond to a request Friday for comment about the expected plan.
Leaders of business advocacy organizations in Lansing were gearing up for a fight over the road proposal on Friday with most of them telling The Detroit News they expected Whitmer’s upcoming road plan to focus on the corporate income tax. The CIT is paid by C corporations and entities taxed as corporations federally.
Brian Calley, the president of the Small Business Association of Michigan, said 87% of those that would be affected by a potential CIT increase have fewer than 100 employees.
“They are the backbone of the Michigan economy,” said Calley, a Republican former lieutenant governor. “Michigan should be sending them a thank you note, not an increased tax bill.”
There are limited sources of revenues that produce the amounts of money that Whitmer’s team has sought for road projects. And the governor has also prioritized lowering costs for Michigan residents, meaning increasing taxes that would be paid directly by individuals appeared unlikely.
Search for a solution
In a speech on Jan. 15, Whitmer made a renewed call for action to improve Michigan’s roads, contending the state was facing a “major funding cliff.” At the time, the governor said she was seeking a compromise with a politically divided Legislature — Republicans have a 58-52 majority in the House, while Democrats hold a narrow 19-18 majority in the Senate with one vacancy.
“We’re going to have to probably make some cuts,” Whitmer said. “We’re probably going to have to find some revenue that makes some sense for us.”
In 2019, her first year in the state’s top office, Whitmer proposed a 45-cent gas tax increase to boost road funding. However, the plan met immediate resistance and died in a Republican-controlled Legislature.
In 2020, the Whitmer administration, without needing the approval of the Legislature, issued $3.5 billion in bonds for road construction projects under a four-year program labeled “Rebuilding Michigan.” The bonding program was limited to fixing state-owned roads like highways, including the widening of Interstate 96 in western Oakland County, rebuilding I-696 in Oakland County and reconstructing 24 miles of I-275 in western Wayne County.
But now, with that program coming to an end, the state is facing continued payments toward outstanding debt — $340 million this year — and questions about how to pay for additional improvements. Over the life of the latest round of bonds, Michigan will pay $2.5 billion in interest on top of the $3.5 billion borrowed, according to the Michigan Department of Transportation.
A 2023 report from the Growing Michigan Together Council, which Whitmer launched to find ways to increase the state’s population, said the state was facing a transportation network funding deficit of about $3.9 billion annually.
“If we remain at current rates of investment, by 2036, our state will have less than 40% of roads in good or fair condition,” the council’s report said.
A ‘fairly’ volatile revenue source
In 2024, state Rep. Alabas Farhat, D-Dearborn, proposed a bill that would have increased the state’s corporate income tax from 6% to 8.5%. The money generated from the increase in the rate would have been directed to the School Aid Fund in order to backfill gas tax revenue moved to roads.
Farhat’s bill could be a model for the upcoming plan expected from Whitmer’s administration.
Tax revenue from the corporate income tax has shown some “volatility” over the years, budgets experts said last month.
Experts from the state House and Senate fiscal agencies and the State Budget Office told lawmakers last month they estimated the 2024 fiscal year total corporate income tax revenue to be about $2.17 billion.
The House Fiscal Agency estimated the corporate income tax revenue would grow to $2.2 billion in the 2025 fiscal year, to $2.25 billion in fiscal year 2026 and to $2.28 billion in 2027.
Benjamin Gielczyk, associate director for the House Fiscal Agency, said last month that the 2025 fiscal year tax revenue had declined by roughly 2.2% after “three years of double-digit growth coming out of the pandemic” and despite “fairly strong topline economic growth and market performance.”
“Since its inception in 2012, it has shown fairly significant volatility, making it a tax that has been difficult to forecast,” Gielczyk said.
Michigan’s 6% corporate income tax rate ranks No. 26 in the country for total tax burden for corporations, according to the Tax Foundation. Other businesses, such as limited liability companies and S corporations, are considered pass-through entities, and their owners pay the 4.25% individual income tax on profits.
Michigan House Speaker Matt Hall, R-Richland Township, has proposed a road funding plan that would shift $3.1 billion in current revenues to roads, including the sales tax revenue on gas that currently goes to schools.
For the past decade, a succession of Republican legislative leaders have failed to remove the 6% sales tax on gasoline, which doesn’t go to roads, and raise the per-gallon gas tax by an equivalent amount so all taxes paid at the pump are dedicated to roads.
Under Hall’s plan, among the dollars moved to roads would be $500 million in annual incentives for large economic development project.
On Thursday, Hall said he would be open to raising the 6% corporate income tax rate if it’s needed to continue funding corporate incentives moving forward, arguing that big businesses — not the everyday taxpayer — should be bankrolling the incentives program.
“As part of the solution to fund incentives for the corporations, I would say, if they want more incentives, they should pay for them,” Hall said.
Overseas trip planned
Whitmer’s presentation is expected to take place Monday. She’s been planning to travel to the United Arab Emirates next week, according to three sources familiar with the plan.
The trip is scheduled to include meetings in Dubai and attendance at a defense contractor conference in Abu Dhabi, according to Ahmad Chebbani, chairman for the American Arab Chamber of Commerce. Chebbani said the chamber was asked to help set up meetings for her visit.
“We are very honored that she would ask, and we plan to participate,” Chebbani said.
The Whitmer administration didn’t confirm the trip on Friday.
cmauger@detroitnews.com
eleblanc@detroitnews.com
Politics Editor Chad Livengood contributed.
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