Trump tariffs prompt nearly $1B reduction in state of Michigan revenue projection
LANSING — The Senate Fiscal Agency is revising state revenue forecasts downward by close to $1 billion, citing tariffs and economic uncertainty, and says the 2026 budget recently passed by the Senate would leave state government in a deficit.
"Generally, employment growth is expected to be slower and inflation is expected to be higher than was predicted in January 2025," when state officials last made projections on state revenues, the May 15 report said.
The forecast, one of three state reports that officials will consider May 16 when they meet at the Capitol to reach a consensus on how much tax revenue the state can expect to collect over the next three years, projects slowing national growth, with Michigan's economy growing more slowly than the nation as a whole.
Economic uncertainty slows growth and shifting federal policies related to tariffs, spending cuts and layoffs have elevated that uncertainty to the highest level on record, the report said.
The report projects that combined general fund and School Aid Fund revenues for the 2025 fiscal year will be $393 million lower than what forecasters projected just four months ago and $561 million lower for 2026.
If the 2026 budget the Senate passed on May 14 were to become law, it would leave the state's general fund with a $969 million deficit, the report said.
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"A budget cannot be enacted with an estimated negative balance," the report said.
The state's financial picture has eroded considerably since January 2023, when the state was sitting on a $9.2-billion budget surplus. Even as recently as this January, forecasts showed Michigan government still flush with cash.
The approval of a budget by the Senate is only one step in finalizing a budget for the 2026 fiscal year that begins Oct. 1. The House is expected to pass its own version of the budget, after which the two chambers and Gov. Gretchen Whitmer are expected to reach a consensus on a budget that can pass both chambers in identical form and be signed by the governor.
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Unemployment in Michigan, which increased to 4.7% in 2024, is expected to increase to 5.6% in 2025 and 6.3% in 2026, the report says. Michigan's Inflation-adjusted income, which rose 1.4% in 2024, is expected to rise 1.2% in 2025 and decline 0.5% in 2026, the report says.
"Uncertainty and transition currently dominate the economy," the report said. "Even as the economy remains in a post-COVID-19 transition, especially with respect to issues related to savings and wealth, consumption choices, and labor supply and demand, changes in federal fiscal policy have introduced additional sources of uncertainty and transition."
Light vehicle sales, which totaled 15.9 million units in 2024, are expected to total 15.5 million units in 2025, declining to 14.4 million units in 2026 and 2027. By comparison, light vehicle sales averaged 17.1 million units annually between 2014 and 2019, the report said.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com.
This article originally appeared on Detroit Free Press: Trump tariffs prompt nearly $1B reduction in state revenue projection
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