Michigan Senate Democrats are proposing a new top income tax rate of 9.25% for high-earners after a ballot initiative seeking higher taxes failed to gain required support, according to a new report from Americans for Tax Reform. State Senator Stephanie Chang and State Representative Tonya Myers Phillips have introduced the so-called Fair Share "Surcharge," which would apply to households with annual income exceeding $500,000 and married couples with taxable income above $1 million. The proposal would make Michigan the second-highest taxed state in the region, trailing only Minnesota's 9.85% top rate.
The report highlights stark regional contrasts, with neighboring Indiana and Ohio cutting rates to 2.95% and 2.75% respectively. Michigan has already lost nearly 47,000 residents, including nearly 4,900 high-income earners who accounted for an estimated $2.5 billion of roughly $5 billion in lost income—more than half the total despite representing a small fraction of those who left. California, with its 13.3% income tax rate, lost 1.2 million residents, including 237,000 high-income residents, resulting in $94 billion in lost income, $60 billion of which came from high earners alone. The push for the surcharge is backed by a coalition including Invest in Michigan Kids, the Michigan League for Public Policy, Detroit Action, 482Forward, Rising Voices, MI United, AFT Michigan, the Michigan PTA, and the Michigan Education Justice Coalition, despite Michigan operating on an approximately $85 billion annual budget.
The report argues that the proposal is "based on the flawed assumption that high-income taxpayers will simply absorb higher taxes rather than relocate to lower-tax states where they can keep more of what they earn." According to the report, "states with traditionally high tax rates suffer population and income loss from wealthy residents' migration, even without targeted efforts to single-out high-earners." The authors write that "raising tax rates on job creators discourages investment and economic growth while encouraging them to move to lower-tax states" and causes greater revenue volatility by creating increased dependence on a small number of taxpayers.
The report explains that high income taxes affect more than just millionaires—small business owners filing through the individual income tax code, manufacturers, and family-owned businesses bear the brunt of rate increases. The authors warn that creating a new top tax rate would "only accelerate" Michigan's outmigration trend, driving away taxpayers who disproportionately contribute to the state's tax base. While high-income earners represent a small portion of Michigan's population loss, they account for a majority of lost income, demonstrating the outsize fiscal impact of their departure. Higher tax rates have what the report calls "a consistent record of causing significant losses of revenue," creating a cycle where states raise rates to generate revenue but instead accelerate the exit of the very taxpayers they're counting on.
The report concludes that Michigan lawmakers should reject the proposal and focus instead on creating an economic environment that attracts investment and entrepreneurship. With states across the Midwest cutting tax rates to compete for residents and businesses, raising Michigan's income tax rate would move the state in the opposite direction, making it harder to remain competitive. The authors warn that punishing high-income earners with higher taxes is "a recipe for slowed economic growth, greater revenue volatility, and continued and expanded outmigration." Michigan simply can't afford to make itself less competitive when neighboring states are actively wooing taxpayers and businesses with lower rates.