Great Lakes Wire

A new ballot initiative in Michigan, titled "Invest in MI Kids," has been introduced, which could significantly impact small businesses across the state. The proposal suggests a 5% surcharge on annual taxable income exceeding $500,000 for single filers and $1,000,000 for joint filers. Critics argue that this measure is an attempt to more than double Michigan's top personal income tax rate from 4.25% to 9.25%.

Proponents of the initiative claim it targets the state's highest earners. However, opponents warn that growth-oriented small businesses would suffer most. Many small businesses in Michigan are organized as pass-through entities, meaning their business income is taxed at the individual income tax rate on owners' personal returns. This change would raise the tax rate on pass-through income significantly.

Business net income often remains within companies to support growth and cover costs such as equipment and benefits. Opponents believe this tax increase penalizes small businesses by reducing their ability to reinvest and provide wages and benefits.

The intended targets of this tax increase—top-earning individuals—often have the option to relocate to states with lower or no income taxes. The proposal would make Michigan's income tax rate the sixth-highest in the country. Small businesses rooted in Michigan may find it challenging to move and will bear these increased costs.

Supporters of the initiative assert that it could generate an additional $1.7 billion annually for Michigan’s K-12 education system. They need approximately 450,000 valid signatures for the measure to appear on next November's ballots; if approved, it would amend the state Constitution.