Budget Currently Being Hashed Out by Legislators to Decline by $1.1 Billion; OBBBA to Eat 40% of Expected General Fund Growth by FY2032

Livonia, MI, July 30, 2025 – The Citizens Research Council today released an analysis of the One Big Beautiful Bill Act (OBBBA), the massive federal legislation signed into law earlier this month that touches nearly every corner of the federal government. The analysis focuses on the likely short- and long-term impacts of OBBBA provisions on Michigan’s budget outlook.

Key provisions of OBBBA include the extension of the vast majority of tax cuts included in the Tax Cuts and Jobs Act of 2017 and an assortment of new – albeit temporary – tax relief provisions for tipped income, overtime pay earners, and senior citizens. Under Congressional rules, the legislation needed to identify significant federal spending reductions to offset the revenue loss attributed to the new tax policies as well as increased military and immigration enforcement spending.

OBBBA also achieves federal spending reductions through shifts in cost-sharing with states – provisions that will have significant impacts on state budgets going forward.

In contrast to much that has been written about the immediacy of certain tax benefits followed by the delay in programmatic cuts, the Research Council’s analysis shows the impact to the FY2026 Michigan budget currently being deliberated by state lawmakers is immediate:

• The OBBBA increases state cost-sharing within two major safety net programs – Medicaid and the Supplemental Nutrition Assistance Program.  The changes could increase Michigan’s spending on these programs by over $1 billion by FY2032.
• It also implements more favorable tax treatment of certain business expenditures under the federal corporate income tax – changes that will have ripple effects on Michigan’s corporate income tax collections, leading to large and immediate revenue declines ($677 million revenue reduction estimated for FY2026).
• These provisions mean the state will need to cut around $1.1 billion in General Fund/General Purpose appropriations from the FY2026 Executive Budget proposal. By FY2032, OBBBA’s provisions will absorb around 40 percent of expected General Fund revenue growth.

OBBBA State Budget Impacts on GF/GP Revenue and Spending

Sources: May 2025 Consensus Revenue Estimating Conference Executive Summary; House Fiscal Agency, Fiscal Brief: The One Big Beautiful Bill Act of 2025; Research Council analysis of Michigan Department of Health and Human Services, Executive Directive 2025-3 Report.

“For years since the onset of the COVID-19 pandemic, Michigan experienced an unexpected state revenue high driven largely by federal stimulus initiatives,” said Robert Schneider, senior research associate for state affairs and lead author of the report. “Even before OBBBA, it was evident that those days were coming to an end and state revenue growth was returning to pre-COVID trends.  With the enactment of the OBBBA, Michigan now faces an added budget challenge that will be particularly severe over the next few budget cycles. State lawmakers should get to work on developing a budget plan that considers these new realities.”

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Founded in 1916, the Citizens Research Council of Michigan works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, the Research Council aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.

Contact: Maureen McNulty Saxton

msaxton@crcmich.org

M: 517.899.5513

O: 517.485.9444

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