Everybody knows that the increase in taxes on cannabis will only drive more customers to the black market. This will lead to businesses failing, job losses and lower tax revenues.
By Jordyn Hermani, Bridge Michigan
Bridge Michigan is a nonpartisan and nonprofit news organisation that originally published this article. Sign up here for the free Bridge Michigan Newsletter to receive regular Bridge Michigan coverage.
The Michigan House passed a plan late on Thursday to increase marijuana taxes in order to fund road repairs. This was part of a framework that officials described as a larger budget agreement for the state.
A proposed Comprehensive Road Funding Tax Act, which would take effect in January 2019, would tax marijuana at a rate of 24 percent based on its wholesale price.
According to nonpartisan House Fiscal Agency, this would bring in an estimated $420,000,000 a year. The proposed Comprehensive Road Funding Tax Act will fund a Neighborhood Road Fund to build local roads and bridges.
In a vote taken just hours after its unveiling, the pot tax was approved by the Republican-controlled House with bipartisan backing. Ten Republicans and eleven Democrats opposed it. Now it will be considered by the Democratically led Senate.
A separate bill approved Thursday—and tied to the pot tax proposal—would extend new federal income tax exemptions on tips and overtime pay to state filers for three years. The fiscal agency estimates that this bill would cost the state $150,000,000 annually in 2026-2028 but benefit workers who qualify.
These votes were made just before the Governor. Gretchen Whitmer and Senate Democratic leader Winnie Brinks announced an agreement framework to help pass the budget prior to a possible shutdown of government next week.
According to Hall of the R-Richland Township, this plan will provide annual funding between $1.5 and $1.8 billion.
Full plan may also include business incentive funds redirected, and a switch in the sales tax for gas that ensures all taxes motorists pay are used to repair roads.
“There’s still a lot of work to do here over the next few days to work out details, but this large framework…is putting us on that path to get this thing done on time,” Hall said of the larger state budget.
Industry groups warn that the 24 percent proposed wholesale marijuana tax is still higher than Whitmer’s original 32 percent proposal in her road plan.
Robin Schneider, Director of the Michigan Cannabis Industry Association said: “Everyone is aware that an increase in taxes on cannabis will drive customers back into the illegal market.”
This means that businesses will fail, there will be job losses and a decrease in tax revenues.
Michigan’s recreational marijuana law, approved in 2018, includes an additional 10% tax on retail sales in addition to the 6% state sales tax.
Schneider says that margins in Michigan’s marijuana industry are already very thin, and adding taxes to the mix could lead to price increases which will discourage border state residents who come here from purchasing.
But the Republican-led House has backed it with bipartisan approval.
Alabas Farhat of Dearborn told reporters that the billboards along Michigan’s highways don’t show marijuana businesses “doing quite as poorly as they think they are”.
He said that Michiganders deserve “high-quality roads they can depend on.”
Hall was more sympathetic, though, to the concerns of industry surrounding Whitmer’s 24% wholesale tax. He said that Republicans had been able to convince Whitmer to lower her initial proposed tax rate from 32%, which Republicans thought to be “too much.”
House approved also two other bills tied to the Road Funding Plan and the larger State Budget Debate.
One could allow Michigan to continue a Medicaid provider tax—if the Whitmer administration secures a federal waiver—otherwise in jeopardy because of President Donald Trump’s “big beautiful” tax-and-spending cut law.
Another would exempt overtime and tips from state income taxes. The bill would “decouple’ a few state income taxes from federal ones to prevent any state revenue loss due to the Trump law.
These bills were passed by the House of Representatives 95 to 4 votes.
A fourth bill—part of a larger House Republican roads package which passed the chamber in March—is also tied to the package but could be changed by the Senate before final passage.
There is less than a week left until October 1, the constitutional deadline for when the state must have a balanced budget signed into law—or face a government shutdown.
This article first appeared on Bridge Michigan and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
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