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The Michigan House Fiscal Agency is expecting a pending shortfall of $677 million stemming from recent federal tax code changes signed into law by President Trump as part of his One Big Beautiful Bill Act. This shortfall presents a significant new issue in finalizing the state budget as general fund revenue is already coming in slower than expected, creating additional uncertainty for schools as they await approval of the state School Aid Budget.  

The projected shortfall results from a more favorable tax treatment of certain business expenditures under the Federal Corporate Income Tax, according to the House Fiscal analysis. The reason this impacts state revenue is because Michigan’s Corporate Income Tax is tied to the Federal Corporate Income Tax base definition.  

Much of the anticipated revenue reduction comes from changes to what businesses can write off for domestic research and experimental spending. The One Big Beautiful Bill allows businesses to immediately deduct all domestic research and experimental expenses from income rather than spread these deductions over five years as was allowed previously. Additionally, some small businesses will be allowed to retroactively claim this deduction back to 2022.  

A second federal change allows businesses to immediately deduct expenditures for qualified production property used in manufacturing that is in service between now and 2031. Under prior law, these expenses would have depreciated for over 39.5 years. 

The House Fiscal Agency estimates the changes will result in $677 million in reduced state revenue during FY2026, with losses falling to $613 million in FY2027 and $444 million in FY2028. Eventually, these revenue losses will settle at around $50 million in FY2033. 

In addition, the Michigan House has prioritized funding a plan to fix the roads without raising taxes by setting aside existing dollars to pay for roads. To pay for their plan, the recently passed House higher education budget already took $1.2 billion from the school aid fund to free up general fund dollars.  

“With even less revenue expected, it is critical to protect school aid dollars, especially for those with the greatest needs,” said Jeff Cobb, director of government affairs for EdTrust-Midwest.