A recession is looming. Michigan businesses may not be ready.


New business starts statewide hit a 14-year high in July 2020 and have since fallen, continuing to outperform the previous decade.

Putting in place stronger safety nets for small businesses this year could help more of them survive the uncertain economy, Dinaro said, especially since a start-up is the most vulnerable to closure in its first three years.

She said getting rid of sales tax for the early years of a small business would be “an easy win for policy makers”, as would lower licensing fees, such as for a sales tax license, to encourage more starts. State and local governments could also play a role by awarding contracts to more small businesses for projects fueled by federal infrastructure and other pandemic funding.

NEI is focusing its fundraising efforts on micro businesses with 10 or fewer employees and building more support networks for business owners like the one it started during COVID in Detroit. Both are helping the smaller of the startups, which Dinaro said could address an additional concern: that corporate equity and inclusion could be at stake during a recession.

“We already know that women and people of color who own businesses have a harder time accessing capital and have a harder time accessing resources…so they’re already at a disadvantage,” she said. “Adding a recession to that is going to be detrimental to some of these businesses.”

Peter Ruark, senior policy analyst at the Michigan League for Public Policy, which advocates for state-level social safety nets for residents, said residents could also benefit in a coming recession from changes Recent developments such as higher asset limits for the Supplemental Nutrition Assistance Program (SNAP) food benefit program that has made it more accessible to low-income residents and children, regardless of the extent of recession.

“Whether there’s a good economy or a bad economy, there are people who are going to be left behind,” Ruark said.

According to Ruark, one policy change that could benefit residents in a downturn is to increase the state’s Earned Income Tax Credit (EITC) from 6% to 30% for low-wage workers. The increased credit would return income taxes paid by the state to eligible workers.

Ruark also recommends updating state unemployment insurance policies to extend benefits to workers who lose their jobs due to economic conditions from 20 weeks to 26 weeks, while increasing the maximum benefit from its $362. current week, where she has been since 2002.

Many business groups support the EITC proposal as a way to get people back into the labor market. Democrats and Republicans in the Legislature have included raising the EITC to 20% in their tax relief proposals, though they continue to debate other aspects of how to return some of the tax. estimated $18 billion surplus over two years to residents.

Democrats back a $500 tax refund for families earning less than $250,000 a year, while Republicans want a broader $2.7 billion plan that would cut Michigan’s individual tax rate by 4.25% to 4%, which many small businesses pay.

It’s unclear, Ruark said, if there would be support for changes to unemployment, as the state continues to work through a state agency’s mismanagement of federal funds over the past 18 first months of the pandemic.

An encouraging sign for the state came in the first quarter of 2022, when gross domestic product declined in 46 states in the previous quarter. Michigan was one of only four states in which GDP – the value of all goods and services produced during the quarter – remained in positive territory, growing nearly flat at 0.1%, according to the Bureau of Economic Analysis.

But even that silver lining comes with a caveat: Michigan’s GDP, when adjusted for inflation, has remained essentially flat since 2000, while US growth over that period is 52%.

Anderson said Michigan continues to struggle with infrastructure upgrades — like road improvements, which affect major industries — that threaten its ability to compete in a downturn.

After the Great Recession, state estimates called for $2.6 billion a year in additional funding for roads to stem the deterioration. That level hasn’t been reached, billions in bonds, and Michigan’s roads are expected to be in worse shape by 2030 than they are today, according to the state’s Transportation Asset Management Council.

However, Governor Gretchen Whitmer skirted legislative hurdles by launching a $3.5 billion bond plan to repair state highways, and the state now has an additional $645 million from the bill. President Joe Biden’s $1 trillion infrastructure.

Anderson noted that Michigan still has strengths that can be touted to boost its chances of attracting jobs and workers during a downturn. It still compares well as a lifestyle choice, he said, citing Traverse City as an example.


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