- Gov. Gretchen Whitmer wants to implement five new taxes to fund Michigan’s Medicaid program amid declining federal funding
- The proposed taxes would target digital ads, nicotine products and sports betting
- Republican leaders in the Legislature quickly call the tax hike proposal a nonstarter
LANSING — Citing a looming funding shortfall for Medicaid health insurance, Democratic Gov. Gretchen Whitmer is proposing nearly $800 million in new taxes — along with some spending cuts — to close the gap.
But the six tax proposals outlined in a budget proposal released Wednesday were met by immediate opposition from Republicans who control the state House, meaning the plan faces long odds.
The funding gap identified by the Whitmer administration emerged from President Donald Trump’s “big, beautiful” tax and spending law, which endangered the tax Michigan levies on insurance providers.
To “ensure long-term sustainability” of the publicly funded health insurance program, Whitmer is proposing:
- A new 4.7% tax on digital ads served in Michigan, estimated to generate $282 million a year
- An increase in the wholesale taxes on cigarettes of $1 per pack, from $2 to $3, raising an estimated $232 million
- An 8 percentage point tax increase on online casino gambling revenue above $185 million, bringing in an estimated $136 million
- A new 57% wholesale tax on vapes and other nicotine-delivery products like Zyn, which currently are not taxed, to raise an estimated $95 million
- A new per-wager tax on sports betting that would be 25 cents for a gambling platform’s first 20 million wagers per year, then 50 cents for each bet above that. It is estimated to raise $39 million
Whitmer also wants to stop allowing sports betting houses to deduct free promotional bets from their taxes, generating $21 million
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The state must “explore new and innovative solutions to ensure the long-term sustainability of the Michigan Medicaid Program for the one in four Michiganders who rely on it,” the Whitmer administration said in a policy outline.
Republican lawmakers aren’t on board. “We’re not going to do any of that,” House Speaker Matt Hall said at a press conference Wednesday.
“There will be no tax increases in this budget when we do this deal,” added Hall, R-Richland Township. “Instead, we’re going to have to live within our means, just like the people of Michigan do when they have increased expenses.”
Several of Whitmer’s proposals aren’t new. She had called for new taxes on nicotine products as well as on digital ads in last year’s budget recommendation, with the latter pitched as a means to fund road repairs.
Whitmer also proposed nicotine-related taxes last year to fund “smoking and cancer prevention, youth mental health and physical health and access to health care.” Now, a little more than $21 million of the $232 million would go to those health-related efforts, and the rest to fund Medicaid.
Some Democrats were also skeptical that Whitmer’s new tax proposal has any shot in the Legislature, with state Sen. Veronica Klinefelt of Eastpointe asking if the administration has a “plan B” for Medicaid.
“Every single one” of the tax proposals were discussed during last year’s road funding debate, “and they went nowhere,” Klinefelt said. “So I don’t have a lot of optimism on where they’re going to go.”
Medicaid in Michigan
The stakes are high in Michigan, where Medicaid provides health insurance to more than 2.6 million people, primarily with lower-than-average incomes.
Michigan will have to find a way to sustain funding for Medicaid or reduce coverage, restrict benefits or lower the amount paid to health care providers.
“States across the country are cutting the rates paid to health care providers,” said state budget director Jen Flood. “That’s not an approach we’re taking with this budget.”
Kyle Guerrant, the outgoing deputy state budget director, said the change from federal legislation “puts immediate pressure on the same limited pool of general fund resources to support our broader priorities,” meaning that without additional revenue, cuts would have to take place elsewhere.
The most recent state budget brought some changes aimed at maintaining current Medicaid spending over the next year, but long-term funding to cover the shortfall remains largely unknown.
One aspect of the plan to fully fund Medicaid was left relatively vague: pledging the state Department of Health and Human Services could achieve $150 million in annual “efficiency savings by developing a menu of options, in collaboration with key stakeholders, to ensure Medicaid services are sustainable into the future,” according to budget documents.
State Budget Director Jen Flood said 200,000 Michiganders could lose health care coverage due to Trump’s tax-and-spend law even with the funding gap bridged. A Congressional Budget Office report released Wednesday said the federal legislation will also increase federal debt by $4.7 trillion over the next decade, a significant increase over a prior $3.4-trillion estimate.
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