Ohio stands to benefit as the two states continue on diverging policy paths.
Ohio stands to benefit as the two states continue on diverging policy paths.
M ichigan and Ohio are pursuing divergent economic-policy paths, highlighting the evolving competitive landscape between the rival neighbors.
While the Wolverines have recently held the advantage in the gridiron rivalry, it’s hard to deny that Buckeye lawmakers are outcoaching their Michigan counterparts in developing a state game plan for economic competitiveness.
In early March, Michigan officials argued in court for higher state income taxes. This move provided an opportunity for Ohio lawmakers to underscore their contrasting policy direction. While Michigan’s leadership is embroiled in legal battles to impose income-tax hikes, Ohio is formulating a comprehensive, long-term strategy aimed at abolishing the state’s income tax altogether.
A three-judge panel with Michigan’s Court of Appeals sided with Governor Gretchen Whitmer on March 7, invalidating an effort to make permanent a 2023 income-tax cut. The 2023 cut had lowered Michigan’s tax rate from 4.25 percent to 4.05 percent.
Ohio’s tax rate also changed on January 1, but in the opposite direction. The Buckeye State’s top rate dropped from 3.99 percent to 3.5 percent, thanks to a 2023 tax-reform law.
For the first time in decades, Michigan’s government has turned as blue as the Wolverines’ uniforms, with progressives controlling the governorship, both chambers of the legislature, and the offices of the attorney general and the treasurer. In contrast, Ohio’s politics increasingly reflect the Buckeyes’ scarlet hues.
The two industrial powerhouses have competed since the bloodless “Toledo War” of 1836, when Ohio and Michigan militias were marched to opposite sides of the Maumee River to lay claim to the Toledo strip. Since then, the interstate rivalry has evolved to include an annual college-football matchup and ongoing economic competition.
Twenty years ago, Michigan had a flat income tax of 3.9 percent, while Ohio’s progressive tax structure had nine different tax rates topping out at 7.5 percent of income. Today, Michigan’s tax is 4.25 percent, while Ohio has a simplified two-rate structure of 2.75 percent and 3.5 percent. Standing still means you’re falling behind in today’s hypercompetitive interstate policy contest.
Expect more progress from the Buckeye State, says Rea Hederman, the vice president of policy at the Buckeye Institute. Hederman told me that “for the last decade, Ohio policy-makers have steadily reformed the state income tax to boost economic growth.” And the Buckeyes plan to keep moving forward. “We are not done yet, as Ohio legislators are now looking at business- and property-tax relief along with new spending restraints.”
Michigan lawmakers, on the other hand, have reversed course after a decade of policy and economic progress. Pro-union legislation enacted in March 2023 unwound Michigan’s landmark right-to-work law, which was originally enacted in 2012. Effective February 2024, Michigan workers once again have to pay labor unions just to keep their jobs, reducing individual freedom and hitting the labor flexibility of auto manufacturers operating in a highly competitive global marketplace that is made trickier still by the arrival of electric vehicles. While Michigan picked up 160,000 factory jobs in the decade before Governor Whitmer took office, the Wolverine State has lost 20,000 factory jobs over her tenure.
Michigan’s loss of manufacturing jobs cannot be attributed solely to a political change, but a jobs downturn is a sign that the state needs to be more competitive, not less. And Lansing’s new progressive consensus means a less competitive state.
The Mackinac Center’s Mike LaFaive believes Michigan needs to pivot back to competitiveness. LaFaive told me that “lawmakers canceled a previously scheduled income-tax cut, now require compulsory payments by workers to unions, and are looking at new ways to regulate businesses.” LaFaive, who helms Mackinac’s fiscal-policy initiatives, argues for a turnaround. “Michigan policy-makers need to do an about-face. The sister states with whom we compete are becoming more appealing to investors, business, and families with each passing year.”
Football fans know Michigan has recaptured the high ground in the Ohio State–Michigan football rivalry. Yet even as the gridiron balance has tipped in Michigan’s favor, the economic competition increasingly favors Ohio.
State economies aren’t simply about statutory policies, just like football isn’t simply about X’s and O’s on a clipboard. But a look at the policy plans laid out in Lansing and Columbus makes it hard to deny the reality that Ohio is outcoaching Michigan in advancing a plan for prosperity. The Buckeye State stands to benefit as the two states continue on diverging policy paths.