Michigan Governor Gretchen Whitmer has proposed three gambling tax increases as part of an $800 million revenue package aimed at stabilizing Medicaid funding, setting up what is likely to be a contentious debate in the state Legislature.

Released Wednesday, Whitmer’s budget proposal includes changes to sports betting and online casino tax structures that state officials estimate could generate nearly $200 million annually. The measures come as states across the country weigh new gaming-related taxes to address budget shortfalls and offset reductions in federal support. At the center of the proposal is a per-wager fee on sports betting, modeled after a structure adopted in Illinois last year. Under Whitmer’s plan, sportsbooks would pay 25 cents on each of their first 20 million bets annually and 50 cents on each wager thereafter. The administration projects the fee could raise up to $39 million per year.

If enacted, Michigan would become just the second state to implement a per-bet tax.

Illinois lawmakers approved a similar per-bet fee in 2024 after shifting from a flat 15% tax on sports betting revenue to a tiered structure ranging from 20% to 40%, depending on operator revenue. The per-wager fee marked the first of its kind in the United States.

In response, several sportsbook operators in Illinois introduced transaction fees and other adjustments to offset the added costs. Data from the Illinois Gaming Board show that bettors placed 15% fewer wagers year-over-year after the per-bet fee took effect.

The Illinois experience has prompted some lawmakers there to reconsider the approach. Earlier this month, Rep. Daniel Didech, chair of the Illinois House Gaming Committee, introduced HB 5143, a bill that would eliminate the per-bet fee. Other state officials have cautioned against aggressive tax increases. Speaking at the National Council of Legislators from Gaming States meeting in December, Illinois Rep. Jehan Gordon-Booth warned that higher taxes may not yield the anticipated revenue.

“Lawmakers need to understand, what you think you’re going to get from raising taxes, you’re not going to get,” Gordon-Booth said. “We want this industry to continue to strike the right balance. This will be a problem in budgets for the foreseeable few years. I don’t want to see us continue to deteriorate the industry.”

Louisiana Gaming Control Board Chairman Christopher Hebert echoed similar concerns at the conference, noting that excessive tax burdens could prompt operators to reconsider their presence in certain markets. Louisiana was among several states that increased gaming taxes last year.

Broader Tax Changes

In addition to the per-bet fee, Whitmer’s proposal would increase the tax rate on online casino revenue above $185 million. Operators currently pay 28% on online casino revenue; under the plan, revenue above the $185 million threshold would be taxed at 36%. The administration estimates the change could generate up to $136 million annually.

The governor also proposed eliminating promotional deductions for sportsbooks, a move projected to bring in an additional $21 million per year.

Combined, the three measures would contribute nearly $200 million toward Medicaid stabilization, according to budget estimates. Whitmer, a Democrat, faces immediate opposition from Republicans, who control the Michigan House of Representatives. House Speaker Matt Hall rejected the proposed tax increases at a press conference.

“We’re not going to do any of that,” Hall said. “There will be no tax increases in this budget when we do this deal.” The partisan divide suggests the gambling tax provisions may face an uphill path during budget negotiations.

Lawmakers need to understand, what you think you’re going to get from raising taxes, you’re not going to get. We want this industry to continue to strike the right balance.

A National Trend

Michigan’s proposal comes amid a broader national debate over gaming taxes. Last month, Arizona Governor Katie Hobbs introduced a significant sports betting tax increase in her state budget proposal. In West Virginia, lawmakers have introduced legislation to raise the sports betting tax rate from 10% to 25%.

Industry sources have indicated that additional gaming tax proposals are likely this legislative session as states seek to close funding gaps created by reductions in federal assistance.

Whether Michigan lawmakers follow Illinois in adopting a per-bet fee — or heed warnings from other states about potential unintended consequences — will likely shape both the state’s budget negotiations and the future trajectory of its gaming industry.