LANSING — Michigan’s short-term budget outlook became even rosier Friday, when economists revised projected tax revenues upward by a combined $5 billion over two years.

The new estimates will be used by Democratic Gov. Gretchen Whitmer and the Republican-led Legislature to finalize the next state spending plan. Both sides want to cut taxes but differ over how to do it.

Revenues in the school aid and general funds for the current fiscal year are $3 billion higher than the $28.5 billion forecast in January. For the 2022-23 budget year, they are up $2 billion from the $29.1 billion estimate four months ago.

The increases to what had already been rosy projections were attributed to record sales and income tax collections.

State Treasurer Rachael Eubanks said “there is a lot to be optimistic about” but cautioned about several issues “beyond our control on the horizon”: high inflation, geopolitical uncertainty over the Russia-Ukraine war, COVID-19, recession fears and supply-chain issues.

“We must be deliberative when choosing the best way to use our extra revenue because we just don’t know what the future may bring,” she told reporters.

Economists projected inflation, which has spiked to highs not seen in 40 years, to remain elevated through 2022 before tapering off until 2024.

Senate Appropriations Committee Chair Jim Stamas, a Midland Republican, said the rosy budget picture “is not reflective of the reality facing many Michigan families” who are paying more for gas, food and energy.

“As we work with the House and governor on a responsible and efficient fiscal year 2023 state budget, the Senate will continue to fight to return much of this substantial revenue surplus to the hardworking people of our state,” he said in a statement.

Michigan has recovered most of the jobs that were lost when the pandemic hit more than two years ago. Unemployment continues to decline. But the labor force participation rate remains lower and has been slow to increase.

New vehicle sales, a key for the auto-centric state, are projected to gradually rise to 17 million in 2024, which would match the year before the pandemic began. The Detroit Three’s share of sales, however, is estimated to continue falling to 37.6% in 2024 — down from 43.6% in 2015.